(i) The third phase of British colonialism which began from the 1860s, was the period of 'finance imperialism', when some British capital was invested in the colony. This capital was organised through a closed network of British banks, export-import firms and managing agencies.

(ii) The new development that marked out the third phase was an intensification of the rivalry between developed and industrialised countries, for colonies in Asia, Africa and Latin America. In the 19th century, countries like France, Belgium, Germany and the United States, and even Japan witnessed rapid industrialization. In the face of competition in the world market, Britain's lead in this regard dwindled. In search for newer markets and sources of raw material, these countries stepped up their drive for colonies and strengthened their control over existing ones. Industrial development also led to capital accumulation, which was concentrated in a small number of banks and corporations. This capital was invested in the colonies to sustain the rapid inflow of raw materials to fuel further expansion of industrial production.

(iii) High tariff restrictions in other developing capitalist countries led to a contraction of markets for British manufactured goods. The need for heavy imports of agricultural products into Britain, was making her position vulnerable in her trade with other countries. India proved crucial in solving the problem of Britain's deficits. Britain's control over India ensured that there would always be a captive market for Lancashire textiles. Further, India's export surplus in raw material with countries other than Britain, counter-balanced her deficits elsewhere.

(iv) While indigenous handicrafts faced impoverishment, there were few attempts at developing modern industries in the colony. British capital was initially invested in railways, jute industry, tea plantations and mining. The Indian money market was dominated by European banking houses. British banking houses and British trading interests were well organised through Chambers of Commerce and Managing Agencies and could also influence the colonial state, to carefully deny Indian entrepreneurs access to capital.

(v) Before the First World War, British Managing Agencies controlled 75% of industrial capital, and most of the profits from this limited industrialization were also sent back to Britain.