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©Victoria and Albert Museum/London Floorspread Painted and dyed cotton, Coromandel Coast, circa 1630

It is only a ragged piece of plain woven wool — a shawl, perhaps or part of a blanket. But this simply decorated scrap with its faded blues and reds, greens and browns could be the oldest example of Indian tapestry, dating back to the 3rd, even the 1st, century AD.

It hangs among glittering saris, luxurious wall hangings, coats in many colours and tapestries that tell of war and conquest at the Victoria and Albert Museum’s radiant exhibition, “The Fabric of India”.

More than 200 pieces have been brought together — many of which have been tucked away in the V&A stores since they were acquired in the 19th century. They are complex and beautiful, both practical and fanciful with a craftsmanship springing from the unique combination of natural resources of textiles and dyes that have been developed over thousands of years in the subcontinent of India, Pakistan and Bangladesh.

Not only do the works reflect the needs and tastes of day-to-day living but the egos of rulers, the demands of religion and the realities of politics that simmered, then exploded, in the time of the British Empire.

For all glitter, few exhibits have more significance than khadi, two pieces of handwoven cotton. Mahatma Gandhi, who led the fight for independence from British rule in the first half of the 20th century, wore khadi as a protest against the cotton mills of Lancashire, England, which were depriving Indian workers of their traditional trade by producing cheaper goods, and later used it as a potent symbol as India fought to free itself from British rule.

He believed that India’s future lay with the traditional village-led economy, using much the same hand-spinning techniques and materials that had impressed the Greeks and Romans. They considered Indian dyers to be the masters of the art of colouring, which is why the Greek word indikon, or indigo in English, became the name for the Indian subcontinent.

For at least 4,000 years indigo plants have been used to produce a colour that is bluer, darker and deeper than any other as a woman’s dress from the North West Frontier made in 1855 shows. It has the intensity of a painting by Mark Rothko.

If dyes are intrinsic to the development of Indian textiles, the materials — flax, silk, cloth and pashmina, the lightweight fibre spun from the fine under-hair of a goat — are as long-established as the looms which were first used 1,000 BC and a version of which, the pit loom, would be recognisable today.

But when it came to trade cotton was pre-eminent among Indian textiles. The show’s co-curator, Rosemary Crill writes in the catalogue: “It is not an overstatement to suggest that without its presence the entire history of India, and thus the world, would have evolved dramatically differently.”

She argues that wealth generated by such trade, combined with self-sufficiency in food crops, was the basis of the economy of northwestern India. That wealth allowed the expansion of further settlements, which encouraged the development of local cultures.

The first traces of woven cotton were found in the Indus Valley in the northwest of the subcontinent, in middle of the 3rd century BC and early in the 2nd. Some evidence suggests cotton was used more than 1,000 years before that.

These ingredients, the techniques, the history, this ancient alchemy, all come to ravishing life on the walls of the V&A with saris, dresses, shawls and hangings in strong reds and deep oranges, picked out in greens and yellows decorated with flowers, birds and, invariably, elephants.

Lustrous examples include a shawl in shimmering brocaded silk and metal-wrapped silk thread from Varanasi, Uttar Pradesh (1885), a silk sari from Jamnagar, Gujarat (late 19th or early 20th century) in rich red picked out in gold, a cotton bodice from Satara, Maharashtra, with silk borders, block printed with gum and overlaid with ground mica and mirror glass from about 1855. One of the most extraordinary is a map of the city of Srinagar depicted on a pashmina shawl, which shows the bridges, houses, temples and mosques in carefully woven detail.

There is an insight, too, into the differences between Hindu and Muslim. Two women from the 17th century are depicted “modelling” garments from the Mogul era. One, a Hindu, wears the preferred tight bodice and head cover while the Muslim is in trousers under a diaphanous robe, open at the front with long head cover.

This is “everyday” craftsmanship but perhaps the most striking — and certainly the largest — of the textiles, are those that tell a story, many of which have been made for religious purposes.

A cotton hanging for a temple, 2x10 metres, depicts scenes from the epic “Ramayana”. The detail is extraordinary and though the red panels are fading to brown, the work still has the vibrancy it had when first woven at the end of the 18th century. Best let the catalogue explain the detail and emphasise the sheer intensity of the craftsmanship: “These are all indigo-dyed, appliquéd and embroidered in cotton thread with figurative designs ... with floral, geometric designs, appliqué work and fish motifs. The hanging is embroidered with a remarkable variety of stitches including running, stem, satin, herringbone, filling, couching, cross, Sindhi, long-short, chain, French knot and feather stitch.”

It is that kind of fabulous detail that brings alive the cotton and block print hanging for the deity Gangamma (1881-82). It tells the story of a local hero Katamaraju surrounded by ranks of warriors, a gaggle of naked women, and a representation of the Churning of the Milky Ocean, and impossibly complicated saga of demons, serpents and a mountain that sinks into the sea.

Works were also produced to reflect the power and patronage of the royal courts, particularly of the Moguls who ruled much of India from the 16th to the 19th century. A French doctor, François Bernier, at the court between 1658 to 1669, described the “consumption of fine cloths of gold and brocades, silks, embroideries” in the Mogul harem as “greater than can be conceived”.

The results are splendid. The hanging, which depicts the mythological Kurukshetra war described in the epic “Mahabharata”, is a marvel of charging elephants, armed men on horseback and camels, trumpets, drums, bows, arrows and spears, all bordered, somewhat incongruously, by birds and flowers.

A tent made for Tipu Sultan, the ruler of Mysore in the late 18th century, is more than 24 metres around and 3 metres high and would have been for outdoor living or travelling. But it had to impress so it is decorated with intense floral designs in printed cotton to represent his wealth and taste. Tipu was defeated by the British in 1799 and the tent taken to Wales where it was housed in Powis Castle and for many years used for garden parties.

In all these works colours have a symbolism. Red often signifies fertility, power and wealth, especially when made from woven silk; yellow is associated with the deity Vishnu, and yellow pitambar (from Sanskrit pita, meaning yellow) saris and dhotis are considered suitable garments for prayer and ritual. In Islam, green is associated with the Prophet Mohammad (PBUH) and a green turban shows that the wearer has been on the Haj.

The birds and flowers that decorate so many hangings epitomise paradise as a garden but even by the 17th century paradise was under threat. The East India Company arrived from London in 1600, started a trade in Indian fabrics that grew swiftly from small amounts in 1613 to the 1670s, when the Company changed from trading for spices in southeast Asia to supplying textiles to manufacturers in England. Suddenly plain, striped or checked fabrics such as gingham, calico, chintz and dungaree (from Hindi “dungri”, after the Dongri area of Mumbai where this fabric originated), were all the rage.

By the second half of the 19th century the East India Company’s trade in textiles from India reached its peak when about 1.5 million pieces were exported. The Company ruthlessly exploited its workforce and forced them to work for them exclusively while paying them less than their rivals.

At about the same time England’s cotton trade was reaching its zenith, with the result that India’s trade was reduced dramatically. Moreover, as early as the 1830s the Lancashire cotton mills were exporting up to 51 million yards of the fabric to India, reducing what had been the world’s greatest producer of cotton textiles, to exporting raw cotton and importing foreign cloth.

An account by a Bengali widow in 1828 describes how the weavers stopped coming to buy her yarn: “Even when I send it to the market place they will not buy at one-fourth of the former price. I have learnt that the weavers are using English yarn ... when I examined the yarn I found it better.”

At the Great Exhibition held in London in 1851, the Indian court put on a magnificent show with textiles selected by the East India Company. There were gold and silk brocades from Ahmadabad (Gujarat), woollen shawls from Kashmir and diaphanous white muslins from Bengal. Many of those pieces were acquired by the V&A the following year when the museum was opened and now form the most comprehensive collection of Indian textiles in the world.

But the display contrasted with the plight of the weavers and of the textile mills. A political movement known as Swadeshi grew, urging people to boycott foreign goods and to wear Indian fabric. Gandhi exploited this in his campaign for independence, ensuring he was often seen spinning cotton in public and by wearing khadi, not just in support of the craft but as a symbol of Indian freedom.

He declared: “Foreign cloth must be totally banished from the Indian market, if India is to become an economically free nation, if her peasantry is to be freed from chronic pauperism ... Protection of her staple industry is her birthright.”

He could not have foreseen India’s development into the economic powerhouse it is today but he would be happy to discover that despite global trade and the industrialisation he so despised, handweaving has not died. India’s Ministry of Textiles’ Annual Report for 2013–14 says: “Handloom weaving is one of the largest economic activity [sic] after agriculture providing direct and indirect employment to more than 43 lakh [4.3 million] weavers and allied workers. This sector contributes nearly 11 per cent of the cloth production in the country.”

There is a coda to the exhibition. Garments by contemporary designers have used traditional methods and taken time-honoured styles to create 21st century interpretations. Some are stylish, such as a sari with abstract patterns, some are an acquired taste, such as men’s Gamcha jacket, a bold silk and cotton affair in an irregular red check. A butterfly dress, a riot of garish embroidered butterflies, is pure fancy while a skirt and top by the fashionable Manish Arora channels British artist Grayson Perry with an ensemble of silk embellished with silk flowers, beads, sequins and iridescent strips.

His aim is dramatise the original but, in fact, the originals are more inventive and, well, more dramatic.

Richard Holledge is a writer based in London.

“The Fabric of India” runs at the Victoria and Albert Museum, London, until January 10, 2016.