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Law and the Economy in Colonial India
By Tirthankar Roy, Anand V. Swamy The University of Chicago Press
Copyright © 2016 The University of Chicago
All rights reserved.
ISBN: 978-0-226-38778-9
CHAPTER 1
Introduction
The Problem
Since economic liberalization policy was adopted in the 1990s, the Indian economy has grown rapidly and attracted global capital on a significant scale. While such rapid growth and foreign investment typically require a well-developed legal infrastructure for doing business, including property and commercial law, there is a widely shared view that India's legal infrastructure is in urgent need of reform. Contract enforcement takes a long time, land laws differ from state to state, labor laws are more restrictive than in other emerging economies, and personal law that is religious in origin exists side by side with secular laws in matters of inheritance and succession of property. Some of these problems emerged or grew in the years between India's independence from British colonial rule (1947) and the onset of the economic reforms (the early 1990s). In this period, the state expanded in size and made numerous regulatory interventions. But many of the weaknesses of the legal infrastructure, as much as the infrastructure itself, were creations of British colonial rule in South Asia.
The British East India Company came into possession of large and populous regions of India around 1765, acquired new territories thereafter, and ruled over these until 1857. Much of the Indian subcontinent was ruled by the Crown between 1858 and 1947. The British Empire in India, or the Raj for short, reconfigured Indian laws in two ways that were often connected — by representing a state that was more bureaucratic, more in favor of formalization than previous regimes, and by being a foreign cultural import that interfered with indigenous social norms, legal ideas, and institutions. The historical process by which Indian laws were reshaped by the colonial power is of great importance to understanding how law works today, because some of the failings of the legal infrastructure derive from the manner in which the British redesigned Indian law. This book is a study of the evolution of British Indian law in the colonial period with a view to discovering why the process might have made market exchange more difficult, perhaps increasingly so. Our analysis will also contribute to a literature that explores how European colonial rule aided or obstructed institutional modernization in the non-European world.
Contribution of the Book to Institutional Economic History
Over the last two decades, many economists and economic historians have emphasized the importance of secure property rights and cheap and reliable contract enforcement as conditions for long-run economic growth. In its simplest version, the argument is compelling, even commonsensical: a farmer will not dig a well if he/she might lose the land tomorrow; a multinational corporation will not build a factory if it fears nationalization; a lender will not provide credit if the borrower can easily default; long-distance trade will not occur without a mechanism for ensuring that the buyer will eventually pay. This perspective is closely identified with the New Institutional Economics, especially the work of Douglass North, and, in this general form, it is widely accepted. However, controversy emerges quickly when we ask, How do societies develop (or not) law and institutions that protect property rights and reliably enforce contracts?
There are of course a range of answers to this broad question, some which do not directly concern this book. But two influential hypotheses, developed in the last two decades, which apply especially to the former colonies of the European empires, are relevant. One of these suggests that in regions where the European colonizers did not settle, they looked for quick returns and set up "extractive" institutions that did not protect property rights. However, where they did settle in large numbers, they imported institutions from Western Europe, which ensured security of property. In both cases, the early institutions showed considerable persistence, influencing economic growth to the present day. We will refer to this as the "extractive states" hypothesis. The second view, in contrast, does not directly focus on colonization, but on the origins of the legal systems of developing countries around the world. These writings assume that importation from Europe has played a large role in the evolution of the legal systems of many developing countries. This hypothesis further assumes that importation from some places, especially England, has led to better legal and economic outcomes than importation from France specifically, and from civil-law-based traditions more generally. We will call this the "legal origins" hypothesis. Researchers have now begun to test these arguments with country-specific analyses.
Another area of scholarship that deserves a mention in this discussion is the historiography of colonial empires. Bearing a resemblance to the extractive states hypothesis, the historiography of colonial empires tends to see colonial law mainly as a means to regulate the social and political order, ultimately with a view to sustaining the empire itself. This literature, however, does not focus on institutional quality in relation to economic growth, nor does it explore the historical roots of the quality of present-day institutions. Therefore, it is of less relevance to this project.
The two perspectives derived from institutional economic history differ in their predictions for India. On the one hand we may think, following the extractives states hypothesis, that because the British did not settle in India, their inclination should have been to put in place extractive institutions, rather than the institutions present in Britain. On the other hand the legal origins hypothesis highlights the significance of importation of English law into India, even suggesting that because it had roots in English common law or, more broadly, British precedent, Indian law represented a more efficient system than that of many other colonies.
Our narrative history suggests that a straightforward application of these ideas to colonial India is difficult. For example, consistent with the extractive states hypothesis, the company government did display a conservative attitude toward importing British laws into India. But did this conservatism represent a choice in favor of extraction, or was it a defensive reaction? In the eighteenth century, indeed throughout the career of the Raj, colonial power was limited by the vast imbalance of numbers between the Europeans and the indigenous residents. British political confidence, and hence the willingness to effect institutional change, varied over time. But limited confidence was surely a factor, especially in the early years of company rule.
Furthermore, the unstated assumption of the extractive states and legal origins perspectives is that non-European and Western legal systems were fundamentally different. This assumption may not have been shared by the eighteenth-century administrators in India. There were, in fact, similarities between precolonial India and preindustrial Europe in the structure of economic laws. For example, as the British discovered by perusing Sanskrit, Persian, and Arabic texts in the eighteenth century, the notions of legality and rule of law were as developed in India as in Europe. In some of these texts that they translated for use in the courtroom, the meaning of private property and the theory of the sanctity of contract closely resembled their European counterparts. Like in Europe the legal tradition in India "grew — in part — out of the structure of social and economic interrelationships within and among groups on the ground." These groups included merchants, artisans, tribal communities, and landholders. Since indigenous norms were so deep rooted, and carried moral force, it would have been natural as well as expedient for a foreign power to preserve them.
In short, on the one hand, the theoretical assumption that a colonial state that was conservative with regard to importing European institutions was so because it was extractive in aim seems inappropriate for a history of colonial law in India. On the other hand, the decision to incorporate indigenous tradition suggests that it is difficult to read British Indian law as an importation of a British common law model into India.
And yet, this literature does supply helpful pointers for our project. The extractive states hypothesis, as well as the historiography of empires, suggest that it is necessary to study the evolution of colonial law as an expression of a project to gain political control, especially control over economic management. The legal origins hypothesis directs our attention to the role of law as a means for dispute resolution. By doing so, it suggests that it is necessary to evaluate colonial law in this role. We follow both these leads in our narrative of Indian law and economy and find them relevant in different spheres of legislation. In addition, we see a problem which, while surely not unique to India, was particularly severe: the need to devise law with broad applicability across very diverse settings. Thus, multiple and potentially conflicting aims were being served by law derived from different sources.
Colonial Law in India: Multiple Aims and Means
In many cases of economic legislation, law embodied a policy or political goal. Some of the earliest important legislation pertaining to the definition of "proprietary rights" in agricultural land and the allocation of these rights was driven by the state's need to raise tax revenues. We show in chapter 3 that even if the allocation of rights could be described in vague or confusing ways in legislation, it was usually clear who owed the land taxes. In the second half of the nineteenth century after the Indian Mutiny (1857) and other rural protests such as the Santhal Rebellion (1855) and the Deccan Riots (1875), the Raj legislated extensively to preserve the stability of the rural social order. In some regions this took the form of protection of tenants from eviction and rent increases. The Raj also explicitly rejected laissez-faire notions as inapplicable to India when it enacted legislation restricting the transfer of land (chapter 4). Each of these enactments was preceded by extensive discussion where combatants in the debate might draw not only on Indian precedent (the understanding of which evolved, a major subject in its own right), but also the history of Irish tenancy, American homestead laws, and the sanctity of the Raj's prior commitments. But the political objectives were paramount. Political considerations also influenced the absence of legislation in some areas, such as the protection of sharecroppers (chapter 3). And through all of this the Raj struggled with the bewildering variety of preexisting land tenure arrangements, which could vary greatly even across adjacent districts. For instance, as the reader will see, even within a region the commonplace word zamindar (landholder) could refer to people of hugely different social and economic status, complicating the task of devising law to regulate landlord-tenant relations.
In the 1930s, in response to political protest and a growing Indian role in provincial governance, there was a slew of legislation pertaining to the moneylender-borrower relationship: usury laws, laws requiring record keeping and documentation by lenders, and eventually laws aimed at providing debt relief, that is, allowing borrowers to repay less than what they owed contractually. Again, this was law driven by political considerations, with the state aiming to alter relationships of power between specific sets of economic actors.
As modern industry grew, legislation was again driven by diverse political pressures. British capital pushed for legislation to protect workers in India, which would make Indian labor more expensive and Indian products less competitive. Legislation was also motivated by the need to accommodate or undermine the organizational capacity and militancy of Indian industrial workers. Finally, pressures from humanitarians and from organizations like the International Labour Organization led to measures intended to protect the vulnerable. These included limits on work by children, and a ban on underground work (in mines) by women.
It would, however, be simplistic to focus only on political motivations to explain legislation even in the most explicitly political contexts. By contrast with agricultural land or industrial labor, where the focus, implicitly or explicitly, was on politics, the sphere of commercial law foregrounded the disputant as a market actor. The compulsion to legislate was often supplied by the context of the economic activity, and perceptions about how laws best protected trade (and indirectly, tax revenues). But, then, this drive was counteracted by a political imperative dictating that conventions be left alone. It was only when conventions failed to resolve disputes, and judges had made numerous departures from convention, that statutory intervention took shape. This dynamic was most clearly evident in the sphere of contracts and corporation law. As chapter 7 will show, the Indian Contract Act (1872) was indirectly motivated by the experience of disputes between peasants and planters around indigo cultivation (1859–60) that threatened to turn into a political problem. We see in chapter 8 how indigenous institutional forms such as the managing agency remained under legislated for a long time because law followed British precedent too faithfully, while slowly adapting to the need to devise stronger protection of minority shareholders.
Chapter 5, on inheritance and succession of property, explores another large field of conflict between aims, to preserve indigenous tradition as a matter of political expediency and to serve efficiency and equity. The conflict arose because preserving tradition, being defined in religious terms, boiled down to acknowledging the rights of the joint family, males, and agnate (male-based) lines of descent over individual members of the family, women, and cognate (female-based) lines of descent. Judges often thought that these rules, traditional or not, were iniquitous. The disputes that came to court caused new principles and priorities to be added and eventually to new legislation, such as those strengthening the testamentary powers of individuals (i.e., their right to will their property)
We can draw two lessons from this brief description of the historical process of the making of economic laws. First, there was a persistent tension between what politics dictated would be a safe choice for the colonial state and what the immediate context of the dispute suggested would be a fair or efficient choice. Second, the physical space where the conflict was often negotiated was not the legislating office of the governor general, but the courtroom as well as the offices of provincial administration. These offices engaged with the day-today problems of economics. They were closer to the litigants, studied norms, prepared the digests, argued in courts, and were friendly with the judges and pleaders. Therefore, in choosing sources, we decided to focus on these local and courtroom discourses.
Why Colonial Law Became Dysfunctional
The system that British colonialism built became less and less user friendly within the time span studied in this book. As far as we can measure, the relative intensity of disputes continued to rise from 1880 (chapter 9). Appellate cases piled up, and suits took a longer time to conclude. There were two particular sources of the distortion. In land law particularly, parallel evolution of federal, provincial, and case law created enormous complexity, a problem which persists to the present day. And in matters of succession or in commercial law, even as the state added new statutes, the old principles were never declared obsolete. Simultaneous codification in related fields meant that one subject was dealt with by several laws, prompting disputants to try their luck under different provisions. For example, contract law was covered not only in the Indian Contract Act (1872), but also by civil procedures, negotiable instruments, specific relief, laws on wager and game, and several other minor acts. The result was overlegislation across the board.
There was a further source of distortion: the slowing pace of expansion of the legal infrastructure. From the interwar period, legislation slowed down and the scale of the colonial judicial system failed to grow in step with either population or the size of the economy. Around 1930, the British Indian state sharply reduced expenditure. The pace of enactment of new laws decelerated. The start of provincial legislatures (with Indian participation) in 1919 and again in 1935 reduced the federal legislative motivation. At the same time, crises in the global economy, the collapse of commodity trade, and population pressure on land added strains to market transactions all around. Independent India inherited a legal system that not only had serious design defects but also had grown much too slowly for too long. The legendary tardiness of the Indian courts system in the present times has its origin in this prehistory of deceleration and accumulation of huge backlogs that began in the late colonial times.
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Excerpted from Law and the Economy in Colonial India by Tirthankar Roy, Anand V. Swamy. Copyright © 2016 The University of Chicago. Excerpted by permission of The University of Chicago Press.
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