CHAPTER-1
INDIAN ECONOMY ON THE EVE OF INDEPENDENCE :
Important Terms and Concepts.
1. National Income- It is the total value of the final goods and services produced within a country plus net
income from abroad.
2. Per Capita Income-National Income of a country divided by its population ,during a period of time, i.e,
P.C.I.= NI/Population
3. Agrarian Economy- An economy in which about 85% of the country’s population lived mostly in villages
and earned their livelihood from agriculture (either directly or indirectly).
4. Agricultural stagnation- A period witnessed by no or slow rate of economic growth in the agricultural
sector.
5. Land/ Revenue Settlement System- With the british acquiring territorial rights in different part of India
,administration of territories was formulated in terms of revenue to be collected from each piece of land
possessed by either a ryot/ mahal/ zamindar. In each of these cases decision was meant for the rights of the
zamindars over land for the purposes of either ownership of land or rights to cultivation. This is known as
land/ revenue settlement system.
6. Commercialisation of Agriculture- The production of crops for the market ,i.e, for sale rather than for
self-consumption. The british laid more emphasis on production
of cash crops than food crops.
7. Economic drain- During the British Rule, the government incurred:
(a) Huge administration expenses to manage their colonial rule in India.
(b) Huge expenses to fight wars in pursuit of their policy of imperialism. These expenses were to be borne
by the Indian [Link] this refers to ‘Economic Drain’ or drain of India’s wealth.
Important dates-
Battle of Plassey-1757 Introduction of Railways-1850
Tata Iron and Steel Company (TISCO) -1907 1st Industrial Policy Resolution-1948
Year of Great Divide-1921 2nd IPR- 30April,1956
First Official Census-1881 Planning Commission/ Indian Economic
Suez Canal Opening-1869 Planning-1950
Green Revolution- 1956
Starting of the chapter:
ORIGIN OF BRITISH RULE
The foundation of British Empire was laid by Battle of Plassey, fought in 1757.
Basic purpose of british rule/ Aim of Britishers-
The main purpose of British rule in India was to use indian economy as feeder economy for the
development of British Economy. Finally, after 200 years,India gain independence on 15th August,1947.
Britishers take over raw material and sold us their finished goods.
Features of Indian economy before the arrival of Britishers
1. Prosperous Economy- India was self reliant and prosperous economy before the arrival of Britishers.
2. Agrarian Economy- Agriculture was main source of livelihood and it engaged about 2/3rd of the total
population.
3. Well-known Handicraft Industries- Indian was well known for its handicraft industries in the fields of cotton
and silk textiles, metal and precious stone works ,etc.
Britishers transformed the country into a supplier of raw materials and consumer of finished goods &
industrial products from Britain.
Colonialism:
It refers to a system of political and social relations between two countries, of which one is the ruler and
other is its colony. Ruling country not only has political control over the colony but it also determines
economic policies of dominated country.
Some individual attempts to estimate National income & per capita income was by:Dadabhai Naroji ;
William Digby ; VKRV Rao; RC desai.
Economists whose calculation was considered as accurate for calculation of NY was Dr. VKRV Rao.
Exploitation of Indian Economy under British Rule:
Indian economy under british rule is subjected to colonial exploitation, by the British Government.
Colonial Exploitation major sectors:
[Link] sector
2. Industrial sector
3. International sector
Colonial Exploitation of Agricultural Sector:
Agriculture was exploited and stagnant due to following reasons
I. Land Settlement System-
Under this ‘Zamindari System’ was introduced Zamindars were declared as the owners of the soil and they
have to pay a fix amount to government by way of land revenue and they were free to extract as much as
they wish from the tillers of the soil.
On the other hand , zamindars spent their revenue income on the luxury of life. In return tillers get only
some food or crops given by zamindars from the land.
II. Commercialisation of Agriculture-
It means production of crops for sale in the market rather than for self consumption. Indian markets is a
subsistence market but britishers finish this subsistence system. Britishers forced farmers to produce cash
crops( i.e. cotton, jute, indigo) rather food crops (i.e. wheat, pulses, etc.) which leads farmers ultimately in
debt.
III. Low Level of Productivity-
-Our land is less productive due to low level of technology No irrigation facilities No fertilisers /insecticides/
pesticides
- Cultivator had nither means nor any incentive to invest in agriculture.
- British rule spent little on agriculture , technical or mass education.
IV. Scarcity of Investment-
- India's agriculture was facing scarcity of investment in teraccing, flood-control and drainage.
- They neither had resources & technology not had incentive to invest in agriculture.
COLONIAL EXPLOITATION ON INDUSTRIAL SECTOR:
The most popular industry is handicraft industries but britishers finished these industries by
I. De-Industrialisation
-Britishers systematically destroy handicraft industry in two folds.
. Take raw material from India at cheaper rates and used it in modern industries at Britain.
. Self finished products of British Industries in Indian markets at higher price.
-This two fold policy led to the decline of Indian Industries.
II) Tariff Policy-
-British found Indians the best source of raw material as well as best markets for their industrial products. As
a result a discriminatory tarrif policy was persued. It includes:
a) Tariff free import of raw material from India and
b) Tariff free import of British industrial products into India. As a consequence-
. British product started gaining indian markets and Indian handicrafts products started closing their
domestic as well as foreign market.
. Decay of handicrafts was the end result.
iii) Competition from machine made goods-
-The competition forced Indian craftsmen to shut down their enterprises.
-As the machine made products from Britain were low cost products and gave a stiff competition to Indian
handicrafts products.
-Also machine made products compete Indian handicraft products in precision and quality.
iv)Low contribution to Gross Domestic Product (GDP) -
-Since industries has perished, so there is no production of goods and services.
-So the growth rate of new industrial sector and it's contribution to the GDP remained very small.
v) Adverse Effects of decline of Handicraft industry
a) High level of Unemployment-
-Decline of Indian handicrafts results in unemployment which forced artisans to take up agriculture.
b) Import of finished goods-
- Indian goods can't compete with foreign competition of machine made cheap goods which encouraged
import from Britain.
vi) Limited role of Public Sector-
-Public sector did nothing for industrial sector.
-Public sector remained confined only to railways, communication, power, ports, etc.
ADVERSE EFFECTS OF PARTITION-
-India's agriculture faced adverse effects of partition.
-A seizable portion of highly irrigated & fertile land went to Pakistan.
-Almost whole jute producing area become part of East Pakistan (now Bangladesh) .
FOREIGN TRADE
Since in ancient times India was well known exporter of finished goods like silk textiles, iron goods, precious
stone etc but because of the discriminatory tariff policy India became net exporter of raw material & importer
of finished goods.
i) Net Exporter of primary products and Importer of finished goods
- Because of the colonial exploitation of Indian economy, India became net exporter of primary raw material
of silk, cotton, wool, sugar, indigo etc.
- On the other hand, it became net exporter of finished goods produce by British industries which includes
capital goods, woollen clothes, silk etc.
ii) Monopoly control of India's foreign travel
-During British rule import and export of the country came under monopoly control of British govt.
-More than 50% of India's foreign trade was restricted to Britain while rest was allowed with countries like
China, Persia.
-Opening of Suez Canal in 1869 served as direct route for ships between India & Britain.
iii) Drain of Indian wealth during British rule
India became exporter of raw material and importer of finished goods. Revenue earned from raw material
was used
a) to meet expenses on war fought by government.
b) to import invisible items/ services like banking.
c) to make payments incurred by office set up in Britain.
Occupational Structure:
It refers to distribution of working population across primary, secondary and tertiary sector of the economy.
i) Agriculture-
The principle source of occupation.
-On the eve of Independence about 75% of working population was engaged in
agriculture.
-On the other hand, only 25% of the working population accounted to manufacturing
and service sectors.
ii) Regional Variation
-States like Tamil Nadu, kerala, karnataka faced a decline in workforce of agriculture
sector where as an increase in manufacturing & service sector.
-On the other hand, states such as Orissa, Rajasthan faced an increase in the share of
workforce in agriculture.
INFRASTRUCTURE
On the eve of Independence, the state of Indian infrastructure was
i)Railways-
-The most important contribution of British rule was to introduce railways in India in 1850.
-Railways enabled people to undertake long distance travel.
-Railways also promote foreign trade but it benefited Britishers more than Indians.
ii) Air& Water transport
British government took measures for developing water & air transport, however this was far from
satisfactory.
iii) Roads
Roads were developed by Britishers to facilitate trade by roadways.
iv) Communication
Posts and telegraphs were most popular means of communication.
REASONS FOR INFRASTRUCTURAL DEVELOPMENT
i) Roads-
-Roads were developed to facilitate transportation of raw material and finished goods from different parts of
the country to the ports.
-On the other hand, roads were built for mobilizing the army.
ii) Railways-
-It was developed due to following reasons:
*to transport finish goods from Britain to the interior of colonial India. Main aim was to
widened the size of market for British products in India.
*to have effective control & administration over vast Indian territory.
*to earn profits through foreign trade linking railways with major ports.
iii) Airways/ Seaways-
-made for mainly transportation by water ways.
iv) Communication-
-Post, telegram was introduced at a high cost to serve the purpose of maintaining law and order.
Positive Contribution of British Rule
i) Self-sufficiency in food grains production.
-Forced commercialisation in Indian agriculture under British rule led to gradual changes in the Outlook of
farmer.
-The farmer started considering the market price of the produced as an important determination of these
production decision.
ii) Better means of transportation-
-Spread Of railways and roadways opened a new opportunities of economic and social growth.
iii) Check on famines-
-Rapid means of transport, facilitated rapid movement of food grains to the famine affected areas and
famines were controlled accordingly.
iv) Shift to Monetary Exchange-
-British rule helped Indian economy to shift from barter system of exchange to monetary system of
exchange.
-Growth of monetary system facilitate division of labour, specialisation and large scale of production.
v) Effective administrative set up
-The British government in India left an efficient system of administration.
-This served as a readymade reference for our politicians and planners.
State of Indian Economy on the eve of Independence
i) Colonial Economy-
-British rule resulted in huge drain of wealth from India with the supply of raw materials
from India.
-Encouraged commercialization to transform Indian Economy into a British colony.
ii) Semi-feudal Economy
a) Introduction of feudal system: led landlords to charge very high rate of lagaan and were very cruel to the
cultivatiors.
b) Introduction of Capitalist system:led to creation of two classes-capitalist and labourers.
iii) Stagnant Economy-
-An economy which is growing at a very low rate.
-India was stagnant economy mainly in agriculture sector.
iv) Backward Economy-
-Indian economy was backward and underdeveloped due to :
*low level of productivity.
*traditional methods of agriculture.
*low per capita income
*high birth and death rate.
*Mass illiteracy.
v) Depleted (Depreciated Economy) -
-It refers to an economy where no arrangements have been made to replace the physical assets,
depreciated due to excessive use.
vi) Amputated Economy-
-British policy of `divide and rule' always promoted discrimination b/w various groups on the basis of religion,
caste, language and culture.
