State Capacity and the Economic History of Colonial India

Abstract

The paper re-examines the role of the state in economic change in colonial India (1757–1947), by paying attention to fiscal capacity. This capacity was larger than that of the precolonial states, and based on different foundations, such as centralisation of finance and securitisation of public debt. Nevertheless, the effort to raise finance hit a barrier, which had owed to the separation of debt from revenue operations. Did the barrier matter? By keeping markets open, the colonial state served private enterprise, but its failure to sustain growth in fiscal capacity compromised public investment in infrastructure and social development.