INDIAN ECONOMY ON THE EVE OF

INDEPENDENCE
INTRODUCTION:-
• Let us first look at the state of India’s economy prior to the country’s independence.
• India was under British rule which lasted for almost two centuries before India finally won its independence on
15 August 1947.
• The sole purpose of the British colonial rule in India was to reduce the country to being a raw material supplier
for Great Britain’s own rapidly expanding modern industrial base.
INDIA’S ECONOMY BEFORE ADVENT OF BRITISHERS:-
• India had an independent economy before the advent of the British rule.
• Agriculture was the main source of livelihood for most people.
• India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and
precious stone works etc.
• These products enjoyed a worldwide market based on the reputation of the fine quality of material used and the
high standards of craftsmanship.
INDIA’S ECONOMY AFTER ADVENT OF BRITISHERS:-
• The economic policies pursued by the colonial government in India were concerned more with the protection and
promotion of the economic interests of their home country than with the development of the Indian economy.
• Transforming the country into supplier of raw materials and consumer of finished industrial products from
Britain.
• The colonial government never made any sincere attempt to estimate India’s national and per capita income.
• Among the notable estimators — Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C.
Desai — it was Rao, whose estimates during the colonial period was considered very significant.
• However, most studies did find that the country’s growth of aggregate real output during the first half of the
twentieth century was less than 2% and 0.5% growth in per capita output per year.

SECTORS NEED TO STUDY IN THIS CHAPTER

SECTORS

AGRICULTURE INDUSTRY FOREIGN TRADE OCCUPATIONAL DEMOGRAPHIC

AGRICULTURAL SECTOR
➢ India’s economy under the British colonial rule remained fundamentally agrarian — about 85 per cent of the
country’s population lived mostly in villages and derived livelihood directly or indirectly from agriculture.
➢ The agricultural sector continued to experience stagnation and unusual deterioration.
This Stagnation and Backwardness In The Agricultural Sector Was Caused Mainly:-
➢ Land Settlement System:-
▪ ZAMINDARI SYSTEM which was implemented in the then Bengal Presidency, the profit accruing out of
the agriculture sector went to the zamindars instead of the cultivators. However, a considerable number of
zamindars did nothing to improve the condition of agriculture. The main interest of the zamindars was only
to collect rent regardless of the economic condition of the cultivators; this caused immense misery and social
tension among the cultivators.
▪ REVENUE SETTLEMENT were also responsible for the zamindars adopting such an attitude; dates for
depositing specified sums of revenue were fixed, failing which the zamindars were to lose their rights.
➢ Agricultural productivity became low, Low levels of technology, Lack of irrigation facilities and negligible use
of fertilizers, all added up to the dismal level of agricultural productivity.
➢ Commercialisation of Agriculture:-
▪ It refers to shift from producing cash crops to producing commercial crops like Indigo. But this could hardly
help farmers in improving their economic condition as, instead of producing food crops, now they were
producing cash crops which were to be ultimately used by British industries.
▪ Earlier they would grow grain for their family consumption, now they needed cash to purchase it from the
market. This is the main reason for their indebtness.
▪ A large section of tenants, small farmers and sharecroppers neither had resources and technology nor had
incentive to invest in agriculture.
➢ High Degree of Uncertainity:-
• Due to excessively dependent upon rainfall.
• No effort was ever made under the British rule to develop permanent means of irrigation.

INDUSTRIAL SECTOR
➢ In manufacturing, India could not develop a sound industrial base under the colonial rule.
➢ Even as the country’s world famous handicraft industries declined.
➢ The primary motive of the colonial government behind this policy of systematically deindustrialising India was
two-fold.
❖ First, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern
industries in Britain and,
❖ Second, to turn India into a sprawling market for their finished products.
➢ The decline of the indigenous handicraft industries created massive unemployment in India. The reasons for
decay of handicrafts are:-
❖ Discriminatory Tariff Policy of the State
a) Tariff free export of raw material from India.
b) Tariff free import of British industrial products into India.
c) Heavy duty was placed on the export of Indian handicraft products which reduce their competitiveness
in international market.
❖ Competition from Machine-made Product Machine made products from Britain were low cost products
and good in precision and quality. Therefore they gave a stiff competition to the handicraft products in
India and forced the Indian craftsmen to shut their enterprises.
❖ New pattern of demand:-
Owing to the impact of British culture, a new class emerged in India which was keen to adopt the western
lifestyle. This changed the pattern of demand against the Indian products and in favour of the British
products. In the process, the Indian industry started losing domestic market and ultimately perished.
❖ Introduction of Railways in India
With the introduction of railways, sizes of market for the low-cost British products tended to expand while it
shrinking for the high-cost Indian products. This quickened the process of decay of the Indian handicrafts.
➢ During the second half of the nineteenth century, modern industry began to take
root in India but its progress remained very slow.
❖ This development was confined to the setting up of cotton and jute textile mills.
❖ The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country,
namely, Maharashtra and Gujarat.
❖ While the jute mills dominated by the foreigners were mainly concentrated in Bengal.
❖ The iron and steel industries began coming up in the beginning of the twentieth century. The Tata Iron and
Steel Company (TISCO) was incorporated in 1907.
❖ A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
➢ Drawback of new industrial sector
❖ There was hardly any capital goods industry to help promote further industrialisation in India. Capital goods
industry means industries which can produce machine tools which are, in turn, used for producing articles
for current consumption.
❖ The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP)
remained very small.
❖ Another significant drawback of the new industrial sector was the very limited area of operation of the
public sector. This sector remained confined only to the railways, power generation, communications, ports
and some other departmental undertakings.

FOREIGN TRADE
➢ India has been an important trading nation since ancient times. But the restrictive policies of commodity
production, trade and tariff pursued by the colonial government adversely affected the STRUCTURE,
COMPOSITION and VOLUME OF INDIA’S FOREIGN TRADE.
➢ India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an
importer of finished consumer goods like cotton, silk and woolen clothes and capital goods like light machinery
produced in the factories of Britain.
➢ Britain maintained a monopoly control over India’s exports and imports.
➢ As a result, more than half of India’s foreign trade was restricted to Britain while the rest was allowed with a few
other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
➢ The opening of the Suez Canal further intensified British control over India’s foreign trade.
➢ The generation of a large export surplus came at a huge cost to the country’s economy. Several essential
commodities—food grains, clothes, kerosene etc. — were scarcely available in the domestic market.
➢ This export surplus did not result in any flow of gold or silver into India. Rather, this was used to make payments
for the expenses incurred by an office set up by the colonial government in Britain, expenses on war, again
fought by the British government, and the import of invisible items, all of which led to the drain of Indian
wealth.

raw silk, cotton, wool, sugar, indigo, jute etc.

finished consumer goods like cotton, silk and woolen

DEMOGRAPHIC CONDITION
➢ Before 1921, India was in the first stage of demographic transition.
➢ The population of British India was first collected through a census in 1881.
➢ The second stage of transition began after 1921.
➢ 1921 is known as the year of great divide.
➢ Before 1921 there population was never consistent. Size of population kept fluctuating.
➢ SOCIAL DEVELOPMENT INDICATORS:-
➢ The overall literacy level was less than 16%. Out of this, the female literacy level was at a negligible
low of about 7%.
➢ Public health facilities were either unavailable to large chunks of population or, when available, were
highly inadequate.
➢ The infant mortality rate was quite alarming—about 218 per thousand in contrast to the present infant
mortality rate of 40 per thousand.
➢ Life expectancy was also very low—44 years in contrast to the present 68 years.
➢ There was extensive poverty prevailed in India during the colonial period.

OCCUPATIONAL STRUCTURE
➢ During the colonial period, the occupational structure of India, i.e., distribution of working persons across
different industries and sectors, showed little sign of change.
1. Agriculture sector - 70-75%.
2. Manufacturing sector - 10%
3. Services sectors - 15-20%
➢ REGIONAL VARIATION.
1. Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu,
Andhra Pradesh, Kerala and Karnataka), Bombay and Bengal witnessed a decline in the dependence
of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the
services sectors.
2. There had been an increase in the share of workforce in agriculture during the same time in states such
as Orissa, Rajasthan and Punjab.

INFRASTRUCTURE
➢ Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs
did develop.
➢ The roads that were built primarily served the purposes of mobilising the army within India and drawing out
raw materials from the countryside to the nearest railway station or the ports.
➢ Introduction of railways in India fostered commercialisation of Indian agriculture which adversely affected the
self-sufficiency of the village economies in India.
➢ Electric telegraph in India served the purpose of maintaining law and order.
➢ The postal services, on the other hand, despite serving a useful public purpose, remained all through
inadequate.
➢ The inland waterways, at times, also proved uneconomical as in the case of the Coast Canal on the Orissa
coast.
POSITIVE IMPACT OF RAILWAYS:-
➢ It enabled people to undertake long distance travel and thereby break geographical and cultural barriers.
➢ Expansion of domestic market. Export and Import of the country showed a significant rise.
➢ Faster movement of food grain across different parts of the country helped control the spread of famines.
➢ Change in the outlook of the farmers due to introduction of railway towards the commercialization of
agriculture. Now they started viewing farming as a business.

CONCLUSION
➢ The agricultural sector was already saddled with surplus labour and extremely low productivity.
➢ The industrial sector was crying for modernisation, diversification, capacity building and increased public
investment.
➢ Foreign trade was oriented to feed the Industrial Revolution in Britain.
➢ Infrastructure facilities, including the famed railway network, needed upgradation, expansion.
➢ Prevalence of rampant poverty and unemployment required welfare orientation of public economic policy.