Civil service reforms began with the creation of an exam-based system in
1853 and culminated in the creation of the Indian Civil Service (ICS) in 1892.
This was a professional service recruited via a highly competitive exam and
subsequently governed by an internal merit system that largely eradicated
nepotism and patronage. From 1922 onwards it became possible to take the
exam in India, making it more accessible to Indian recruits. The
British–Indian balance had reached near parity by 1939 (Roy, 2002: Kohli,
2004). The political reality below the apex of the 1,000 officers of the ICS was
very different. As colonial rule spread in the eighteenth and nineteenth
centuries the British secured their influence by making a variety of arrange-
ments with local notables who then collected taxes and maintained order. In
the Punjab, for example, rural military and landlord elites were allowed to
dominate various legislative councils and political parties in return for ensur-
ing social stability (Yong, 2005:309). This indirect system of rule through
local alliances limited the colonial state’s ability either to be extractive or to
set up European-style institutions (Kohli,2004).
Tax revenue was too limited to be called extractive and spending too low to
support settler-type institutional development. Public expenditure during the
first half of the twentieth century averaged 10 per cent of GDP; more than half
of this was spent on running the state itself (the military, civil service, legal
framework and judiciary) and a further 20 per cent was spent on irrigation proj-
ects. By 1900/01 only 4 per cent of the budget was spent on health and educa-
tion. The tax base was pre-modern. Tax revenues initially came from land and
opium taxes,replaced over time by taxes on salt and customs duty. An income
tax was levied in the 1860s, withdrawn and re-introduced several times over
the subsequent decades.
The first major British conquest in South Asia was the Mughal province of
Bengal in 1757,then already a settled peasant economy. The history of British
rule can be read as a series of efforts to create property rights to promote
productive agriculture while also attempting to maintain social and political
stability. These two objectives proved impossible to reconcile and led to the
creation of conflicting sets of rights, more contradictory than Acemoglu’s
extractive or settler type. The Permanent Settlement of 1793 imposed an obli-
gation on local landlords (known as zamindars) to make a fixed annual
payment to the state. Revenue beyond this could be kept and zamindarswere
granted the formal right to buy and sell their revenue-collecting authority
(Khan, 2010). It was hoped zamindarswould make efforts to improve the
productivity of agriculture, knowing they could keep any extra revenues.
The colonial state in India lacked traditional sources of power and authority
which made the maintenance of social order a major concern, especially after
the rebellion of 1857. After 1857 the state tried to avert further threat to its rule
by passing legislation to protect tenants and strengthen their rights to avoid
discontent and instability. This legislation included the Rent Act of 1859 and
Tenancy Act of 1885. These acts strengthened the rights of small landlords
who were the tenants of the larger zamindars (Khan,2010). By 1880 in the
188 Patterns and Determinants of Economic Growth