TOPIC: STATE OF INDIAN

ECONOMY ON THE EVE OF

INDEPENDENCE
MR. BALDEV SINGH
LECTURE ECONOMICS
GOVT.S.S.S.FATEHPUR BHATLAN
 INTRODUCTION:
THE STRUCTURE OF INDIA’S PRESENT DAY WHEN INDIA WAS UNDER
BRITISH RULE, ECONOMY HAS ITS ROOTS STEEPED IN HISTORY,
PARTICULARLY IN THE PERIO
THEE SOLE PURPOSE OF THE BRITISH COLONIAL RULE IN INDIA WAS TO
REDUCE THE ECONOMY FOR GREAT` BRITAIN’S COUNTRY TO BEING A
FEEDER BRITAIN’S OWN RAPIDLY EXPANDING MODERN INDUSTRIAL
BASE.
AN UNDERSTANDING OF THE EXPLOITATIVE NATURE OF THIS
RELATIONSHIP IS ESSENTIAL FOR ANY ASSESSMENT KIND AND LEVEL
OF DEVELOPMENT WHICH THE INDIAN ECONOMY OF THE DECADES 
 CONDITIONS IN THE INDIAN ECONOMY
ON THE EVE OF INDEPENDENCE:
(i) LOW LEVEL OF ECONOMIC DEVELOPMENT: THE COLONIAL GOVT., NEVER MADE ANY SINCERE
ATTEMPT TO ESTIMATE INDIA'S NATIONAL AND PERCAPITA INCOME. THE ESTIMATES GIVEN
BY DR. V.K.R.V. RAO SUGGESTED THAT GROWTH RATE OF GDP WAS ABOUT 2% PER ANNUM
WHILE THE GROWTH OF PER CAPITA OUTPUT WAS JUST 1/2 (0.5) PERCENT PER ANNUM.
(ii) BACKWARD AGRICULTURAL SECTOR: DUE TO A. LAND TENURE SYSTEM- ZAMINDARI SYSTEM,
MAHALWARI SYSTEM AND RYOTWARI SYSTEM. B. FORCED COMMERCIALISATION OF
AGRICULTURE C. PARTITION OF THE COUNTRY.
(iii) LESS DEVELOPED INDUSTRIAL SECTOR A. DE-INDUSTRIALIZATION- DECLINE OF INDIAN
HANDICRAFT INDUSTRY. B. CAPITAL GOOD INDUSTRIES WERE LACKING C. LIMITED
OPERATION OF PUBLIC SECTOR D. DISCRIMINATORY TARIFF POLICY. E. COMPETITION FROM
MACHINE MADE PRODUCTS F. INTRODUCTION OF RAILWAYS IN INDIA G. LACK OF HEAVY AND
BASIC IININDUINDUSTR
(iv) FEOREIGN TRADE CHARACTERISTIC
• (IV) FOREIGN TRADE CHARACTERISTIC
• A. NET EXPORTER OF RAW MATERIAL AND IMPORTER OF FINISHED GOOD.
• B. BRITAIN HAD THE MONOPOLY CONTROL ON FOREIGN TRADE.
• C. DRAIN OF INDIA'S WEALTH.
• (V) ADVERSE DEMOGRAPHIC CONDITION
• A. HIGH DEATH AND BIRTH RATE-40 AND 48 PER THOUSAND RESPECTIVELY.
• B. HIGH INFANT MORTALITY RATE-218 PER THOUSAND.
• C. MASS ILLITERACY-84% ILLITERATE.
• D. LOW LIFE EXPECTANCY- 44 YEARS
• E. LOW STANDARD OF LIVING- PEOPLE USED TO SPEND 80% TO 90% OF THEIR INCOME ON BASIC NEEDS.
• F. LACK OF PUBLIC HEALTH FACILITIES
• G. FEMALE LITERACY LEVEL WAS ABOUT 7%.
• (VI) UNDERDEVELOPED INFRASTRUCTURE
• ABSENCE OF GOOD ROADS, ELECTRICITY GENERATION, HEALTH, EDUCATION AND COMMUNICATION. HOWEVER, SOME
EFFORTS HAVE BEEN MADE TO DEVELOP BASIC INFRA-STRUCTURE LIKE ROADS, RAILWAYS, PORTS, WATER
TRANSPORT, POST & TELEGRAPH BY THE BRITISH RULERS. THE MAIN MOTIVE WAS NOT TO PROVIDE BASIC AMENITIES
TO THE INDIAN PEOPLE BUT FOR THEIR COLONIAL INTEREST.
• (VII) MORE DEPENDENCE ON PRIMARY SECTOR
• LARGEST SHARE OF WORK FORCE WHICH WAS 72% WAS ENGAGED IN
AGRICULTURE. 10% IN MANUFACTURING WHILE 18% WORKFORCE WERE
ENGAGED IN SERVICE SECTOR.
• SOME POSITIVE SIDE-EFFECTS OF THE BRITISH RULE IN INDIA
• A. PROVIDED TRANSPORT FACILITIES, LARGELY IN TERMS OF RAILWAY.
• B. DEVELOPMENT OF PORTS.
• C. PROVISION OF POST AND TELEGRAPH SERVICES.
• D. BRITISH GOVT. LEFT A BASE OF A STRONG AND EFFICIENT ADMINISTRATIVE
SET UP.
• E. POLITICAL AND ECONOMIC UNIFICATION OF THE COUNTRY.
• F. EVOLUTION OF BANKING AND MONETARY SYSTEM.
 THE NATURE OR CLASSIFICATION OF THE
INDIAN ECONOMY AT THE TIME OF
INDEPENDENCE:
• THE NATURE OR CLASSIFICATION OF THE INDIAN ECONOMY AT THE TIME OF INDEPENDENCE: (1)
UNDERDEVELOPED ECONOMY: AT THE TIME OF INDEPENDENCE, THE INDIAN ECONOMY WAS AN
UNDERDEVELOPED ECONOMY. ACCORDING TO MP TODARO, "AN UNDERDEVELOPED ECONOMY IS
A SYSTEM IN WHICH LIVING STANDARDS ARE VERY LOW, POVERTY IS LOW, PER CAPITA INCOME IS
LOW, ECONOMIC GROWTH IS SLOW, CONSUMPTION IS LOW, HEALTH CARE IS POOR, AND
MORTALITY IS LOW." AND THE BIRTH RATE IS HIGH, THE DEPENDENCE ON FOREIGN ECONOMIES ".
THE SALIENT FEATURES OF THE INDIAN ECONOMY AS AN UNDERDEVELOPED ECONOMY ARE AS
UNDER: (1) LOW PER CAPITA INCOME: PER CAPITA INCOME IS VERY LOW IN A BACKWARD
ECONOMY. IN 1947-48, THE PER CAPITA INCOME WAS AROUND RS. 230. MOST OF THE COUNTRY'S
POPULATION WAS VERY POOR. PEOPLE COULD NOT GET ENOUGH TO EAT. THERE WAS A LACK OF
HOUSES TO LIVE IN AND NO CLOTHES TO WEAR. MOST OF THE PEOPLE IN THE COUNTRY WERE
UNEMPLOYED. 90% OF THE POPULATION WAS ILLITERATE. THE STANDARD OF LIVING OF INDIANS
WAS VERY LOW. (II) AGRICULTURAL ECONOMY: THE BACKWARDNESS OF THE INDIAN ECONOMY IS
EVIDENT FROM THE FACT THAT IT IS PRIMARILY AN AGRICULTURAL ECONOMY. ABOUT 70 PER
CENT OF INDIA'S LABOR FORCE WAS ENGAGED IN AGRICULTURE IN 1948. ABOUT 50 PER CENT OF
THE NATIONAL INCOME CAME FROM AGRICULTURE. INDIA'S AGRICULTURE WAS BACKWARD.
AGRICULTURAL PRODUCTIVITY PER HECTARE WAS VERY LOW. IN 1947, THE PRODUCTIVITY OF
• (II) LOW GROWTH OF INDUSTRIES: THE GROWTH OF INDUSTRIES IN INDIA WAS VERY LOW. THE COUNTRY'S MAJOR INDUSTRIES MAINLY
PRODUCED CONSUMER GOODS SUCH AS CLOTH, SUGAR, MATCHES, HEAVY AND BASIC INDUSTRIES SUCH AS MACHINERY, PETROLEUM, IRON,
STEEL, ETC. WERE VERY FEW. EVEN IN INDUSTRIES, SMALL AND BACKWARD INDUSTRIES LISTEN MORE. IN 1947, INDIA PRODUCED 2.6 MILLION
TONNES OF CEMENT, 1 MILLION TONNES OF SUGAR AND 421 MILLION SQUARE METERS OF TEXTILES. (IV) DEVELOPMENT OF SEMI-
INFRASTRUCTURE; AT THE TIME OF INDEPENDENCE, INDIA'S SEMI-INFRASTRUCTURE SUCH AS ELECTRICITY, TRANSPORT, COMMUNICATION,
ETC., WAS UNDERDEVELOPED. IN 1948, THE POWER GENERATION CAPACITY WAS ONLY 2,100 MW, THE LENGTH OF RAILWAYS WAS 53,596 KM AND
THE LENGTH OF PAVED ROADS WAS 155,000 KM.
• (V IMPORT AND DEPENDENCE: THE BACKWARDNESS OF INDIA'S ECONOMY IS EVIDENCED BY THE FACT THAT THE COUNTRY HAD TO DEPEND
ON IMPORTS FOR ESSENTIAL MACHINERY AND EQUIPMENT FOR PRODUCTION. MANY ESSENTIAL COMMODITIES SUCH AS SEWING MACHINES,
MEDICINES, KEROSENE, BICYCLES, ETC. HAD TO BE IMPORTED.
• (VI) LOW POPULATION RATIO IN CITIES: AT THE TIME OF INDEPENDENCE IN INDIA, MOST OF THE POPULATION LIVED IN VILLAGES. BY 1948,
ONLY 14 PERCENT OF THE POPULATION LIVED IN CITIES AND 86 PERCENT IN RURAL AREAS. THIS MEANS THAT SIX OUT OF EVERY SEVEN
PEOPLE LIVED IN VILLAGES AND ONLY ONE PERSON LIVED IN CITIES. PEOPLE IN THE VILLAGES GET VERY FEW FACILITIES. PEOPLE REMAIN
ILLITERATE. PEOPLE HAD LOW LITERACY AND LIVING STANDARDS. THIS PROVES THAT THE INDIAN ECONOMY WAS UNDERDEVELOPED
BEFORE INDEPENDENCE.
• (VII) ILLITERACY: MOST PEOPLE IN BACKWARD COUNTRIES ARE ILLITERATE. DUE TO ILLITERACY, PEOPLE ARE UNABLE TO USE NEW
TECHNOLOGIES IN AGRICULTURE AND INDUSTRY, THEY ARE UNABLE TO ORGANIZE TRADE AND MINERALS IN A MODERN WAY. DUE TO
ILLITERACY, THE WORK EFFICIENCY OF THE WORKERS IS REDUCED. BY THE TIME OF BRITISH RULE IN INDIA, LITERATE PEOPLE WERE 18 PER
CENT OF THE POPULATION TILL 1948. THUS, 82% OF THE COUNTRY'S POPULATION WAS ILLITERATE. THE ILLITERACY RATE OF WOMEN IN THE
VILLAGES WAS VERY HIGH.
• 2. SMOOTH ECONOMY: THE BRITISH MADE THE INDIAN ECONOMY A STAGNANT ECONOMY. A STAGNANT ECONOMY IS AN ECONOMY WITH
VERY LITTLE CHANGE IN THE RATE OF INCOME GROWTH. DURING THE NEARLY 100 YEARS OF BRITISH RULE, THE AVERAGE ANNUAL GROWTH
RATE OF PER CAPITA INCOME WAS AROUND 0.5 PER CENT.] WAS EVEN SMALL BUSINESSES USING OLDER TECHNOLOGIES PROVED TO BE A
HINDRANCE TO THE GROWTH OF THE ECONOMY. THE GOVERNMENT'S FREE TRADE POLICY WAS ALSO RESPONSIBLE FOR THE SLOW GROWTH
OF THE ECONOMY. DUE TO THE FREE TRADE POLICY, FOREIGN PRODUCTS WERE BEING SOLD IN THE ECONOMY. THEREBY DEVELOPING
DOMESTIC INDUSTRIAL UNITS
• DIDN'T GET A CHANCE TO BE. DUE TO THE SLOWDOWN IN THE ECONOMY, INDIA INC. REMAINED THE POOREST COUNTRY, WHILE MOST COUNTRIES IN
THE WORLD REACTED AT A MUCH FASTER PACE.
• 3. SEMI-FEUDAL ECONOMY: DURING THE BRITISH RULE, THE INDIAN ECONOMY WAS NEITHER FULLY FEUDAL NOR FULLY CAPITALIST. IT WAS A MIXED
ECONOMY WHICH COULD BE CALLED A SEMI-FEUDAL ECONOMY. 'IS. THE MAIN MODES OF PRODUCTION IN THIS TYPE OF ECONOMY WERE:
• (1) FEUDALISM: THE BRITISH STARTED THE PRACTICE OF ZAMINDARI AND GAVE THE RIGHT OF LAND OWNER TO THE LANDLORDS. THE REAL
CULTIVATOR HAS NO LEGAL RIGHTS OVER THE LAND. IN THE PERMANENT SETTLEMENTS THE LEASE WAS FIXED FOREVER BUT THE RENT OF THE LAND
WAS INCREASING SO THE CULTIVATORS STARTED GIVING THE LAND TO THE SUB-CULTIVATORS. THERE WERE MANY INTERMEDIARIES BETWEEN THE
GOVERNMENT AND THE REAL FARMER. THESE INTERMEDIARIES COULD GET A LARGE SHARE OF THE FARMER'S PRODUCE WITHOUT ANY EFFORT. DUE
TO THE PRACTICE OF ZAMINDARI, THE CONDITION OF THE FARMERS WAS VERY BAD. AGRICULTURE WAS BACKWARD BECAUSE THE FARMER COULD
NOT ADOPT ADVANCED AND EXPENSIVE METHODS OF PRODUCTION DUE TO HIS POVERTY. IN THE PARTS OF INDIA WHERE RYATWARI OR MAHILWARI
WAS PRACTICED, THE BIG FARMERS GAVE THEIR LAND TO THE CULTIVATORS FOR CULTIVATION, THUS ESTABLISHING RELATIONS BETWEEN THE
LANDLORD AND THE CULTIVATOR IN ALMOST ALL OF INDIA.
• (2) CAPITALISM: THE SYSTEM OF CAPITALISM WAS ALSO ADOPTED IN MANY AREAS DURING THE BRITISH RULE IN INDIA. SOME OF THE FEATURES OF
CAPITALISM WERE AS FOLLOWS: (1) CAPITAL BASE INDUSTRIES: MANY CAPITAL BASE INDUSTRIES SUCH AS TEXTILE, COTTON, IRON, SUGAR, PAPER
ETC. WERE ESTABLISHED IN INDIA. MINES OF IRON, MICA, COAL ETC. WERE EXCAVATED. THESE INDUSTRIES HAD A LOT OF FOREIGN INVESTMENT.
MOST OF THE BIG INDUSTRIES WERE ALSO MANAGED BY FOREIGN MANAGEMENT AGENCIES. A LARGE NUMBER HAD BECOME SLAVES OF ARTISANS,
MERCHANTS AND CAPITALISTS. (II) CAPITALIST AGRICULTURE: IN INDIA TOO, SIGNS OF CAPITALISM BEGAN TO APPEAR IN THE AGRICULTURAL SECTOR.
SUPPLY OF TEA, COFFEE AND RUBBER PLANTATIONS WERE CAPITAL BASE ENTERPRISES. A LARGE NUMBER OF LABORERS WORKED IN THESE
ORCHARDS. CAPITALISM WAS BEGINNING TO ENTER THE ORDINARY CROP. THE NUMBER OF FARM LABORERS WAS INCREASING. AGRICULTURAL
PRODUCE WAS BEING PRODUCED IN LARGE QUANTITIES FOR THE MARKET.
• (4) WORN ECONOMY: AT THE TIME OF INDEPENDENCE, THE INDIAN ECONOMY WAS A SHABBY ECONOMY. EXCESSIVE USE OF THE RESOURCES OF
EACH ECONOMY LEADS TO EROSION AND FRAGMENTATION. BUT IF NO PROVISION IS MADE TO ADDRESS THE RESOURCE CONSTRAINTS OF AN
ECONOMY, THE AMOUNT OF CAPITAL FORMATION IN THE ECONOMY DECREASES. AS A RESULT, PRODUCTION IS REDUCED. SUCH AN ECONOMY IS
CALLED A WORN OUT ECONOMY. AFTER THE SECOND WORLD WAR, THE INDIAN ECONOMY BECAME A WORN-OUT ECONOMY. MACHINERY AND OTHER
TOOLS WERE WIDELY USED DURING THE GREAT WAR. AS A RESULT, THERE WAS A LOT OF WEAR AND TEAR. TO REPLACE THESE MACHINES, NEW
MACHINES HAD TO BE IMPORTED FROM ABROAD AS THE MACHINES WERE NOT MANUFACTURED IN INDIA. BUT DUE TO THE WAR IT WAS NOT POSSIBLE
TO IMPORT MACHINES FROM ABROAD, SO THE MACHINES OF MANY INDUSTRIES IN INDIA BECAME USELESS, THE PRODUCTIVITY OF THESE INDUSTRIES