Indian Economy on the Eve of Independence

INTRODUCTION
India had an independent, self-reliant and prosperous economy before the advent of the British Rule. The Indian economy
of the 18th century was primarily an agricultural economy. Agriculture was the main occupation of people at that time.
India was also known for its developed handicraft industries. The prominent handicraft industries which gave prime place
to India in the world market were cotton and silk textiles, metal industries, precious stone works, gold and silver jewellery,
masonry, tannery, perfumery, etc. The Indian handicrafts enjoyed the worldwide reputation of fine quality and high
standards of craftsmanship.
Indian economy which was flourishing till the mid-18th century started to decline with the advent of the British rule. British
government pursued economic policies for the protection and promotion of economic interests of Britain rather than the
development of the Indian economy. It changed the whole structure of Indian economy and transformed it into a supplier
of raw materials and consumer of finished products of British industries.

HISTORICAL EVENTS THAT CHANGED THE DESTINY OF OUR NATION

or ORIGIN OF BRITISH RULE
 The Battle of Plassey (1757) laid the foundation of British Empire in India. The control of the Indian
economy came in the hands of the East India Company.
 Revolution of 1857 – The rule was transferred from the East India Company to the British Crown. The
British colonial rule continued for nearly 200 years till India gained independence on August 15, 1947.
COLONIALISM refers to a system of relations between two countries, of which one is the ruler and the other
is its colony. The ruling country has the control over the political and economic life of the subjugated country.

LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER COLONIAL RULE

Before the advent of British rule, Indian economy was characterized with the following features:
 Prosperous Economy: India was an independent, self-reliant and prosperous economy.
 Agrarian Economy: Agriculture was the main source of livelihood for most people and it engaged about two-third of
the total population.
 Well Known Handicraft Industries: India was also known for its handicraft industries in the fields of cotton and silk
textiles, metal and precious stone work, etc. Handicraft products enjoyed a worldwide market due to its reputation of
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 their own economic interests, than with the development of the Indian economy. Their policies brought a
fundamental change in the structure of Indian economy. They transformed the country into a supplier of raw materials
and consumer of finished industrial products from Britain.

AGRICULTURAL SECTOR
The Indian economy during the British colonial rule was primarily an agricultural economy. Nearly 85% of the country’s
population lived in villages during that period and derived its livelihood directly or indirectly from agriculture.
The main causes of the stagnation of agricultural sector were as follows:
1. Land Revenue System: The most important reason for stagnation in agriculture sector was the introduction of
“Zamindari System” by the colonial government.
 Under this system, profits accruing out of agricultural sector went to the zamindars in the form of ‘lagaan’.
 The main interest of the zamindars was only to collect lagaan regardless of the economic condition of the cultivator.
 The dates for depositing specified sums of lagaan to British Government were also fixed, failing which the zamindars
were to lose their rights.
 The zamindars and the colonial government did nothing to improve the condition of agriculture.
2. Low Level of Productivity: Low –level of technology, lack of irrigation facilities and negligible use of fertilisers resulted
low level of productivity. Also the zamindars had no roots in the villages while British rule spent little on agricultural,
technical or mass education.
3. High Degree of Vulnerability: British rulers did not give much attention to improve irrigation facilities, drainage
facilities, soil productivity and technological up gradation in India. Agricultural production was dependent on monsoon.
Hence, production and productivity in the country’s agricultural sector were reduced to the lowest level and farmers
were forced to live in misery.
4. Commercialization of Agriculture: It means production of crops for sale in market rather than for self comsumption.
British rulers initiated commercialization of agriculture in which they encouraged the production of cash crops in place
of food crops. As a result, there was higher yield of cash crops in certain areas of the country. But this did not improve
the economic condition of farmers because cash crops were used mainly by the British industries. Thus, British
transformed Indian agriculture into a raw material exporting activity. Due to reduction in the production of food crops
and lack of proper policies, the country had to suffer from frequent occurrence of famines.
5. Partition of the Country: Partition of the country had also adversely affected India’s agricultural production. It not
only created the problem of shortage of raw materials and food crisis in the country but also resulted in a loss of market
for finished products.
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Subsistence Farming refers to farming in which the crops are produces to meet the basic needs of the family, with little
surplus for marketing.
Commercialization of agriculture implies production of agricultural crops for the market rather than for self-consumption.

IMPACT OF PARTITION ON THE INDIAN ECONOMY

 Shortage of raw material – Partition created the serious problem of shortage of raw material for jute
mills of Kolkata and textile mills of Mumbai and Ahmedabad. As a result of partition, the whole fertile
land under jute production went to East Pakistan (now Bangladesh). The problem of raw material was
also faced by paper mills, leather industries and some chemical industries.
 Food problem – West Punjab and Sindh were known as food granaries of India. As a result of partition
these areas went to Pakistan. Consequently, India had to face the problem of food crisis.
 Loss of market – Partition had reduced the size of market which was a severe blow to Indian industries.

INDUSTRIAL SECTOR- Although agriculture had dominated the Indian economy during the pre-british period, but some
Indian industries particularly handicraft industry enjoyed worldwide reputation.
Like agriculture India could not develop its sound industrial base.
Deindustrialization-
 Britishers systematically destroyed Indian handicraft industries and no modern industrial base was allowed to come up.
Thus, British rulers deindustrialized the Indian economy. The primary motive behind deindustrialization by the colonial
government in India was two-fold.
 To get raw materials from India at cheap rate and thus reduce India to a mere exporter of raw materials to the
British industries.
 To sell British manufactured goods in Indian market at higher prices.

 Decline of Handicraft Industry

1. Tariff-free export of raw material from India to Britain and tariff-free import of British industrial products into India
along with heavy duty on export of Indian handicrafts implied a loss of domestic as well as foreign markets for the
Indian handicraft products.
2. Low cost and good quality machine made products from Britain gave stiff competition to Indian handicraft products.
3. Prior to the British rule the Nawabs and Rajas used to patronize handicrafts. The advent of British rule meant the
disappearance of Princely courts and consequently, an end to the state patronage enjoyed by the handicraft industry.
As a result, there was a decline in the demand of the Indian handicrafts.
4. As a result of British influence, a new class emerged in India which was keen to imitate western lifestyle.
Consequently, indigenous goods lost their market to the growing demand for British products.
5. Decline of handicraft industry led to massive high level of unemployment and import of finished goods.

 Slow Growth of Modern Industry

The establishment of industries was mainly confined to cotton textile and jute mills.
1. The cotton textile mills were mainly dominated by the Indians and they were located in the western parts of India
namely Maharashtra and Gujarat whereas jute mills in Bengal were established mainly by British capitalists. The credit
for the beginning of iron and steel industry during British rule goes to Jamshedji Tata. The Iron & Steel Company
(TISCO) was incorporated in August 1907 and it established its first plant in Jamshedpur.
2. Capital goods industry or heavy industry mainly comprises of machine tools which are used for further production.
These industries require huge investment which was beyond the means of Indian investors. The state participation in
the process of industrialization was very limited and confined to the areas which enhanced the size of market for the
British products in India.
3. It focused mainly on the construction of infrastructure like railways, development of ports, means of communication,
etc. Thus industrial sector during British rule exhibited backwardness and lopsided growth

The two main drawbacks of the industrial sector during colonial rule were
 The growth rate of industrial sector and its contribution to GDP was very small.
 There were very limited area of operation of the public sector in the country. Public sector in those days was confined
only to the railways, power generation, communication, ports and a few departmental undertakings.

FOREIGN TRADE
India has been an important trading nation since ancient times. However, the restrictive policies adopted by the colonial
government adversely affected the structure, competition and volume of India’s foreign trade.

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STATE OF INDIA'S FOREIGN TRADE DURING BRITISH RULE

Exporter of Primary Products and importer of Finished Goods Monopoly Control of British Rule Drain of Indian Wealth during British Rule

The state of India’s foreign trade during British rule is discussed as under:
1. Exporter of Primary Products & 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 goods like cotton, silk
and woolen clothes and capital goods like light machinery produced in the British industries.
2. Monopoly Control of British Rule: British Government maintained a monopoly control over India’s exports and
imports.
 More than ½ of India’s foreign trade was restricted to Britain while the rest was allowed with few other countries
like China, Ceylon (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: Under the British rule, India became an exporter of primary products
(raw material) and an importer of finished goods. There was huge export surplus due to excess exports. However,
export surplus was used:
 To make payments for expenses incurred by an office set up by the colonial government in Britain.
 To meet expenses on war fought by the British government.
 To import invisible items.

Trade through the Suez Canal

Suez Canal is an artificial waterway running from north to south across the Isthmus of
Suez in north-eastern Egypt.
 The opening of Suez Canal in 1869 reduced the cost of transportation and made
access to the Indian market easier.
 The canal provided a direct trade route for ships operating between Britain and India
and avoided the need to sail around Africa.
 Strategically and economically, it is one of the most important waterways in the
world.

DEMOGRAPHIC PROFILE
The first official Census in India was conducted in the year 1881. Census figures collected since 1881 informed that there
was unevenness in India’s population growth. The first stage of demographic transition implied that there was high birth
rate and high death rate in India before the year 1921. Both birth rate and death were high, the rate of growth of population
remained very slow. The main reasons for the slow growth of population during British rule were poverty, malnutrition,
famines, epidemics and poor health facilities. 1921 is regarded as the “Year of Great Divide” in the history of demographic
transition in India.

The following observations reveal that India was a stagnant and backward economy:
1. High Birth Rate and Death Rate: Birth rate refers to the number of children born per thousand in a year. Death rate
refers to the number of people dying per thousand persons in a year. Both birth rate and death rate were very high due
to lack of health infrastructure.
2. Low Literacy Rate: Education was not given much attention during British rule. Only a small fraction of people could
get education. Hence, most of the population remained illiterate. The average literacy rate was less than 16%. Out of
this, the female rate was only 7%.
3. Poor Health Facilities: Public health facilities were either unavailable to large mass of population or when available
were highly inadequate. The level of public health facilities was very poor during the British rule. There was lack of
proper housing, sanitation and health care facilities. Consequently, people suffered from malnutrition, water and air
borne disease.

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4. High Infant Mortality Rate: It refers to number of infants dying before reaching 1 year of age per one thousand live
births in a year. Mortality rate was very high and particularly infant mortality rate was as high as about 218 per thousand
as compared to 37 per thousand in the year 2015.
5. Low Life Expectancy: It is the average number of years that a person may expect to live. Life expectancy was also
very low, 44 years as compared to 68 years at present. This reflects lack of health care facilitates and lack of awareness
among people. The overall standard of living of common people in India was very low and there was widespread poverty
in the country. Thus as a result of British rule, India was transformed from a vibrant economy to a stagnant and
backward one.

OCCUPATIONAL STRUCTURE
Occupational structure refers to distribution of working persons across different industries and sectors.
During the colonial period, the occupational structure of India showed little sign of change. The state of occupational
structure during the British rule can be summarized as under:
 Predominance of Primary Occupation: The agricultural sector accounted for the largest share of workforce with
approximately 75%. The manufacturing and service sectors accounted for the remaining 25%.
 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
dependence of workforce on the agricultural sector with a commensurate increase in the manufacturing and service
sector
 However, during the same time, there had been an increase in the share of workforce in agriculture in states such
as Orissa, Rajasthan and Punjab.

INFRASTRUCTURE
The infrastructure facilities during British rule were very poor. Some efforts were made to develop basic infrastructure like
roads, railways, ports, water transport, posts and telegraphs. But the main aim motive behind such infrastructural
development was to serve various colonial interests.
The state of infrastructure as inherited from the British rule is discussed below:
1. Roads: The colonial administration could not accomplish much on construction of roads due to scarcity of funds.
 The roads that were built, primarily served the interests of mobilizing the army and shifting raw materials.
 There always remained an acute shortage of all weather roads to reach out to rural areas during the rainy season.
As a result, people living in these areas suffered badly during natural calamities and famines.
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 Indian 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.
 Railways also promoted the foreign trade but it benefitted the Britishers more that the Indians. The construction
of railways led to huge economic losses to the Indian economy.
 Railways were developed by britishers for
a) To have effective control over vast Indian territory.
b) To earn profits through foreign trade by linking railways with major ports.
c) To make profitable investments of british funds in India.
3. Air & Water Transport: British Government took measures for developing the water and air transport. However, their
development was far from satisfactory.
4. Communication: Posts & telegraphs were the most popular means of 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.

POLICIES OF BRITISH RULERS THAT LED TO EXPLOITATION OF INDIAN ECONOMY

British rulers deliberately pursued the policies with a view to exploit the Indian economy to serve their interest. In this
regard a brief outline of British policies is given below:
1. British rulers grossly neglected irrigation facilities and technological up gradation in India’s agriculture.
2. British rulers forced the Indian farmers to pay more attention to the production of cash crops than the food crops so
that raw materials could be supplied to the British industries at cheap rates.
3. Deliberate policy measures were adopted to destroy the handicraft industries of India.
4. No protection was provided to India’s infant industries for a quite long time.
5. Heavy import duties were imposed on Indian cotton textiles.
6. Restriction was imposed on the use of Indian ships for trading between England and India.
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7. Financial and banking institutions were not promoted in the country.

8. Discriminatory trade policy was adopted under which British traders were given government protection and help while
Indian traders had to bear various types of restrictions. Because of this, India was reduced to an exporter of primary
products and importer of British manufactured goods.
9. British capital was invested mainly in those industries which could serve British interest rather than India’s interest.
Hence, foreign capital investment in India during colonial period gave birth to the distorted economic growth pattern.

POSITIVE CONTRIBUTIONS OF BRITISH RULE

The sole purpose of British government was colonial exploitation of India. However, it also had some positive effects as:
1. Effective Administration: The British government had an efficient system of administration which served as a ready
reckoner for Indian politicians.
2. Infrastructure Development: Development of railways helped in economic and social growth of the economy. It
helped in economic and social growth of the economy. It helped in transportation of food to drought hit areas and
promoted cultural affinity among people.
3. Commercialization of Agriculture: It helped in changing the outlook of Indian farmers who started producing for
sale in the market that merely for subsistence.
4. Monetary System of Exchange: There was a transition from barter system of exchange to monetary system of
exchange under the British rule. This facilitated division of labour and expansion of production.

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