Indian economy on the eve of independence

“Economy is a system by which people get their living”

Or
A framework, within which all economic activities of a country can be described, is
known as economy.

Semi-feudal economy: which is neither completely feudal nor completely capitalist?

Colonial economy; which is made to serve the interest of its rulers.
Stagnant economy; is one in which growth rate of per capita income is very low.
Depleted economy; is one whose productive capacity decreases due to fall in stock of
capital goods.
Or
It is one in which the stocks of capital assets gets empty or are exhausted

LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE

 India was particularly well known for its handicraft industries in the fields of cotton and
silk textiles, metal and precious stone works etc. These products enjoyed a worldwide
market based on the reputation of the fine quality of material used and the high
standards of craftsmanship
 The economic policies pursued by the colonial government in India were concerned
more with the protection and promotion of the economic interests of their home country
than with the development of the Indian economy.

 Such policies brought about a fundamental change in the structure of the Indian
economy — transforming the country into supplier of raw materials and consumer of
finished industrial products from Britain.
 No sincere attempts were made to estimate India’s national and per capita income.
Some individual attempts which were made to measure such incomes yielded conflicting
and inconsistent results. Among the notable estimator— Dadabhai Naoroji, William
Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai — it was Rao, whose estimates
during the colonial period was considered very significant.
 The country’s growth of aggregate real output during the first half of the twentieth
century was less than two per cent coupled with a meagre half per cent growth in per
capita output per year.
STATE OF AGRICULTURAL SECTOR
About 85 per cent of the country’s population lived mostly in villages and derived livelihood
directly or indirectly from agriculture.
 Low Agricultural production and productivity: Here productivity means output per
hectare of land, became low though, in absolute terms, the sector experienced some
growth due to the expansion of the aggregate area under cultivation.
 Dependency on rainfall- no efforts were made by British for development of permanent
means of irrigation. Ex. Tube wells, canal etc.
 Unemployment and underemployment:
 Indebtedness:
  Landlord Tenant relations: During the British rule, the owner of land (i.e landlord) were
not actual tiller of the soil. They were crops sharers and always interested to collect
maximum land revenue from farmers.
 Subsistence occupation. Aim of the producer is to produce for self-consumption

Factors behind backwardness of Indian agriculture:

 Land settlement system/ under the zamindari system which was implemented in the
then Bengal Presidency. Zamindars charges excessive rent from the farmers
irrespective of their economic condition. This caused immense misery and social tension
among the cultivators.
 Revenue settlement system: dates for depositing specified sums of revenue were
fixed, failing which the zamindars were to lose their rights.
 Small and fragmented landholding: most of the landholdings were uneconomic.
 Forced commercialization of agriculture: it means raising the crops for selling out in
the market rather than self-consumption. Farmers were compelled to grow indigo that
was used in textile industry in Britain.
State of industry:
 Policy of deindustrialization: The primary motive of the colonial government behind
this policy of systematically deindustrializing India was two-fold. The intention was,
first, to reduce India to the status of a mere exporter of important raw materials for the
upcoming modern industries in Britain
second, to turn India into a sprawling market for the finished products.
 Establishment of modern industry: During the second half of the nineteenth century,
modern industry began to take root in India but its progress remained very slow. Initially,
this development was confined to the setting up of cotton and jute textile mills. Cotton
textile mills, mainly dominated by Indians, were located in the western parts of the
country, namely, Maharashtra and Gujarat, while the jute mills dominated by the
foreigners were mainly concentrated in Bengal.
 The Tata Iron and Steel Company (TISCO) was incorporated in 1907. A few other
industries in the fields of sugar, cement, paper etc. came up after the Second World
War.
 Lack of capital goods industry: Capital goods industry means industries which can
produce machine tools which are, in turn, used for producing articles for current
consumption.
 Low contribution: the growth rate of the new industrial sector and its contribution to
the Gross Domestic Product (GDP) remained very small.
 Limited area of operation of the public sector: This sector remained confined only to
the railways, power generation, communications, ports and some other departmental
undertakings.
What were the causes responsible for downfall of handicraft industries in
India?
 Discriminatory tariff policy
 Disappearance of princely states
 Change in pattern of demand
 Competition with machine made goods

STATE OF FOREIGN TRADE:

 Trade and tariff pursued by the colonial government adversely affected the structure,
composition and volume of India’s foreign trade.
  Composition of foreign trade: Consequently, India became an exporter of primary
products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of
finished consumer goods like cotton, silk and woolen clothes and capital goods like light
machinery produced in the factories of Britain.
 Direction of foreign trade: Britain maintained a monopoly control over India’s exports
and imports. As a result, more than half of India’s foreign trade was restricted to Britain
while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and
Persia (Iran). The opening of the Suez Canal(1869) further intensified British control
over India’s foreign trade.
 Balance of trade &: drain of Indian wealth. India’s foreign trade throughout the
colonial period was the generation of a large export surplus. Furthermore, this export
surplus did not result in any flow of gold or silver into India. Rather, this was used to
make payments for the expenses incurred by an office set up by the colonial
government in Britain, expenses on war, again fought by the British government, and
the import of invisible items.
DEMOGRAPHIC CONDITION/PROFILE:
First census in British India was held in 1881. Before 1921, India was in the first stage of
demographic transition (developed by demographer Frank Notestein in 1945). The second
stage of transition began after 1921.
Year of great divide: 1921 is known as year of big divide because since then population of
India is continuously rising.

 Social development indicators: overall literacy rate 16%, female literacy 7%.
 Lack of Public health facilities: it were either unavailable to large chunks of
population or, when available, were highly inadequate. Consequently, water and air-
borne diseases were rampant and took a huge toll on life.
 The infant mortality rate was quite alarming—about 218 per thousand in contrast to
the present infant mortality rate of 33 per thousand.
 Life expectancy was also very low—32 years in contrast to the present 69 years.
OCCUPATIONAL STRUCTURE: Distribution of working persons across different
industries and sectors,

Sector % of population
Primary 70-75
Secondary 10
Tertiary 15-20
Regional variation: then Madras Presidency (comprising areas of the present-day states of
Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Bombay and Bengal witnessed a decline
in the dependence of the workforce on the agricultural sector with a commensurate increase in
the manufacturing and the services sectors. However, there had been an increase in the share
of workforce in agriculture during the same time in states such as Orissa, Rajasthan and
Punjab.
STATE OF INFRASTRUCTURE IN INDIA:
Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts
and telegraphs did develop. However, the real motive behind this development was not to
provide basic amenities to the people but to subserve various colonial interests.
 Roads : were not fit for modern transport. purposes: mobilising the army within
India and drawing out raw materials from the countryside to the nearest railway
 station or the port to send these to far away England. Acute shortage of all weather
roads to reach out to the rural areas during the rainy season.
 Railways: The British introduced the railways in India in 1850.Benefits: On the one
hand it enabled people to undertake long distance travel and thereby break
geographical and cultural barriers while, on the other hand, it fostered
commercialization of Indian agriculture
 The inland waterways, at times, also proved uneconomical as in the case of the
Canal on the Orissa coast.
 Electric telegraph in India, served the purpose of maintaining law and order.
 The postal services, on the other hand, despite serving a useful public purpose,
remained all through inadequate.
 Tata Airlines, a division of Tata and Sons, was established in 1932 inaugurating the
aviation sector in India.
What were the positive contribution made by British?
1. Shift to monetary economy:
2. Efficient administrative system:
3. Commercialization of agriculture:
4. Better means of transportation: like roads and railways
5. Check on famines: transportation of food supply to drought hit areas: