S7 Ep17: The long shadow of British rule: India's colonial legacy

Apr 1, 2026

Lakshmi Iyer, Professor of Economics at Notre Dame who studies political economy and colonial legacies, discusses how two British-era institutions shaped India's districts. She outlines differences between direct British rule and princely states, and contrasting land‑tax systems. The conversation covers persistent agricultural gaps, converging public services, and how targeted policies can erase or leave behind historical scars.

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INSIGHT

How Colonial Institutions Persist Over Time

Colonial institutions persist through formal rules and altered economic structures that shape incentives long after independence.
Lakshmi Iyer explains persistence via retained systems (parliamentary democracy, common law) and self-reinforcing low-investment equilibria from historical disruption.

INSIGHT

Princely States Versus Direct British Rule

India was split between directly ruled British districts and about 680 princely states that had internal autonomy under indirect rule.
Iyer highlights that princely states kept separate education, legal, and currency policies until 1947, creating long-run variation.

INSIGHT

Land Tax Systems Shaped Farming Incentives

British land tax systems varied: zamindari appointed large landlords while ryotwari granted individual cultivator deeds, shaping property rights and incentives.
Iyer notes these decisions determined tax collection methods and long-term agricultural behavior.

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Eighty years after Indian independence, the economic fingerprint of British colonial rule is still visible at the district level. Two institutions in particular left scars: whether a district was governed directly by British administrators or by one of India's roughly 680 Indian princes, and what kind of land tax arrangement the British put in place. For example, by 1991, directly ruled districts had nine percentage points fewer middle schools and a 20-percentage-point lower probability of having a road than areas under indirect rule. The question was whether those gaps would eventually close.

Lakshmi Iyer of the University of Notre Dame tells Tim Phillips that by 2011 infrastructure gaps had closed completely. Targeted post-independence programmes, including the Minimum Needs Program of the 1970s and the Sarva Shiksha Abhiyan of 2001, pushed schools, health centres, and roads towards underserved districts. The picture for land tenure is mixed. Areas that historically had landlord-based systems are still 17% behind non-landlord areas in wheat yields, and the gap in fertiliser use has widened rather than narrowed. One reason, the policy response was a universal subsidy rather than being specifically aimed at places that had fallen behind.

So colonial legacies can be erased, but only by policies designed to reach the places that were left behind. When policies have equalisation built in, historical gaps disappear. When they do not, the gaps persist.

The research behind this episode:

Iyer, Lakshmi and Coleson Weir. 2025. "The colonial legacy in India: How persistent are the effects of historical institutions?" Journal of Development Economics 177.

To cite this episode:

Phillips, Tim and Lakshmi Iyer. 2026. "The colonial legacy in India: How persistent are the effects of historical institutions?" VoxDev Talk (podcast).

Assign this as extra listening: the citation above is formatted and ready for a reading list or VLE.

About Lakshmi Iyer

Lakshmi Iyer is Professor of Economics at the University of Notre Dame and a Research Fellow at CEPR. Her research focuses on political economy, governance, and the long-run effects of historical institutions in developing countries. The paper discussed in this episode extends two of her earlier papers, one co-authored with Abhijit Banerjee and one sole-authored, both of which are listed in the research cited section below.

Research cited in this episode

Iyer, Lakshmi. 2010. "Direct versus Indirect Colonial Rule in India: Long-Term Consequences." Review of Economics and Statistics 92 (4). The original paper documenting that areas brought under direct British rule had significantly lower access to schools, health centres, and roads in the post-colonial period, using Lord Dalhousie's Doctrine of Lapse as an instrument for the selectivity of British annexation.

Banerjee, Abhijit V. and Lakshmi Iyer. 2005. "History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India." American Economic Review 95 (4). Finds that districts where the British assigned proprietary rights in land to landlords have significantly lower agricultural investment and productivity in the post-independence period than areas where rights went to individual cultivators.

Nunn, Nathan. 2007. "Historical Legacies: A Model Linking Africa's Past to its Current Underdevelopment." Journal of Development Economics 83 (1). Develops the theoretical case for why economies displaced into a low-production equilibrium by extraction or oppression can remain there long after the original impetus disappears.

More VoxDev Talks on this topic

India's economic development since independence: Devesh Kapur and Arvind Subramanian discuss how India's transformation across eight decades of independence has defied conventional models of development, and what it reveals about the relationship between political economy and growth.

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