Indian Economy on the Eve of Independence

Condition of Indian economy before the British rule

India was an independent economy even before the British rule in India.

Every village in India was an independent economic unit.

Agriculture was the main occupation.

Various kinds of manufacturing activities went on in India.

Popular among them were silk and cotton textiles and metal and precious stones.

The handicraft industries in these sectors were so popular all over the world.

Condition of India before British Rule

After the disintegration of Mughal Empire, a very large number of independent small states came up in
India.

Most of the rulers of these states were fighting with each other for establishing their supremacy.

Why did British enter India?

The British entered India for trade purposes.

They made use of the rulers’ rivalry with one another.

They followed the policy of ‘divide and rule’ and brought the country under their rule.

Aim of the British rule

To make Indian economy dependent on British economy.

Estimates of National Income

Many eminent people have tried to estimate the national income of India.

Notable among them were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai.

Estimate by V.K.R.V.Rao

India’s annual GDP growth for 1900– 1950 at less than two percent.

Per capita income growth was 0.45% per year.

Backward Economy

Any economy whose annual per capita income growth is less than 1% is considered backward economy.

Condition of agricultural sector

Inspite of 85% of population in agriculture, it suffered

• stagnation

• Deterioration and

• low productivity
Agricultural Productivity – A Comparative Study

Productivity Production

Crop (kg per hectare) (in lakh tonnes)

1947 2016-17 1947 2016-17

Rice 660 3216 64 984

Wheat 665 2550 220 1102

Why stagnation?

Stagnation was caused by the Land Settlement System introduced by the British.

Land Settlement System is also called Zamindari system.

Zamindars collected rent for the British government.

They extorted major part of the farmers’ produce, much more than the rent payable to the British.

But they did nothing to improve the condition of the land or farmers.

Pyramid of Zamindari System

How Indian Farmers were suffering!

Condition of farmers

Due to the zamindari system, farmers lived with

 • constant fear of eviction

• no profit for reinvestment

• no interest to continue farming

Why no interest to continue farming?

Why did zamindars behave so?

Due to the Revenue Settlement System (or Land Settlement System) of the British,

the zamindars had to collect and deposit fixed amounts as tax and they had to pay within the timeframe.

If they don’t pay the full amount within the timeframe, they will be e_i_ted.

Agriculture at the time of Independence

Due to Partition,

1. a sizeable portion of the highly irrigated and fertile land went to Pakistan.
2. almost the whole of jute producing area became part of East Pakistan (Bangladesh).
3. Jute goods industry suffered a setback due to lack of raw material.

Condition of industrial sector

British followed a policy of de-industrialisation.

Methods of de-industrialisation of India by British

1. British made India a mere exporter of raw materials for the upcoming modern industries in Britain.

2. British turned India into a big market for their finished goods.

Effect of de-industrialisation of India

• Massive unemployment of people engaged in handicrafts industries

• Growing market for “Made-in-Britain” goods

No Modern Industries in India?

• Cotton textile industries in Maharashtra and Gujarat

• Jute industries in West Bengal and

• Iron and steel industries (Tata Iron and steel Company (TISCO)

• Industries in the fields of sugar, cement and paper

What is a Capital Good Industry?

Give an example.

There was almost no capital goods industry.

Effect of British rule on Indian Industry

• Growth rate of the industrial sector was small.

• Contribution of the industrial sector to GDP was also very small.

 • Participation of public sector in industrial growth was very limited to the railways, power
generation, communications and ports.

Condition of foreign trade

After the British came, India’s foreign trade was restricted mainly to Britain.

• Restrictive policies were followed to make India dependent on Britain.

• India was not allowed to trade with other countries freely.

• India’s foreign trade was routed through Britain.

• India was forced to follow tariff-free trade with Britain.

• Even if goods were not available for the local population, they were exported to Britain to meet
the needs of the British.

What is meant by ‘tariff-free’ trade?

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Effect of British policy on foreign trade

• India became an exporter of primary products and an importer of finished goods.

• Yet, India maintained a large export surplus all throughout the colonial period.

• But this surplus did not result in inflow of gold and silver to India’s exchequer.

• Rather, the surplus was used to make payments for the expenses on wars.

Demographic condition

Demographic condition refers to the conditions of the people.

1. India had high birth rate and high death rate.

2. Overall literacy rate was 16% with only 7% of female literacy.

3. Public health facilities were rather inadequate.

4. Water and air-borne diseases took a huge toll on life.

5. Infant mortality rate was as high as 218 per thousand children as against the 28 per thousand in
2022.

6. Life expectancy was only 32 years in contrast to the 70.15 years in 2020.

Occupational structure

Occupational structure refers to the distribution of working population across different sectors and sub-
sectors.

Occupational structure during British rule

• About 70 – 75 % population was engaged in agriculture.

• Only 10 % was engaged in secondary sector

• 10 – 15 % was occupied in tertiary sector.

Condition of Infrastructure during British rule

Infrastructure refers to the facilities that help the economy either directly or indirectly to develop.

Some of them are Transport, Communication, Power and Banking

Condition of Infrastructure during British rule

British developed infrastructure such as railways, ports, water transport, post and telegraphs, in order to
serve their own interests.

They built roads and railways to transport raw materials to the nearest port and to mobilise the army
whenever needed.

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