Opium, history and economics

Britain's opium policy severely damaged the economy of eastern India while perhaps helping that of western India

Until half a century ago, the conventional Western view of the West’s (mostly Europe and US) remarkable economic rise since 1700 was explained in terms of scientific progress, technological innovations, entrepreneurship, and relatively free movement of goods, capital and labour. Fifty years of scholarship and revisionist historiography since then has pointed to other significant contributory factors, including imperial conquests and colonialism, the genocidal expropriation of land from native “Indians” in America by immigrants from Europe, and the deployment of millions of slaves, shipped brutally across the Atlantic from West Africa. To this list might now be added the massive expansion in the cultivation, processing and cross-border marketing and distribution of opium under colonially imposed conditions of near-forced labour, monopsony purchase, and monopoly sales. In the main, this refers to the production of opium in British India for hugely profitable (often illegal) sale, mainly to China, in the 18th and 19th centuries.

The tale is grippingly told by Amitav Ghosh, justly-famed novelist and occasional historian, in his recently published, Smoke and Ashes: a Writer’s Journey through Opium’s Hidden Histories (HarperCollins, 2023), a 400-page treatise, including 75 pages of notes. It is based on nearly 20 years of research, which began with the first volume, Sea of Poppies, of his brilliant three-novel Ibis Trilogy. For me, much of the content was an eye-opener, shedding light on India’s economic and political history. Since most of this paper’s readers may not have a chance (or time) to read the book, a brief summary of a few key elements may be worthwhile.

Small quantities of opium had been used for medicinal (and recreational) purposes in different parts of the world for many centuries, starting first perhaps in Anatolia, and spreading around the end of the first millennium to Persia, Central Asia and South Asia. Typically, it was taken as a paste, mixed into pills or potions, consumed recreationally by rulers, nobility and the rich. Processed (and far more potent) “smoking opium” only evolved in the early 18th century but was not an item of mass consumption until the Dutch East India Company (VOC) imported it from east India and marketed it (under monopoly) to their subjects in the East Indies, generating large profits and revenues. Some went to China, where it was banned (ineffectively) by the Qing state in 1729. In Mr Ghosh’s words, “It was the Dutch who led the way in enmeshing opium with colonialism and in creating the first imperial narco-state, heavily dependent on drug revenues. But it was in India that the model of the colonial narco-state was perfected by the British.”

Following their decisive victories at Plassey (1757) and Buxar (1764), the East India Company’s (EIC) troops pushed quickly westwards to incorporate Purvanchal (today’s Bihar, Jharkhand and eastern UP), where poppy was grown, into its Bengal Presidency. In 1772, the Governor of Bengal, Warren Hastings, decreed that opium produced in Purvanchal could only be sold to designated EIC Agents, paving the way for a very effective monopsony. In 1799, the EIC established the formidable Opium Department (OD), endowed with extraordinary powers of control, pricing and enforcement, which allowed it to decide which farmers could plant the crop, where and how much, and the price at which they could sell to the OD. As the low price rarely covered cost, production was enforced through various forms of coercion. Corruption became rife and a massive surveillance/enforcement system evolved, all resulting in immiseration of the opium farmers and systematic harassment of all those associated with the trade, except those at the upper reaches of the EIC, when processed opium was auctioned to designated buyers in Calcutta, yielding huge profits.

This oppressive system, which lasted for well over a century, ensured that Purvanchal became and remained a backward region of British India, especially after the region was dealt a massive second blow in the mid-19th century. Until India’s first War of Independence (or Mutiny) in 1857, Purvanchal had benefitted greatly from supplying around half the sepoys of the EIC. After the war was won by the British, recruitment of sepoys shifted swiftly to other areas, including Punjab. The economic and social development that went with such employment also dwindled.

The other major poppy-growing area in the 18th century was Malwa, covering much of today’s Madhya Pradesh, and parts of Maharashtra, Gujarat and Rajasthan. The modes of production and distribution were startlingly different from the pattern in east India. Poppy was grown voluntarily by small farmers who sold their output to traders in the region from different business communities among Hindus, Jains, Muslims and Parsis. This was possible because the EIC’s power in western India was largely confined to Bombay. For at least half a century after Plassey, the EIC’s westward expansionism was held in check by the Maratha states of Gwalior, Baroda, Indore and Nagpur, inheritors of Shivaji’s victories over the Mughals in the 17th century. Although the EIC narrowly defeated a Scindia army at the battle of Assaye in 1803, the continued resistance of the Maratha states was successful in holding back direct EIC rule in the region.

Repeated attempts by the EIC to subvert the growth of Malwa opium were frustrated by this basic fact and the non-cooperation of the trading communities in the region. By 1830, the EIC switched track to accepting the Malwa mode of production-distribution of opium and levying lucrative transit duties on the trade. Malwa opium, shipped out through Bombay, flourished, soon surpassing the amounts going out of Calcutta. After the British stymied Chinese efforts to ban opium in the infamous Opium Wars of the mid-19th century, export of British-Indian opium shot up from 4,000 chests annually in 1820 to over 90,000 chests in the 1870s, becoming a major element of global trade. The big difference was that, unlike opium from Purvanchal, opium from Malwa benefitted millions of farmers and thousands of traders, financiers and shippers in western India.

As Mr Ghosh writes, “If private enterprise was able to thrive in western India, but not in the east, it was ultimately because the Maratha kingdoms were able to fight off the predatory colonial power for much longer…The credit for western India’s entrepreneurial prowess is ultimately due not only to the financial acumen of its businessmen but also to the foresight and acuity of the political and military leadership of the Maratha states.”

The writer is honorary professor at Icrier, the longest serving former chief economic advisor to the Government of India, and author of An Economist at Home and Abroad (HarperCollins 2021). The views are personal