INDIAN ECONOMIC

DEVELOPMENT
CHPATER 1- INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
 INDIAN ECONOMIC
DEVELOPMENT
CHPATER 1- INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
 TOPICS COVERED
• INTRODUCTION
• LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER COLONIAL RULE
• AGRICULTURAL SECTOR
• INDUSTRIAL SECTOR
• FOREIGN TRADE
• DEMOGRAPHIC CONDITION
• OCCUPATIONAL STRUCTURE
• INFRASTRUCTURE
• POSITIVE CONTRIBUTION OF BRITISH RULE
• STATE OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
 WHY INDIAN ECONOMIC DEVELOPMENT?
• Familiarize the basic features of Indian economy.
• State of Indian economy before independence
• Process and Phases of development
 INTRODUCTION

• Foundation of British rule was laid by BATTLE OF PLASSEY IN 1757

• Britishers used India as a FEEDER economy to boost British economy

• The colonial rule has TEMPERED the Indian economy for the development of British economy.

• India’s NATURAL as well as HUMAN RESOURCES were exploited for the glory/ development of
British economy

FEEDER: an economy that supplies raw materials or semi-finished goods to another economy for manufacturing.

TEMPERED: Tuning
LOW LEVEL OF ECONOMIC DEVELOPMENT
UNDER COLONIAL RULE
BEFORE BRITISH RULE:
Prosperous economy:
 Self-reliant, independent, prosperous
Agrarian economy:
Agriculture was the major backbone and means of livelihood. 2/3 of the population were
engaged in agriculture.
Well-known Handicraft industries:
Famous for handicrafts in field of cotton, silk, metal and precious stones.
Worldwide recognition due to the fine quality of materials and high standard of
craftmanship.
DURING BRITISH RULE
Economic polices pursued by colonial government were concerned more with the
protection and promotion of British economy.
Two-fold strategy transformed India into supplier of raw materials and consumer of
finished products from Britain.
National Income and Per capital income- Indicators of a country’s economic condition.
No sincere efforts were made to estimate India’ s national and per capita income.
Individual efforts made by experts like- DADABHAI NAOROJI, WILLIAM DIGBY,
FINDLAY SHIRRAS, V.K.R.V. RAO AND RC DESAI lead to conflicting and
inconsistent result.
Estimates of DR. RAO were considered significant.
During the first half of 20th century, aggregate real output was less than 2% and Per capita
income showed a growth of only 0.5% per year.
 AGRICULTURAL SECTOR
Indian economy under British rule was overwhelmingly rural and agricultural in nature.
85% of total population lived in villages and were dependent on agriculture for means of
livelihood.
In spite of larger population bring engaged in agriculture, food and raw materials were
not self- sufficient.
REASONS FOR STAGNATION IN AGRICULTURE
Land settlement system
Commercialization of Agriculture

Land settlement system (Land tenure system):
Introduction of Zamindari system – also known as permanent settlement system –
introduced by LORD CORNWALLIS in 1793 - lagaan – Zamindars acted as intermediaries
- main aim was to collect lagaan – economic conditions were not considered - depositing
specified sum of lagaan to British – losing of zamindar position – no measures to improve
agriculture – made tillers weak physically and economically.
Commercialization of agriculture:
Commercialization – production of crops for sale rather than for self consumption –
higher price were given for cash crops – cotton or jute - economic condition of farmers
were not improved – cash crops were ultimately used by British industries – British
promoted shifting from food crops to cash crops – agriculture was commercialized to cater
the needs od British – raw materials like cotton, jute, groundnut, sugarcane were required
by British factories – high prices were paid to Indian peasants to produce commercialized
crops- food requirements were purchased from shops in town – fall in production of food
crops were major reason for frequent famine.
Low level of productivity:
Low level of technology – lack of irrigation facilities - negligible use of fertilizers –
cultivators – neither means nor incentives to invest – zamindars had no roots- British spent
less on agriculture, technical or mass education – difficult to introduce modern technology –
perpetually low level of productivity – dependent on rainfall for irrigation.
Scarcity of Investment :
Indian agriculture – Scarcity of investment in Terracing, flood- control and
drainage – larger section of tenants, Small farmers, sharecroppers had neither resources &
technology nor incentives to invest in agriculture –partition lead to decline in agriculture –
highly irrigated and fertile lands went to Pakistan – Jute producing area went to East
Pakistan ( now Bangladesh) – India’s jute industry which enjoyed monopoly suffered from
lack of raw materials.
 INDUSTRIAL SECTOR
• Though agriculture ruled Indian economy during pre- British period, Indian handicraft
industries enjoyed worldwide reputation.
• Indian industries were also not able to establish strong industrial base under British rule.
• State of industrial sector under British rule
i. De- Industrialization – Decline of handicraft industries
ii. Adverse effect of decline of handicraft industries
iii. Lack of capital goods industries’
iv. Low contribution to GDP
v. Limited role of public sector
De-Industrialization - Decline of Handicraft industries:
Systematically destroyed Indian handicraft industries – no modern industrial base was
allowed to come – two-fold motive – (i) to get raw materials from India at a cheaper rate to
be used by upcoming modern industries in Britain (ii) To sell finished products of British
industries in Indian market at higher prices – two-fold policy was enforced to ensure the
maximum advantage of their home country – Discrimination tariff policy – (i) duty-free
export of raw material (ii) duty free import of finished goods (iii) heavy duty imposed on
export of handicraft industries - Indian craftsman were unable to introduce new patterns and
designs which suited European taste.
Adverse effect of decline of handicraft industries:
(i) High level of unemployment : Unemployment on mass scale – Artisans were forced
to take up agriculture – increased population in villages and over crowding in agriculture.
(ii) Import of finished goods : Indian made goods were not able to compete with
foreign machine made goods – increased demand was met by increasing import of foreign
made goods.
Lack of Capital Goods industries :
There were hardly any capital goods industries to promote industrialization -
Britishers did not pay attention to promotion of these industries as they wanted India to be
dependent on them for capital goods and heavy equipment.
Low contribution to Gross Domestic Product(GDP):
Growth rate of industrial sector and its contribution to GDP remained smaller.
Limited role of Public sector:
Lack of investment in public sector lead to lower development of industrial base –
Public sector remained confined only to railways, power generation , communications, ports
and some departmental undertakings.
 FOREIGN TRADE
Though India has been an important trading nation since ancient times, the restrictive policies adopted
by colonial government adversely affected the structure, composition and volume of India’s foreign
trade.
 Exporter of Primary products and Importer of finished goods:
Primary goods like raw silk, cotton, wool, sugar, indigo, jute were exported and finished
consumer goods like cotton, silk, woolen clothes and capital good like light machinery produced in
British industries were imported.
 Monopoly control of British rule:
British maintained monopoly over India’s export and import – More than 50% of India’s trade
was restricted to Britain and rest was allowed to China, Ceylon(Sri Lanka) and Persia (Iran) – opening
of SUEZ CANAL in 1869 served as direct routes for ships
 Drain of Indian wealth during British rule:
Excess of export wealth was used (i)To make payments for expenses incurred by an office set
up by colonial government in Britain (ii) To meet expenses of war fought by British government (iii)
To import invisible items
 DEMOGRAPHIC CONDITIONS
Demographic conditions exhibited all features of stagnation and backward Indian economy.
First official census was conducted in the year 1881- India’s population growth showed
unevenness in spite of suffering from certain limitations – Post 1881 census operations
were carried out every 10 years.
1921 – Year of great divide – before 1921 India was in first stage of demographic
transition – high birth rates and high death rates – size of population remained stationary -
after 1921 the second stage began as a result of decreasing death rates – India’s
population consistently increased .
o High Birth rate and High Death rate :
Birth rate – number of children born per thousand in a year – Death rate - number
of death per thousand in a year – Birth rate 48 per thousand – Death rate 40 per thousand.
o Extremely Low Literacy rate:
Literacy rate refers to total number of literate persons, expressed as a percentage of
the total population – Overall literacy rate 16% - Female literacy rate 7%.
o Poor Health facilities:
Public health facilities - unavailable to large mass of population - when available
were highly inadequate - water and air-borne diseases were widespread and took a huge toll
on life.
o High Infant Mortality Rate:
Infant mortality rate - number of infants dying before reaching one year of age per
1,000 live births in a year - infant mortality rate was quite alarming- 218 per thousand- 33
per thousand in 2017 - 32 per thousand in 2018 - 25 (approx.) per thousand in 2024.
o Low Life Expectancy:
Life Expectancy - the average number of years for which people expected to live -
32 years - present 67 years.
o Widespread Poverty:
No reliable data about the extent of poverty - no doubt that extensive poverty
prevailed in India during the colonial period- - low standard of living and widespread
poverty
 OCCUPATIONAL STRUCTURE
Occupational structure refers to distribution of working persons across primary, secondary
and tertiary (service) sectors of the economy.
• Primary Sector: Exploiting of natural resources like land, water, subsoil assets, etc. For
example, farming, fishing, mining, animal husbandry, forestry, etc.
• Secondary Sector: Engaged in transforming one good into another good. These units
convert raw materials into finished goods. For example, firms engaged in converting
sugarcane into sugar, construction companies, power generation, etc. It is called
secondary because it depends on primary sector for raw materials.
• Tertiary Sector: Units engaged in providing services. For example, transport, education,
finance, government administration, etc. This sector finds third place because its growth
is primarily dependent on primary and secondary sectors.
State of occupational structure under colonial rule:-

• Predominance of Primary Occupation: The agricultural sector accounted for the largest
share of the workforce with 70-75%. The manufacturing and service sectors accounted for
10% and 15-20% respectively.

• Regional Variation: Another striking aspect was the growing regional variation. The
states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra and West Bengal
witnessed a decline in the dependence of the workforce on the agricultural sector with a
commensurate increase in the manufacturing and service sectors. However, during the
same time, there had been an increase in the share of the workforce in agriculture in states
such as Orissa, Rajasthan and Punjab.
 INFRASTRUCTURE
Infrastructure - all such activities, services and facilities, which are needed to provide
different kinds of services in an economy – Infrastructure - associated with means of
transport, communication, energy and banking (i.e. Economic Infrastructure) and
infrastructure associated with facilities of health, education and housing (i.e. Social
Infrastructure) - infrastructure facilities very poor- efforts were made to develop basic
infrastructure like roads, railways, ports, water transport, posts and telegraphs.
Roads:
Could not accomplish much on construction of roads due to scarcity of funds –
roads built, primarily served the interests of mobilizing the army and shifting raw materials
– there remained an acute shortage of all-weather roads - people living in rural area suffered
badly during natural calamities and famines.
Railways:
Most important contribution of the British – introduction of railways in India in
1850 – railways affected the structure of the Indian economy in two important ways – (i)
broke geographical and cultural barriers and promoted national integration - (ii) enhanced
commercialization of Indian agriculture - promoted foreign trade - benefited the
Britishers - construction of railways led to huge economic losses to the Indian economy.
Air and Water Transport:
Measures to develop water and air transport - development was far from
satisfactory - Inland waterways proved to be uneconomical - Coast Canal on the Orissa
coast - failed to compete with the railways - canal had to be abandoned.
 Communication:
Posts and telegraphs were popular means of communication - introduction of the
expensive system of electric telegraph - served the purpose of maintaining law and order -
postal services despite serving a useful public purpose remained all through inadequate.
REASON FOR INFRASTRUCTURAL DEVELOPMENT:
• The Roads were built to mobilize the army within India and for drawing out raw materials
from the countryside to the nearest railway station or port and send them to England or
other lucrative foreign destinations.
• Railways were developed by the Britishers mainly for three reasons: (i) To have effective
control and administration over the vast Indian territory; (ii) To earn profits through
foreign trade by linking railways with major ports; (iii) To make profitable investment of
British funds in India.
• The system of electric Telegraph was introduced at a high cost to serve the purpose of
maintaining law and order.
 CONCLUSION
Impact of 200 years of British colonial rule - economic underdevelopment:-
• The constant per capita income over a long period.
• Increasing dependence of population on agriculture.
• The Zamindari System.
• Traditional methods of cultivation.
• High-frequency of Famines.
• Destruction of Indian Handicrafts.
• Inadequate industrialization.
 POSITIVE CONTRIBUTIONS OF BRITISH
RULE
• Growth in Agricultural Sector: Although agricultural productivity was very low - in
absolute terms - there was growth due to expansion of aggregate area under cultivation.
• Better means of transportation: Development of roads and railways - cheap and rapid
transport system - new opportunities for economic and social growth.
• Check on Famines: Roads and railways worked as a great check - food supplies could be
transported to the affected areas
• Uniformity in Monetary System: Bring uniformity in the monetary system - enactment
of Coinage Act of 1835 - undertook to build a banking system that could handle the
deposits and loans
• Effective administrative setup: Efficient administration system - ready reckoner for
Indian politicians
STATE OF INDIAN ECONOMY ON THE EVE
OF INDEPENDENCE

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