The Queen Victoria’s Proclamation of 1858 stated:

“We shall respect the rights, dignity and honour of the Native Princes as our own”.

Further, the Queen assured:

“We know, and respect the feelings of attachment with which the natives of India regard the land inherited from their ancestors, and we desire to protect them in all rights connected therewith, subject to the equitable demands of the State”.

While the above promises of the Queen were only to seek social support and collaboration of the native princes and landlords, the essence of the abolition of the Company’s rule in 1858 was to serve the interests of the British industrial classes in exploiting Indian market. The main goal of the colonial state established in 1858 was to protect and promote the interests of the British industrial capitalists who were occupying a leading position in the British Parliament.

The British colonial state completely integrated India with the world capitalist economy and as a colony, India was subjected to exploitation. The role of colonial state in the economic development of India as a colony cannot be understood by emphasising the establishment of railways by the British or other modernising activities like the spread of English language and education. These are peripheral facts in evaluating the role of colonial state in India.

The basic goal of colonial state was to promote British capital and its investment in India for profit and to achieve this goal. India under the colonial state was made a market for raw material for the British industry and investment of British capital in sectors of Indian economy which brought profits to the British investors.

The promotion of plantation and mines, jute mills, banking, insurance, shipping, export-import concerns, railways were all under British who were favoured and patronised by the colonial state. If on the one hand, colonial bureaucracy extended facilities and concessions to the British in India, on the other, it discriminated against the locals through highly biased and discriminatory tariff and excise policies.

Professor Sumit Sarkar observes:

“Behind a facade of laissez-faire, government policies often actively promoted European enterprise (railways under the guarantee system, and the allotment of vast tracts of land to Assam tea planters at nominal prices, would be two obvious examples) while discriminating against Indians. The railway network and freight-rates encouraged traffic with ports as against that between inland centres.

The organised money-market was largely under white control. Most significant of all perhaps was the fact that nineteenth century Indian economic growth was largely geared to export needs, and the British controlled the bulk of the external trade of the country through Exchange Banks, export-import firms and shipping concerns”.

The main features of colonial state and its economic policies were geared towards ruthless exploitation of India. The mechanisms of this exploitation were clear. India was structurally integrated with the world capitalist economy. India was made an export oriented economy. India was to supply raw material to the British industry, the British in India worked under the protective umbrella of the colonial state which protected and safeguarded the interests of British investors.

Indian capitalists were obstructed by discriminatory policies of the British colonial bureau­cracy. This colonial state was racial and exploitative and India as a colony was sucked for British interests. This trend underwent a remarkable change with the beginning of twentieth century. The two World Wars gave it a further boost offering an opportunity for the development of the Indian capitalist class in the fields of textile, sugar, jute, some chemical factories and steel plant.

The British economy came under the impact of the World Wars. The prewar situation, in which India was profitable for export of British manufacturers and a secure market for profitable investment, was changing, and, the economy and requirements of Second World War compelled the British to induce development of indigenous industries under the indigenous capitalists in India.