Mahadev Govind Ranade (M.G. Ranade) (1842 – 1901) was born in Bombay into a middle-class family of Chitpavan brahmin government officials. He attended Elphinstone College, and was among the first graduates from Bombay University in 1859. A student with much potential, his MA exam was sent to the University of Edinburgh to serve as a model. Although he then worked at Elphinstone College in various research capacities, Ranade is most well known for serving as a judge at the Bombay High Court between 1892 and 1901 – the highest legal position that could be achieved by an Indian at that time. Several eminent British authorities and his Indian contemporaries thought of Ranade as a reformer who spoke of the social, political, and economic injustices he witnessed in India. He was described as being tolerant of all religions and classes, willing to cooperate with anyone, and firmly believing in a common platform for the Indian nation. Ranade held that the people of India were first Indians and then Hindus, Muslims, Parsis, Christians, etc., and he wished for progress for all. Many of Ranade’s contemporaries found his critique of British orthodox economics useful in seeing how and where its theories could not apply to India’s economic reality.

Ranade coined the term ​“Indian Economics” in a speech at Deccan College, the intellectual centre of western India, in 1892. The lecture hall was filled with Indian students, and probably some officials given that the college was in Poona, where the British administration moved during the warm summer months. India’s third oldest educational institute, it had been established on the initiative of the governor of the Bombay Presidency administration in 1821, Mountstuart Elphinstone¹. The college was part of the imperial university system where the Indian middle and elite classes could get a higher education. It was through such an education that Ranade learned the skills that enabled him to understand this imperial system. Now he criticised it from within. 

Ranade’s lecture in 1892 is considered the main founding text of Indian economics. Some ten years later, another Indian economist of the same generation, Ganapathy Dikshitar Subramania Iyer, published the other founding text. Iyer was a leading journalist and founder of The Hindu, now a leading English language  national newspaper. Ranade and Iyer argued that India needed its own economic thinking that considered India’s past and present, different from that of western Europe where the thinkers they had been taught came from. Ranade’s and Iyer’s initial idea proved popular with their contemporaries, enabling Indian economics to emerge. 

In the inaugural speech of Indian Economics, Ranade (1906, p. 23) argued for an ​“enlarged view” to accommodate and explain Indian specificities. Our ​“teachers and statesmen”, lectured Ranade (1906, p. 2), 

seem to hold that the Truths of Economic Science, as they have been expounded in our most popular English textbooks, are absolutely and demonstrably true, and must be accepted as guides of conduct of all time and place whatever might be the stage of National advance.

Ranade (1906, p. 25) believed this had led to a lack of understanding as to why India had ​“phenomenal Poverty”. Orthodox political economy, according to Ranade (1906, p. 6, 27), ​“condemns the poor to grow still poorer.” He reasoned that ​“India’s economic interest considerably suffers from a too blind adherence to the doctrines of Ricardo and [J.] Mill on the part of our rulers” (Ranade, 1906, app. 1, p. 3). 

The orthodox economics tradition, according to Ranade (1906, p. 2), did not take into consideration the ​“relative differences in Civilisation, or the possession of natural advantages, or disadvantages, in matters of situation, climate, soil, National aptitudes.” The lack of such modification meant that ​“great problems are approached in this extremely narrow frame of mind” (Iyer, 1903, app.1, p. 3). Ranade then outlined and commented on the development of European science. He concluded from his retrospective that the truths of economics were not universal, even though countries often went through stages of growth that seemed similar across the world (Iyer, 1903, app. 1, p. 4; Ranade, 1906, p. 11). India needed its own economic thinking, theories and concepts, because the troubling socio-economic conditions in India and elsewhere seemed to disprove the universal applicability of principles such as free trade and comparative advantage. As a result, there was a need for a new school of thought that reflected the realities of India’s current economic situation, namely imperialism and socio-economic deprivation.

Indian economics was founded on the idea of Indian difference. Indian society, wrote Ranade (1906, p. 24) in the founding text, was still based on ​“custom instead of competition” and ​“status over contract”. Both Ranade and Iyer used the common perception of India as different to push for an Indian economics that would offer a better understanding of their country and develop more appropriate policies to effectively transform it into a modern society. Together with their fellow Indian economists, they agreed with the British that India was regressive and poor, but they denied that regress prevented progress. In contrast, Indian economics, to Ranade and Iyer, engendered hope for future progress, if the imperial administration would implement effective development policies and eventually grant India independence. 

Ranade (1906, p. 22) argued that Indian economics would explain their economy more adequately because it would employ a local, historical, and global perspective; he favoured the historical-institutional approach of the German Historical School, which ​“regards … Universalism and Perpetualism in Economic Doctrine [as] both unscientific and untrue.” This methodological basis would reflect the necessary historical experience, practical observations, and social reality. ​“The Method”, lectured Ranade (1906, pp. 22 – 23), ​“to be followed is not the Deductive but the Historical Method, which takes account of the past in its forecast of the future; and Relativity, and not Absoluteness, characterises the conclusions of Economical Science”, which is a ​“Social Science … best studied historically.” In his conception, theory was a practice, and so to determine and test a theory, they had to analyse practices within a particular economy. 

As previously indicated, Ranade preferred turning to the continental Europeans, North Americans and the later British economists. The economists of Ranade’s day understood that economics of ​“a priori conclusions based on individual self-interest and unrestricted competition” did not reflect the real economy or real economic practices (Ranade, 1906, 23). Ranade recognised J.S. Mill and John Elliot Cairnes (1823 – 75), an Irish economist, as having modified aspects of this doctrine and that German and French writers had modernised economics. 

Ranade understood that British dominance over economic thought and territory was impoverishing late industrialisers. Iyer also cited the French-speaking Swiss economist Jean-Charles-Léonard de Sismondi (1773 – 1842), who was among the first to critique what he labelled laissez-faire economics, which left an economy and its people to their own devices. Ranade (1906, p. 96) wrote how 

the authority of writers of Political Economy forget that Political Economy, as a hypothetical a priori Science, is one thing, while Practical Political Economy as applied to the particular conditions of backward countries is a different thing altogether. Americans, Australians, and Continental Political Economy, as applied to practice, permit many departures from the a priori positions of the abstract Science.

Compared to the older, so-called classical, or orthodox, British economists, these new thinkers offered more realistic explanations of economic change, and viable solutions for harnessing progress.

Indian Economics also offered a much-needed global perspective. Ricardo’s theory of comparative advantage advocated for an international division of labour that assigned industrial production to Europe and raw materials to the rest of the world. Ranade (1906, pp. 23 – 30) realised that the levels of value added were different for raw materials than for manufactured goods. Low rates of profits associated with agricultural production meant low increases in capital accumulation in those regions where it was needed most. Under such a global division of labour, India would remain un-industrialised and regressive, condemned to perpetual poverty. Indian economics’ critique of the comparative advantage model would form a major part of its contribution to economic knowledge.  

Ranade’s stadial theory had become popular in the eighteenth century to explain the differences between regions. Countries were different, according to the stadial theory, because they were at different stages of their development. To a large degree, Ranade’s stadial theory looked like the existing four-stage model² that had become widely accepted in the course of the late eighteenth-century Scottish Enlightenment. Ranade remade the theory by adding a lower imperial stage to which India had regressed due to imperialism. Ranade redefined a time in India’s past as one where the country had been at a higher stage, enjoying greater progress than it was experiencing in the late nineteenth century. Ranade and his peers could thus argue that India could leapfrog to a higher stage of civilisation, because it had already experienced a period of great progress in the past. India did not need to wait to progress or gain independence like the stage theorists from Europe argued.

In this way the Indian economists of the late nineteenth century were the first to conceptualise a dependent imperial economy. Such an economy relied on its foreign rulers for demand, development, politics, infrastructure, and education. In the case of India, dependence had ruralised the economy and drained the nation’s resources. It had no chance of developing – as promised through the imperial ruler’s civilising mission – because British domestic tariff barriers discouraged Indian textile exports and tax payments drained Indian wealth. The Indian economy could and would not behave like non-imperial territories.

Ranade also redefined universal development. For Europeans, David Ricardo’s (1772 – 1823) theory of comparative advantage, which advocated for a global division of labour that assigned raw material production to Asia and industrial production to western Europe and North America, became irrefutable. Even Friedrich List, who prescribed universal free trade once all countries had industrialised, denied the possibility of Asian progress. Industrialisation was thus only for Europe and, at best, North America. Theorists like List, who came from a country that was industrialising after Britain, argued that their countries should and could industrialise like Britain, but that the same did not hold for Asia (Helleiner, 2015, p. 992; Boianovsky, 2013, pp. 658 – 62). Seeing their economy – chiefly reliant upon agricultural production and exports – deindustrialise and become increasingly poor, the Indian economists did not believe there were benefits to such an international division. But while the Indian economists could not imagine a world without an industrialised western Europe, the British could imagine a world without an industrialised India. 

The Indian economists could, however, imagine an industrialised India. Their rereading of Indian history, which resulted in the redefinition of the stadial theory where the country had been at a higher stage of civilisation before imperialism, enabled Indian economics to reimagine the global political economy of development. If all countries industrialised, capital accumulation and global aggregate demand would increase. The resultant increase in exchange would enable still greater investment in industrial growth, thanks to higher levels of capital accumulation. Previous theories associated with Classical Political Economy, such as Ricardo’s, were Eurocentric, justifying a zero-sum world view that enriched Europe while impoverishing the rest of the planet. Global industrialisation as envisioned by Ranade could be win – win for everyone.

About the author

Maria Bach is a junior lecturer and post-doctoral researcher at The University of Lausanne. She is the author of Relocating Development Economics: The first generation of modern Indian economists. She hosts and produces the history of economic thought podcast Ceteris Never Paribus.