UNIT-1

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

INTRODUCTION

After the Battle of Plassey in 1757, the British East India Company had
succeeded in establishing its rule over a major part of India and with it
began the period of colonial exploitation of the country. In this period,
there was massive drain of wealth from India to England and it resulted in
pauperisation of this country. When the British finally left the country after
190 years and India became independent in 1947, its economy was totally
shattered.

COLONIALISM refers to a system of political and social relations between

two countries, of which one is the ruler and the other is its colony. The
ruling country not only has political control over its colony but also
determines the economic policies of the subjugated country.

FEATURES OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE:

(1) Stagnant Economy: Between 1860-1945, growth rate of per capita

income was as low as 0.5 per cent per annum and between 1925 and
1950 it was 0.1 per cent per annum.
(2) Backward Economy: in 1947-48, per capita income in India was just
Rs. 230. The bulk of the population was very poor, without sufficient
food clothing and shelter. Unemployment was rampant.
(3) Agricultural Backwardness:
 Nearly 72 per cent of the country’s working population was
engaged in agriculture.
 Productivity was extremely low.
 Food grain production was barely enough for subsistence.
(4) Industrial Backwardness:
 There was a virtual lack of the basic and heavy industries in the
country.
 Production of machines was almost negligible.
 Small-scale and cottage industries were almost ruined.

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  For the bulk of its capital-goods requirement, the Indian
industry was dependent upon imports from Britain.

(5) Rampant Poverty:

 Bulk of the population was very poor. People were not getting
two square meals a day. They lacked shelter and clothing.
(6) Poor Infrastructure
 Infrastructural development including means of
communication and transport, generation of power/energy
was extremely low.
(7) Heavy Dependence of Imports:
 The country had to depend on imports for machinery and other
equipment’s of production.
(8) Limited Urbanisation:
At the time of Independence nearly 86% of the population of India
lived in Villages and 14% in urban areas.
(9) Semi-feudal Economy:
On the eve of independence, Indian economy was neither wholly
feudal nor a capitalist economy. It was a mixed economy or a semi-
feudal economy.

PERCENTAGE OF DIFFERENT SECTORS IN GDP & PERCENTAGE OF

POPULATION EMPLOYED IN DIFFERENT SECTOR IN 1950-51

SECTORS % OF GDP % OF POPULATION

EMPLOYED
Primary Sector 53.1 72.3
Secondary Sector 16.6 10.7
Tertiary Sector 30.3 17.0

AGRICULTURAL SECTOR ON THE EVE OF INDEPENDENCE

Under the colonial period 85% of the population lived in villages and
derived its livelihood from agriculture either directly or indirectly. Despite
this agricultural sector faced stagnation.

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CAUSES OF STAGNATION

(1) Regressive lands settlement system (Zamindari System)

 Under this system, Zamindars were declared proprietors of
large tracts of land.
 The zamindari system was based on exploitation.
 Resources extracted from the farmers were wasted by the
zamindars on leading a luxurious and lavish life.
 Because of excessive rents and other illegal exactions, farmers
were left impoverished, resource less, and always on the brink
of starvation.
(2) Commercialisation of Agriculture (more of cash crops in place of
food crops): this commercialisation was done with the sole objective
of providing raw materials to the British industries which helped
Britain’s industrial development.
(3) Rainfall and Famines: the British rulers did not pay much attention
to the development of irrigation. Agriculture depended on rainfall.
Failure of rainfall was often associated with famine conditions. This
resulted in heavy loss of human lives. The Bengal famine in 1943
caused a loss of 1.5 million lives.
(4) Rural Indebtedness: Owing to the general poverty because of crop
failures due to droughts etc. many agricultural households had to
seek loans off and on. The main source of loans was moneylenders
which gave them immense power two exploit the farmers. The
phrase “once in debt always in debt” described the position of rural
poor graphically.
(5) Low Agricultural Production and Productivity: the gross value of
agricultural production increased by about 12% between the
beginning of the twentieth century and Independence, while India’s
population grew by more than 30%. Causes of low productivity: (a)
Zamindari system. (b) Exploitation by money lenders. (c) Lack of
irrigation facilities. (d) lack of fertilisation etc.

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 (6) Chronic Undernourishment and Malnourishment: as per Indian
Council of Medical Research it has been estimated that during 1935-
48, about a quarter of the Indian household were undernourished
and two out of every four persons were malnourished in India.

INDUSTRIAL SECTOR ON THE EVE OF INDEPENDENCE

The British ruler consciously and deliberately destroyed the handicrafts
industry. This policy of deliberate deindustrialisation had two objective.

1. To reduce India to the status of mere exporter of raw materials for

the newly developing British industries.
2. To turn India into a market for the products of these British
industries so that their continued expansion could be ensured.

Following points noted in this regard:

1. Discriminatory Tariff Policy of the State

I. Tariff-free export of raw material from India, and
II. Tariff-free import of British industrial products into India.

As a result the British product started gaining the Indian markets, the
Indian handicraft product started losing their domestic as well as
foreign market.

2. Disappearance of Princely Courts: Nawab, Rajas, Princes and

emperors used to patronise the handicrafts because of which the
Indian handicraft industry had acquired international reputation.
The beginning of British rule implied the end of princely courts.
3. Competition from Machine-made Products: Machine-made
products from Britain were low cost products and gave a stiff
competition to the handicraft products in India.
4. New Patterns of Demand: Owing to the impact of British Culture, a
new class emerged in India this changed the pattern of demand
against the Indian products and in favour of the British products.
5. Introduction of Railways in India: With the introduction of
railways, size of the market for the low-cost British products tended
to expand while it started shrinking for the high-cost Indian
products.

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Under the ‘British Raj’ modern industry saw only a bleak growth. It was
only in second half of the 19th century that the modern industry showed
its emergence:

1. Some industries were established by the private entrepreneurs.

These included: iron and steel (Tata iron & Steel Company was
founded in 1907), sugar, cement and paper industries.
2. The state participation in the process of industrialisation was limited
to the extent of (a) railways, (b) Power generation, (c) Development
of ports, & (d) the means of communication.
3. There was no capital goods industry worth the name. Capital goods
industry produces goods like machines and industrial plants which
are used for further industrialisation.

FOREIGN TRADE ON THE EVE OF INDEPENDENCE

1. Exporter of Primary Products and Importer of Finished Goods:
India became an exporter of primary products such as raw silk,
cotton, wool, sugar, indigo, jute etc. and an importer of finished
consumer and capital goods such as silk, cotton clothes & light
machinery etc.
2. Monopoly Control of British Rules:
 More than ½ of India’s foreign trade was restricted to Britain
while the rest was allowed with few other countries like Chine,
Ceylone (Sri Lanka) and Persia (Iran).
 The opening of the Suez Canal in 1869 served as a direct route
for the ships operating between India and Britain.
3. Drain of Indian wealth During British rule: there was huge
exports surplus during British rule but this surplus was used
 To make payments for administrative expenses by the British
Government.
 To meet war expenses
 To import invisible items

DEMOGRAPHIC CONDITION
1. High Birth Rate and Death Rate: both birth rate and death rate
were very high at nearly 48 and 40 per thousand respectively

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 2. Extremely Low Literacy rate: the overall literacy level was less than
16%. Out of this, the female literacy level was at a negligible low of
about 7%.
3. Poor Health Facilities: Public health facilities were either
unavailable to large mass of population or, when available, were
highly inadequate.
4. High Infant Mortality Rate: the infant mortality rate was quite
alarming-about 218 per thousand in contrast to 44 per thousand in
2011.
5. Low Life Expectancy: Life expectancy was also very low – 44 years,
in contrast to the present 68 years.
6. Widespread Poverty: The overall standard of living of common
people in India was very low and there was widespread poverty in
the country.

INFRASTRUCTURE ON THE EVE OF INDEPENDENCE

The infrastructure facilities during British were very poor. Some efforts to
develop basic infrastructure like roads, railways, ports, water transport,
post and telegraphs but the main aim in behind such development was to
serve the colonial interest.

1. Roads:
 Facilitating postal communication
 Mobilising the army within India
 Transporting raw materials
2. Railways: the most important contribution of the British rule was to
introduce railways in India in 1850. The railways affected the
structure of the India economy in two important ways:
 Railways enabled people to undertake long distance travel. It
broke geographical and cultural barriers and promoted
national integration.
 It enhanced commercialization of Indian agriculture, which
adversely affected the comparative self-sufficiency of the
village economies in India.
3. Air and Water Transport: British Government took measures for
developing the water and air transport. However, their development
was far from satisfactory.

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 4. Communication:
 The introduction of the expensive system of electric telegraph
in India served the purpose of maintaining law and order.
 The postal services, despite serving a useful public purpose,
remained all through inadequate.

POSITIVE CONTRIBUTIONS OF BRITISH RULE

British Rule also had some positive effects on the Indian economy.
They are discussed as under:

1. Self-Sufficiency in food grain production: Commercialization of

agriculture initiated by British Government resulted in
self0sufficiency in food grain production.
2. Better means of transportation: Development of roads and
railways provided cheap and rapid transport system and opened up
new opportunities of economic and social growth.
3. Check on Famines: Roads and railways worked as a great check on
the occurrence and impact of famines as food supplies could be
transported to the affected areas in case of droughts.
4. Shift to monetary Economy: British rule helped Indian economy to
shift from barter system of exchange to monetary system of
exchange.
5. Effective administrative Setup: The British Government had an
efficient administration system, which served as a ready reckoner for
Indian politicians.

CHAPTER IN A GLANCE

 At the beginning of the eighteenth century, India’s share of the world

economy was 23% which was as large as all of Europe put together.
By the time British left India, it had dropped to just 3%.
 India’s national income and per capita income were very low in the
colonial period. Their rate of growth was also very low-less than 2%
for national income and just 0.5% for per capita income during the
first half of the twentieth century.
 Agriculture accounted for as much as 53.1% of GDP in 1950-51 while
the share of industry was just 16.6%.

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 As much as 72% of the workforce was employed in agriculture in
1950-51 while less than 11% was employed in industry. Organised
industry employed just 2% of the workforce at the time of
independence.
 Agricultural sector faces stagnation. The main cause of this was the
exploitative land settlement system of zamindari imposed by the
British.
 During 1935-48, about a quarter of Indian households were
undernourished. Two out of every four persons were malnourished.
 The British followed a policy of deindustrialisation. The objectives of
this police were:
i. TO reduce India to a status of a mere exporter of raw materials
for the newly developing British industries.
ii. To turn India into a market for the products of these British
Industries so that their continued expansion could be ensured.
 During the second half of the nineteenth century, a beginning tin the
development of modern industries was made when cotton and jute
textile mills were set up.
 TISCO was incorporated in 1907.
 There was a virtual absence of capital goods industry in colonial
period.
 In the pre-independence period, the area of operation of public
sector was very limited.
 The British employed a discriminatory tariff policy in the field of
foreign trade-high duties on Indian exports of manufactured goods
and duty-free imports of manufactured goods from Britain.
 There was a massive drain of wealth from India in the colonial period
in the form of
i. Export surplus
ii. Home charges, and
iii. Interest paid on the British Investment in India.
 Jute, tea and cotton textiles accounted for 54.8% of India’s export
earning in 1948-49.
 India’s foreign trade in 1948-49 was dominated by the United
Kingdom.

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 The main objective behind the expansion of infrastructure was not to
provide basic amenities to the people but to serve colonial interest.
 The First passenger train ran for 34 kilometres (21 Miles) between
Bombay and Thane in 1853.
 British rulers employed a deliberate policy to destroy India’s
shipbuilding industry.
 First population census was held in India in 1881.
 The year 1921 is called the year of the ‘Great Divide’. Before this year,
India was in the first stage of demographic transition. From 1921, in
entered into the second stage of demographic transition.
 In the decade 1941-51, birth rate was 39.9 per thousand and death
rate was 27.4 per thousand.
 Male literacy rate in 1951 was 21.2% while female literacy rate was
8.9%
 Infant mortality rate in the second decade o the twentieth century
was 218 per 1000 live Births (in 2016, it was just 34 per 1000 live
births).
 Life expectancy in the decade 1941-51 was 32.1 years.
 Levels of poverty in the colonial period were very high.

PREPARED BY PANKAJ KUMAR THAKUR

9540000775

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