RICARDIAN THEORY OF DIFFERENTIAL RENT WITH RESPECT TO ITS IMPLEMENTATION IN INDIA

“Effective decision-making can be seen as an optimal link between memory of the past, ground-realities of the present and insights of the future.”

During the 1800’s the industrial capitalist wanted free trade of corn into England as it was a fast growing crop, available at a low rate and could be easily replaced as the staple diet for the workers ultimately allowing the industrial capitalist to pay lower wages to the workers . In regard to this the landlords argued that it would be unfair on their part as the taxes on land were higher in England as compared to Europe , and hence there should be taxes imposed on the import of corn from europe. To this David Ricardo, an influential economist put forward the Ricardian theory of differential rent arguing against the landlord on the subject of corn laws ,with regard to the difference in rent.

The ricardian theory of differential rent argued that rent arouse depending upon the fertility of the soil , higher fertility meant more harvest which would lead to higher profits also known as superprofits , he said that the rent is not a factor of production but is charged from the superprofits and hence there should be no duties charged on the import of corn into england , as the soil of england is more fertile than that of europe .

Ricardo intended to create a strong class of capitalist farmers and eliminate the landlords. He believed that these were parasite classes as they took all the superprofits and did not contribute to production, and hence he stated that the rent should stay with farmers, while landlords should be eliminated, by means of which superprofits would be invested in production.This would ultimately lead to the growth and prosperity of the nation.

When applied in india through the ryotwari system of taxation by the british colonial state this policy created something quite contrary as to what was originally intended.The stated aim by the british was to remove zamindari system and charge the superprofits from the peasants directly, which would not cause any harm to them but if anything will be beneficial for them .

Although they had a good policy in theory they were ignorant of the ground reality, which lead to the creation of a system that destroyed the system. The transition from the zamindari system to the ryotwari system was much more complex as the framers where required to be pay taxes according to the fertility of their land, which meant that the village officials where to go to every plot of land to estimate the fertility and according adjust the tax that was to be collected.

The village officials unwilling to do the enormous amount of work, took the highest amount of tax paid in the past as the tax to be collected .

Their fatal flaw was that they assumed indian subsistence farmers to be capitalist farmers, they assumed if after paying the highest amount of tax in the past if they still continued farming it must be profitable for them otherwise they would have shifted to something else ,as that is what a capitalist farmer would do. They undermined the nature of peasant farmers in India, they were subsistence farmers dependent upon labour where their entire family worked to get the produce. No matter the amount of tax imposed on them they could not leave agriculture like the capitalist farmers, they did not have the resources or mobility to do so. Due to agriculture being their only source of income with having nowhere else to go , they were forced to pay the enormous amount of tax imposed upon them .

These enormous taxes where to be paid in cash right after the harvest, this was almost an impossible task for most. These conditions gave way to a stronger merchant and money lending class and the decline of the peasants , they were in debt and pushed to poverty ,with all the money mainly going to the british state and merchant and moneylending classes. Instead of creating capitalist farmers and a thriving agriculture, this policily resulted in the strengthening of the moneylending and merchant classes, and all together bringing immense destruction in india.

Hence to conclude, although the british colonial state had a good policy in theory, it ended up creating the opposite of what Ricardo had intended as perhaps they were undereducated about the ground reality . Their assumption made by them was that Indians were capitalist farmers which was way different from the ground reality .Taking in account the ground reality; what the economy is about , what the people are about and how they work is crucial for designing any economic policy .