From the Stanford Encyclopedia of Philosphy entry on colonialism:

In a series of newspaper articles published in the 1850s in the New York Daily Tribune, Marx specifically discussed the impact of British colonialism in India. His analysis was consistent with his general theory of political and economic change. He described India as an essentially feudal society experiencing the painful process of modernization. According to Marx, however, Indian “feudalism” was a distinctive form of economic organization. He reached this conclusion because he believed (incorrectly) that agricultural land in India was owned communally. Marx used the concept of “Oriental despotism” to describe a specific type of class domination that used the state’s power of taxation in order to extract resources from the peasantry. According to Marx, oriental despotism emerged in India because agricultural productivity depended on large-scale public works such as irrigation that could only be financed by the state. This meant that the state could not be easily replaced by a more decentralized system of authority. In Western Europe, feudal property could be transformed gradually into privately owned, alienable property in land. In India, communal land ownership made this impossible, thereby blocking the development of commercial agriculture and free markets. Since “Oriental despotism” inhibited the indigenous development of economic modernization, British domination became the agent of economic modernization.