Commerce During the Colonial Period

The arrival of European trading companies from the late fifteenth century onward marks the beginning of a very different phase in Indian commerce. The Portuguese, following Vasco da Gama's sea voyage to Calicut in 1498, were the first to establish a direct European sea trade with India, later centring their activity on Goa. They were followed by the Dutch (through the Dutch East India Company, the VOC) and by the French (through the French East India Company, based chiefly at Pondicherry). The English East India Company, chartered in 1600, opened its first Indian trading post ('factory') at Surat in 1613 and steadily expanded its presence along the coasts over the following century.

In this early phase, the European companies traded largely as any other merchant would — buying Indian textiles, spices, and other goods for sale in European markets, on terms not fundamentally different from the trade India had long carried on with West Asian and other merchants. The decisive change came from the mid-eighteenth century, after the English East India Company began acquiring direct political control over Indian territory (starting with Bengal following the Battle of Plassey in 1757). Political power meant the Company could now shape Indian trade policy to serve British commercial interests rather than simply participate in it as one trader among many.

This reshaping took several forms. Revenue extracted from Indian territories was used to purchase Indian goods, which were then sold in Europe — a pattern of resource outflow later described by Indian economic historians as the 'drain of wealth'. As Britain's own Industrial Revolution made machine-made textiles far cheaper to produce, colonial trade and tariff policy was deliberately structured to favour British manufactured goods: British imports into India faced little or no protective duty, while Indian handicrafts — once sought after across the world for their quality — faced heavy duties when exported to Britain and were undercut at home by cheap machine-made British cloth. Infrastructure such as railways, built during this period, was laid out chiefly to move raw materials from India's interior to its ports for export, and to distribute British finished goods inward, rather than to serve balanced Indian industrial development. …