First Stage

The Period of Merchant Capital (Mercantilism), often described as the Period of Monopoly Trade and Direct Appropriation (or the Period of East India Company’s Domination, 1757-1813), was based on two basic objectives—

(i) to acquire a monopoly of trade with India, against other English or European merchants or trading companies as well as against the Indian merchants; (ii) to directly appropriate or take over governmental revenues through control over State power.

During this period no basic changes were introduced in administration, judicial system, transport and communication, methods of agricultural or industrial production, forms of business management or economic organisation. Nor were any major changes made in education or intellectual field, culture or social organisation. In fact, the traditional Indian civilisation, religions, laws, caste system, family structure, etc., were not seen as obstacles in the colonial exploitation.

The only changes made were:

(i) in military organisation and technology which native rulers were also introducing in their armed forces, and

(ii) in administration at the top of the structure of revenue collection so that it could become more efficient and smooth.

In this phase there was large scale drain of wealth from India which constituted 2-3 per cent of Britain’s national income at the time. It was this wealth that played an important role in financing Britain’s industrial revolution.

In this stage there was no large scale import of British manufactures into India, rather, the reverse occurred—there was an increase in export of Indian textiles, etc. The weavers were, however, ruined at this stage by the Company’s monopoly and exploitation. They were forced to produce for the Company under uneconomic compulsions.