This paper takes a long-term view of the major developments in the Indian economy ever since the beginning of the contacts with Europe in the early modern period. It is argued that the long-distance trade between Europe and India in the pre-colonial period served as an instrument of growth in the output, income, and employment in the Indian economy. While this situation underwent a change during the early colonial period, there is a strong likelihood that the structure of manufacturing production in regions such as Bengal continued to be marked by a reasonable degree of vitality and capacity to deliver. The profile of a vibrant agricultural sector and rural economy in the region in the second half of the 18^th century presented in the paper seeks to revise substantially the orthodoxy in the historiography on the subject. The full-fledged impact of the colonial relationship between Britain and India came into play only in the 19^th and the first half of the 20^th century. The subcontinent witnessed only a limited amount of economic growth during this period. This growth would almost certainly have been substantailly greater if the Indian economy had not been subjected to colonial rule.

According to Angus Maddison, 150 years ago, the gap in mean per capita share of gross domestic product between the richest and the poorest global regions, namely Western Europe and Africa, was probably three to one. Today the difference in income per head between the richest industrial nations, say Switzerland, and the poorest nonindustrial country, Mozambique, is a mind-boggling 400 to 1. What has brought this incredible state of affairs about? Clearly, a key factor at work has been the tremendous acceleration in the rate of growth of gross national product in most economies of the west as a direct consequence of the forces unleashed by the Industrial Revolution that got under way in the second half of the 18^th century and continued through the 19^th century Over the same period of time, most of the countries of Asia, Africa, and Latin America not only did not experience similar major growth but in some cases were even characterized by no or even negative growth in the major economic indices. The inevitable outcome was the enormous widening of the gap in the level of economic achievement between the two sets of countries.