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Rural Indebtedness during British Rule

Updated on December 23, 2012

There was an unprecedent and continuous growth of rural indebtedness under the British rule in India. The Famine Commission of 1880 concluded that 2/3rds of the land holding classes were in debt, 1/3rd of them deeply and inextricably. The Central Banking inquiry committee (Mid 1920s) estimated the magnitude of rural indebtedness was around Rs.900 crore. During the great depression of the 1930s, things worsened as agricultural prices underwent a steep fall. This reduced the peasants capacity to fulfil the obligations of paying land revenue. By 1937, the rural indebtedness figures swelled to Rs.1800 crore.

The factors that accounted for the growth of rural indebtedness can be studied under two heads, namely those which enabled the agriculturists to borrow money and those which compelled them to do so.

Dealing with the former aspect, it was a direct consequence of the British administrative system. The new agrarian relations introduced by the British made tend a commodity. The agriculturist now had a tangible asset against the security of which he could borrow. Also, over a period of time, the value of land increased due to increased demand associated with growth in population, commercialization of agriculture etc. This was instrumental in raising the borrowing capacity of the agriculturist.

Another factor which enabled the agriculturist to borrow was the increased keenness of the money lenders' to lend. In the pre-British period there existed a powerful and active village community which frowned at excessive lending and borrowing and also protected the individual cultivator from exploitation by the moneylender. Further, state took no interest in assisting the moneylender in the recovery of loans. For this, tie was dependent upon the Village community. Thus the money lender could not indulge in ruthless exploitation. Both these constraints vanished under the British rule. The Village Community disintegrated and the. civil laws enacted by the British and the law courts instituted by them were helpful in assisting the moneylender in the recovery of interests and debts. In the pre-British days, custom generally limited total compound interest to 50 percent of the principal amount, in case of cash loans, and to 100 percent, in case of grain loans. Under the British rule, no such limit was recognized by the court and interest accumulated endlessly. All this made the moneylender keen to lend money to the agriculturists.

Dealing with the factors which compelled the peasants to borrow, we can attribute it to the British policy of monetizing land revenue payment and the exorbitant rates of land revenue. Natural calamities also often compelled the peasants to fall in debt.

Having discussed about the background about rural indebtedness, we can now study the credit policy of the British Indian government. The land improvements Act (1883) and the Agriculturists' loan Act (1884) provided for government loans to the peasants. The Deccan Agriculturists Act (1879) was passed to placate the agitated.peasants. It ensured a reasonable rate of interests and also authorized the court to restore mortgaged and confiscated lands to the debtor, under certain conditions. Similar Acts were passed elsewhere like, Punjab land alienation Act, Central India land alienation Act, North West frontier province land alienation Act etc. However, still Benami transactors continued, since transfer of land to agricultural moneylenders Act (1927) and the. Punjab regulation of Accounts Act (1930) aimed at controlling the moneylenders. Debt conciliation Acts were also passed but it did not cover trade debt, bank debt and government debt. The government credit policy was not comprehensive. Further, the policy was merely corrective and not preventive in its nature.

The growth of Agricultural labor during British Rule

The revolutionary changes in agrarian property relations, rigid execution of an exorbitant land revenue policy, decline of the Handicrafts sector, commercialization of agriculture, and rise in the population were in effect, responsible for the growth of agricultural labor in India.

The introduction of the new agrarian relations, largely stripped the peasants of their customary and hereditary rights to cultivate land. This forced many of the poor peasants to become agricultural laborers.

Under the British rule in India, land revenue rates were not only exorbitant but were payable only in cash terms. This often forced the poor peasant to mortgage his lands, in order to borrow money to meet his land revenue and rent obligations. On default of payment the land was confiscated reducing the peasant to a landless laborer.

The decline of handicrafts sector was largely an outcome of the penetration of cheap manufactured goods from Britain, into the Indian market, With the development of railways, the village self sufficiency was pierced through and rural artisans were dislocated. Many of the urban handicraft artisans and rural artisans had to fall upon the agricultural sector for their livelihood.

The commercialisation of agriculture was also responsible for the growth of agricultural labour in India. It brought about capitalistic farming on a large scale and thereby led to increased demand for agricultural labour, especially in the plantation estates. The rising trend in population growth was also partly responsible for the growth in agricultural labor.

The major impact of the growth of agricultural labor, was a deterioration in their living standards. With excess availability of agricultural labor in relation to their demand, the net result was that of a downward trend in wages of agricultural workers. The government did not take significant steps to improve the working conditions of the agricultural labor. In fact, law permitted forcible prevention of plantation workers from fleeing. Thus their position was none better than that of the bonded labor. It was only in 1920s that the Provincial governments made some efforts to improve the working conditions of the agricultural labor, but even this was largely symbolic. Only after the attainment of independence, concrete steps have been taken for the betterment of agricultural labor, by implementing land reforms, introducing minimum wages in the agricultural sector, etc.


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    • profile image


      21 months ago

      thanks for this informative note

    • profile image


      23 months ago

      If you can add of more I can use this for class lecture. Trust me there aren't many economic history books

    • profile image

      R.Y.Moses Sangtam 

      2 years ago

      it's really a great help for the students and teachers. you really contributed a lot with your research work.

    • profile image

      aastha sharma 

      3 years ago

      thank you so much for for the wonderful information posted here i have read around 15 to 18 topics..all are very much efforts u have put..will be very helpful for me... and others also..

    • dialogue profile imageAUTHOR


      7 years ago

      Thank you rahul for your kind comment, i appreciate it.

    • rahul0324 profile image

      Jessee R 

      7 years ago from Gurgaon, India

      An excellent account of India Under the British in the late 1800s.

      Nice share


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