In 1858, the British Crown purchased India from the East India Company, and the Indians paid the purchase price. The value received by the shareholders of the East India Company stock was not paid by the British Crown but was added to India’s debt. In his book The Economic History of India in the Victorian Age (Volume II), economic historian Romesh Chunder Dutt, has given the details of the transaction. On Page 230, Dutt writes:
“It was provided that the dividend on the capital stock of the East India Company, and all the bond, debenture, and other debt of the Company in Great Britain, and all the territorial and other debts of the Company, should be charged and chargeable upon the revenues of India alone."
“By this singular clause the capital stock and the debts of the East India Company were virtually added to the Public Debt of India; and the annual tribute which India had so long paid as interest on the stock was made perpetual. The Crown took over the magnificent empire of India from the Company without paying a shilling; the people of India paid, and are still paying, the purchase money. It was an act of injustice towards a British Dependency unexampled in the history of the British Empire. It was an act of injustice which pressed heavily on the people, after the expenditure of forty millions sterling for suppressing the Mutiny had been saddled on them.”
The last line in the above-quoted text shows that the British Crown charged India for the cost of suppressing the 1857 Indian Mutiny—this amount came to around £40 million; it included the cost of British troops from the day of their departure from England. The Mutiny was caused by the East India Company’s plunder, corruption, and insensitivity, but the Indian masses were made to bear the financial burden. The British troops committed terrible atrocities while suppressing the Mutiny—they burned down towns for several hundred miles, turning the country into a desert. They massacred tens of thousands of people in Delhi and other towns.
British politicians like John Bright spoke against this unjust charge. In his speech in March 1859, John Bright said: "I think that the 40 millions which the revolt [Mutiny] will cost, is a grievous burden to place upon the people of India. It has come from the mismanagement of the Parliament and the people of England. If every man had what was just, no doubt that 40 millions would have to be paid out of the taxes levied upon the people of this country.”
The amount that was spent in England for managing Indian affairs was added to India’s debt. On Page 8 of his book, Dutt writes: “In a work on Our Financial Relations with India, published in 1859, Sir George Wingate suggested that India should pay all the expenses of Civil and Military Administration incurred in India, while Great Britain should meet the expenses incurred in England, as she did for her Colonies.” The British refused to put this burden on the British taxpayer and the amount was added to India’s debt.
If the British Crown had at least guaranteed the Indian debt, the annual interest on the debt would have come down by £750,000, or even £10,000,000, (according to the calculations of Sir George Wingate, given in page 220 of Dutt’s book). They did not do that. The result was that the debt kept growing—the English bankers benefited and the Indians ended up serving this debt for decades.
The size of India’s debt grew further because the British government used revenues from India to fund its wars in other countries. In page 231 of his book, Dutt observes that “the expenses of expedition to Egypt and Abyssinia, of wars in Afghanistan and for the conquest of Burma, have been charged to India.” The British policy of using Indian resources to fund their wars continued into the twentieth century—India contributed a significant sum to fund British military operations during the First and the Second World Wars.
Historians like to praise Britain for bringing Pax Britannica to India. They avoid the issue of the heavy price that the Indians paid for this so-called British peace: 50 million Indians died in famines during the period of British rule, and an untold number from disease and wars. On Pax Romana, Tacitus said: “Ubi solitudinem faciunt, pacem appellant.” (Where they create a desert, they call it peace.) Tacitus’s statement is true for Pax Britannica. The British were not benign rulers. They were the alpha-predators: the creators of desert.