Economic History of India: 1 AD to 2017

By: K.I.P.

The Economic history of India is one that evokes strong reactions. It is a topic on which the reactions of both the Right and Left are at odds with the mainstream view of economists. Let’s study the principal reactions, and in the process survey the Economic history of India! There are 3 views of reflecting different reactions:

1. Mainstream view : India was a subsistence economy for much of its history until it started growing in the past 3-4 decades

2. Nationalist view (Right): Ancient India was a Sone ki Chidiya which was impoverished by Muslim and later British rule

3. Nationalist view (Left): Mughal India was a Sone ki Chidiya which was badly impoverished by colonial era free trade, and has recovered since independence.

All these three views have their merit, in parts, though I am most critical of the third view reflecting the Indian Left’s reaction. Before we get into the details, let’s get a macro-view of the Indian economy over the past 2000 years, as per Angus Maddison – a mainstream British economist.

This chart is based on Maddison’s famous paper in 2001 titled “The World Economy – A Millennial Perspective”. The chart comes from this link –

And the paper can be accessed here –

https://theunbrokenwindow.com/Development/MADDISON%20The%20World%20Economy–A%20Millennial.pdf/Development/MA…

Here’s a chart that sums up Maddison’s PPP-adjusted PCI estimates for India in 1990 international $

Here’s an examination of Maddison’s chart in more concrete terms using precise numbers, in a table (which I have updated till 2017). It is one little excel table that is more provocative than most tables on India. Let’s study it closely.

So we know that Maddison’s view corresponds to the “Mainstream” view we have outlined at the start – India was not much richer than a subsistence economy from 1 AD right up to 1973. Its share of world GDP was merely a reflection of its population share.

But Maddison is not stating this about India per se. His view that right up to the Industrial Revolution, GDP shares merely reflected the Population share, is held across all geographies.

It is in line with the orthodox Malthusian perspective. Let’s examine more.

Here’s Maddison on the Per-capita GDPs across many parts of the world in 1 AD and 1000 AD.

It is a problematic chart – as we will discuss soon.

What is remarkable about the above chart is that Maddison doesn’t explicitly discuss (at least in the paper) on why he places India or the current “US” at $450 in 1AD.

There appears to be an implicit Malthusian assumption.

But these numbers contradict our historical understanding. We all know that back in the year 1 AD, North America was a wilderness, and a hunter gatherer society. India was a society with large empires, considerable urbanization, copious literature, among other things. Western Europe was a part of the massive Roman Empire!

Yet as per Maddison, Western Europe, India and China (three very advanced societies in many ways) were only marginally richer than the hunter gatherers in North America!

It seems incredible, yet nobody has challenged Maddison sufficiently on this yet. Will a society close to subsistence have the surpluses necessary to produce  Mahabharata, Ramayana, Manu Smriti, Arthashastra, Aeneid, Homeric epics, Bible
and numerous other Latin / Greek works?

Question worth asking is: Back in 200CE, the population of the city of Rome was estimated to be 1MM inhabitants. The population of Pataliputra at the height of the Gupta period circa 400 CE is also estimated to be several hundred thousands. These were extremely large cities. Yet Maddison regards India, China and Western Europe to be not much richer than the hunter-gatherers of America 2000 years ago!

This suggests a somewhat slavish adherence to the Malthusian maxim, that appears to be in defiance of historical records and memory.

As per Broadberry / Bishnupriya, there was quite a significant decline in Per-capita GDP between 1600 and 1800. And this was the period of Mughal zenith! So clearly the numbers here don’t speak too well for Mughal India.

1600 PCI : $682 (this was when Akbar ruled over North India, but not the South)
1700 PCI : $622 (clearly a decline….a period when Mughal empire covered all of India)
1800 PCI : $569 (after a century of anarchy and Mughal decline, but still preceding pan Indian British rule)

So clearly the decline of the Indian economy started long before the establishment of British Raj, and coincides with the heyday of the Mughal Empire.

In fact it is striking that PCI in India in 1600 (at the start of the decline) at $682 was higher than the PCI in 1950 of $619!

Now let’s look at the last 500 years. Let’s compare the estimates of Braoadberry, Bishnupriya and Custodis (2014) with those of Maddison. Their paper can be accessed here –

https://t.co/J0vk1nmLDM?amp=1

Also when we discuss India as a whole, the regional variation is something that has to be borne in mind.

Circa 1800 while Indian PCI is estimated to be close to $500, the PCI of Mysore was estimated to be well in excess of $1500 and close to $2000 (by Sashi Sivaramakrishna)

But what’s undeniable however is that all data points to a decline starting 1600 and continuing unabated till 1870s. And we must be careful to note that the first part of this long period of decline actually corresponds to Mughal heyday and precedes the Empire’s decline!

And now coming to the absolutely best part: Economic history post 1870.

As you can see growth resumes circa 1870. But then this is also the period of the Industrial Revolution, when the gap between the West and the rest massively widened because of industrial revolution & subsequent colonization.

Conclusion:

1) India was on average a developed society till Islamic invasions started.

2) Mughal empire did not generate wealth as is commonly claimed by leftist historians but collapsed it.

3) Socialist policies pursued by India post independence period lead to a worse gap in income between west and India than it was during the hay days of colonial loot.

So what had happened to India after  the period of colonization was over? One would expect the growth of India to be faster than  it was during the colonization period! Correct? No!

Socialist policies pursued by the first PM  of India made gap between India and west wider than what it was during hey days of  the British Raj!

In fact the gap between India and the West was way bigger circa 1998 and even marginally bigger in 2017 than in 1870, that is, during the heyday of the British Raj.

In fact the gap between US and Indian per-capita incomes was much wider in 1998 than in 1950! And it is almost twice as wide in 2017 as it was in 1870!

This helps us understand why there is so much rage against the era of Nehru-Gandhi rule from 1950 till 1990.

Sure, the “Nehruvian” growth rates were higher than growth rates at any point in Indian history. Yet they were awfully low relative to the growth rates in the rest of the world.

So while India did start growing post 1870, we have only regressed in a relative sense, because we have been totally out of step with the pace being set in much of the developed world.