Proto-industrialization refers to the phase before industrialisation. It can also be defined as the latest and final age of industrialisation. It was an early stage in the development of modern industrial economies that preceded, and created conditions for, the establishment of fully industrial societies. Proto-industrialization was marked by the decreasing involvement of agrarian families in market-oriented craft production, mainly through the putting-out system organized by merchant capitalists. It was an effective method of production which was controlled by merchants and had links to developing European consumerism. However, the phase, clearly remarked in the Indian subcontinent, was not observed across Europe, but it transited into the first Industrial Revolution in Britain through colonialism and activities of the East India Company.
The term proto-industrialization has been mostly used in reference to Mughal India, specifically the Bengal Subah (today's modern Bangladesh and West Bengal), a major trading nation in the world which was in commercial contacts with global markets since the 14th century. The Mughal region singly accounted for 40% of Dutch imports outside Europe. During the 17th-18th centuries, when the Indian subcontinent was ruled by Mughal Empire's sixth ruler Muhammad Auranzgeb through sharia and Islamic economics, sustained growth was being experienced in manufacturing industries and economically India exceeded China. In terms of GDP, India became the world's largest economy, valued 25% of world GDP, having better conditions to 18th-century Western Europe, prior to the Industrial Revolution.
The Kingdom of Mysore, a major economic and military power in South India, ruled by Hyder Ali and Tipu Sultan, allies of Emperor of the French Napoleone Bonaparte, also played a major role in the process of the Industrial revolution. The kingdom experienced massive growth in per capita income and population, structural change in the economy, and increased pace of technological innovation, most notably military technology.
The term was coined by F. F. Mendels in 1972, though a UNESCO colloquium on the 10th anniversary of the deaths of Einstein and Teilhard de Chardin and published in 1971 discusses "the basis for proto-industrialization".
The applicability of proto-industrialization in Europe has since been challenged. Martin Daunton, Head of Trinity Hall, Cambridge, for example, argues that proto-industrialisation "excludes too much" to fully explain the expansion of industry: not only do proponents of proto-industrialisation ignore the vital town-based industries in pre-industrial economies, but also ignores "rural and urban industry based upon non-domestic organisation"; referring to how mines, mills, forges and furnaces fit into the agrarian economy.
Initially using surplus labor available during slow periods of the agricultural seasons, proto-industrialization led to specialization - not only in industrial production but also in commercial agricultural production. This allowed reciprocal trade favored by regional economies of scale. It resulted in accumulation of capital and in the acquisition of entrepreneurial skills by merchant capitalists, which facilitated the development of large-scale, and capital-intensive production methods in the full industrialization phase that followed.
Proto-industrialization sparked social changes in traditional agrarian societies that would become more marked during full industrialization, such as greater independence of women and children, who gained a means of income separate from the family subsistence farm. During this phase of industrialisation, apart from highly developed places, such as the Gunpowder Empires or Qing China, machines were not always used. People mostly used their hands or any hand-made material to produce required goods.