Economic Policies and Strategies used in the Colonial Period

Portuguese Era (1505 A.D to 1658 A.D)

Trade

Even if are ca nuts, coconut, cinnamon, pepper, elephants, gems and pearls were the main commodities traded, mainly through Arabs early in the 16^th century Portuguese found Cinnamon the most important article of trade. The plant   grows wild in southwest coast of Sri Lanka.

Everyone had to deliver a fixed amount of cinnamon to Portuguese as a responsibility and was without a pay. The dried and the peeled bark is used as a condiment. Gathering, drying and peeling was carried out by the “Salagama” caste. It is estimated by Portuguese writers that in 1518 Portuguese took 1000 Bahia's of cinnamon from island and a Bahia was about 400 pounds.

It became an extremely lucrative trade for Portuguese fetching many times its original purchase price in Sri Lanka when sold in Cochin or Ormuz and even when sold in Lisbon. The price was kept artificially high by Portuguese and increased a thousand fold during 16^th century.

Dutch era (1656 A.D to 1796 A.D)

Cinnamon

The ditched monopolized and administered trading, particularly in cinnamon, more efficiently and ruthlessly than Portuguese.

A cinnamon Department or “Mahabadde” was organized for peeling and delivery of the cinnamon by all men belonging to the Salagama Caste. A fixed amount had to be delivered (without payment) by each man as part of his obligatory caste service. Dutch also tightened up the procedures by keeping accurate records of all the Salagama men and inflicting heavy punishments for absenteeism or any other minor wrong doing. A pittance was paid for any other additional weight of cinnamon delivered. Most of cinnamon was sold in Europe and only about one fifth was sold in Asia.

Dutch was the only supplier of cinnamon for both Europe and Asia and hence they were able to dictate the price of the commodity. Since the cost was minimum the profits were considerable. But this didn’t benefit the island and sales appeared as profits in Netherlands for the company.

Elephants

Elephants were another important export to Bengal where they fetched a high price. Jaffna was the main center for elephant trade. Elephants were used in war, haulage and ceremonial purposes. Sri Lankan elephants were popular because they were more easily tamed and trained.

Other exports

Are ca nuts, pearls, gems, chunks and cowries (types of sea-shells) were also exported mainly to India. Pepper and cardamoms were obtained mainly from Kandyan kingdom. Coconut cultivation rapidly increased in this era. Coffee which had been introduced to Europe in the mid seventeenth century and had become popular by 18^th century was grown and exported for hundred thousand pounds by 1739. But by 1760 coffee export had ceased and begun again  under the British. Tobacco grown in Jaffna was demanded by Devanagari. Palmyra timber was also export from Jaffna to South India.

Imports

The main imports were rice and textiles. Rice came mainly from Bengal and the Coromandel coast where it was cheaper than the west coast of India. The Dutch monopoly tended to stifle the trade with India and this lead to a shortage of essentials such as rice and textiles. Because of this very early in 18^th century rules were relaxed and traders from India were allowed to participate more freely but Dutch continued to control prices by a system of passes and inspection.

Other strategies

Galle was strategically situated for international trade and Dutch allowed Portuguese and English merchantmen to carry an exchange of goods at this port from 18^th century. Sinhalese traders in the south and west, Tamil traders in the north and east and Muslim traders who lived in all the ports carried on a flourishing coastal trade in small boats. Dutch built a system of canals in Sri Lanka which are part of everyday life in Netherlands. These canals were not only useful for transport of goods but also acted in some places as flood protection schemes and in others helped to irrigate crops.

The Kandyan kingdom too participated in trade by exporting items such as are ca nuts, pepper and cardamoms and importing rice and textiles. Muslim trades helped to promote kandyan trade. The salt supply to kandy was also controlled by the Dutch who allowed just enough to be taken from the salt-pans along the current needs and the excess was thrown back into the sea to avoid storage within kandyan kingdom.  Even if Dutch didn’t allowed the kandyan freedom of trade it continued openly with India because of Nayakkara influence.

Thought the Dutch policy of shifting free trade reduced the rate of economic growth, there was a general increase in productivity.

By the 18^th century money economy had expanded to include all classes. Indian merchants brought in gold and silver coins for the smaller transactions, which were becoming more frequent with the expanding economy. A competitive trade continued with India, Maldives and other countries of Southern Asia. From this trade there emerged a group of entrepreneurs- Muslim, Sinhalese, Tamils and Indian expatriates who formed a class consisting of merchants and middlemen, which became more prominent during the Bristish period.

British Era (1796 A.D to 1948 A.D)

British removed traditional tax system such as “Rajakariya” and “Uliyam” but replaced with new taxation system which caused sudden increase in taxation level.   

In 1820s and early 1830s Sri Lanka was economically and socially in a terrible state. The only important export was cinnamon. Up to 1822 external trade was monopolized by the English East India Company and only a small proportion of profit was made available to the island’s economy. After the government took over the monopoly in 1822 the price of Sri Lankan cinnamon fell mainly because of the competition from east India Company. The British continued to use the Salagama caste to collect cinnamon in their traditional role as providing free labor for a service that was essential to the state.  The larger proportion of external trade at this stage was the coastal trade with South India. Export of coffee was increased as Governor Barnes abolished export tax on coffee and made loans available for investors.

Thought the internal trade improved rapidly, external trade was slow to develop because it was still a government monopoly. The duties which were carried with native customs had been taken over by British civil servants.

Coffee

Coffee was an important export. Export duties on coffee was revoked and tax on coffee plantation was abolished in 1825. In 1835 import duties in Britain on coffee from the West Indies and Asia were equalized further helping the profitability of the Sri Lankan exports. British planters recruited laborers from South Indian Tamils for work in coffee plantations and later an unwritten contract between planter and labourer was made. As a result Indian immigrants population increased within the country.

In 1845 economic depression affected coffee industry Sri Lanka and many small investors bankrupt. In 1848 Sri Lankan government made some new ill taxes to recover the fallen income.

Other crops

The improvement in the economy had been mainly due to coffee. Success of coffee made other crops like rice to ignore. Rice cultivation was thought to be less important due to thinking it could be imported from Bengal using some of the revenue generated from coffee.

Value of cinnamon had dropped considerably because of competition and it only played a minor role in export revenue.

Sugar cane cultivation was tried but didn’t succeed due to West Indian and Javanese sugar being cheap.

Coconut grown all over the island but mainly in the maritime districts, became more popular as an export. Rubber plantation too started in Sri Lanka in Southern, Western and Sabaragamuwa provinces. It was a profitable export too and helped when the main crop was not doing well.

The cultivation of Tea and Rubber

In early years of introducing tea to Sri Lanka, it was a failure (1824-1841). However in 1860s some plants grew alongside coffee. Tea took the place of coffee. By 1883 dark tea from Sri Lanka was noted for its distinctive aroma in the London stock market and became very popular, non alocoholic beverage in Britain about that time. By late 1890s tea plantation expanded from 20000 acres to 500000 acres. Of the total export earnings about 60% was accounted by tea.  Tea became the most important single factor in the island’s economy.

When the price of tea fell in 1897 a search was made for alternative crops. More investment was made in coconut plantation. But by 1910 rubber overtook place of coconut and became second most important export.