FOREIGN TRADE
India has been an important trading
nation since ancient times. But the restrictive policies of commodity
production, trade and tariff pursued by the colonial government adversely affected
the structure, composition and volume of India’s foreign trade. Consequently,
India became an exporter of primary products such as raw silk, cotton, wool,
sugar, indigo, jute etc. and an importer of finished consumer goods like
cotton, silk and woollen clothes and capital goods like light machinery
produced in the factories of Britain. For all practical purposes, Britain
maintained a monopoly control over India’s exports and imports. As a result,
more than half of India’s foreign trade was restricted to Britain while the
rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and
Persia (Iran). The opening of the Suez Canal further intensified British
control over India’s foreign trade (see Box 1.1). The most important
characteristic of India’s foreign trade throughout the colonial period was the
generation of a large export surplus. But this surplus came at a huge cost to
the country’s economy. Several essential commodities—food grains, clothes, kerosene
etc. — were scarcely available in the domestic market. Furthermore, this export
surplus did not result in any flow of gold or silver into India. Rather, this
was used to make payments for the expenses incurred by an office set up by the
colonial government in Britain, expenses on war, again fought by the British
government, and the import of invisible items, all of which led to the drain of
Indian wealth.
Trade Through the Suez Canal (BOX 1.1)
Suez Canal is an artificial waterway running from north to south
across the Isthmus of Suez in north-eastern Egypt. It connects Port Said on the
Mediterranean Sea with the Gulf of Suez, an arm of the Red Sea. The canal
provides a direct trade route for ships operating between European or American
ports and ports located in South Asia, East Africa and Oceania by doing away
with the need to sail around Africa. Strategically and economically, it is one
of the most important waterways in the world. Its opening in 1869 reduced the
cost of transportation and made access to the Indian market easier
