Colonial Rule and Its Effects on India's Rural Economy

Opium Dreams and Incomes

The British controlled the entire opium trade from 1797 onwards by monopolizing its production in Bengal Presidency, collecting fees from the Malwa opium- producing region and imposing excise taxes on domestic sales. Production and operations were controlled by agents who would advance funds to farmers, purchase the opium and sell the finished products to the East India Company which auctioned the entire production in Calcutta. Between 1790 and 1816, Bengal became the most efficient opium producing center. The opium producing region of Malwa was allowed to trade through Bombay on payment of huge fees in the form of taxes while the restricted and controlled domestic sales of opium yielded excise taxes which were considered as nominal from the British point of view. The opium quality of Malwa was superior to that of Bengal opium and fetched premium prices in Chinese markets.

There was minimal domestic consumption due to the high prices and total control of the monopoly trade and supply by the British. Between 1842 (the Second Opium War which ended all barriers to opium trade in China) and 1880 (when the opium trade tapered off), opium contributed 15% of Indian total revenue. From 1842 to 1859 opium constituted 31.54% of all Indian exports and from 1859–1880, reduced to 18.7% of exports. The contribution of opium to total revenues and exports, reveals the huge contribution to Imperial revenues from India. As the British accumulated power and kingdoms they also accumulated debt in running their far-flung Empire and opium was the source of revenue which enabled the British to maintain their Empire in India. Poppy cultivation was the single most important cash crop in India and major revenues came not from internal trade proceeds but from China.

While the British strictly controlled opium consumption in India, they encouraged Chinese consumption of Indian opium due to the runaway British-China trade deficits mainly due to high demand in Britain for Chinese tea, silk and porcelain. The three- way opium trade enabled the British to lower their trade deficit in China as there was no market in China for British goods. Opium industry was developed into an efficient and profitable business for British and Parsi traders who saw an economic opportunity and developed the opium trade to service the cost of maintaining the Indian Empire while at the same time reducing its trade deficit with China (Maddison, 2007).