INDIAN ECONOMY ON

THE EVE OF
INDEPENDENCE
Chapter 1
Syllabus
• Introduction
• Low Level of Economic Development Under Colonial Rule
• Agricultural Sector
• Stagnation of Agriculture
• Reasons for stagnation in agriculture
• Industrial Sector
• Foreign Trade
• Special Features of India's Foreign Trade During the Colonial Rule
• The Theory of Demographic Transition
• Occupational Structure
CONDITION OF INDIAN ECONOMY
DURING THE PRE - BRITISH PERIOD

• India had an independent economy before the British rule.

• Agriculture was the main source of livelihood.
• Economy had various kinds of manufacturing activities.
• India was particularly well known for its handicraft
industries (cotton and silk textiles, metal and precious
stone works etc.)
• These products enjoyed a worldwide market
INDIAN ECONOMY DURING THE
COLONIAL RULE:
• The economic policies followed by the British were concerned
more with the protection and promotion of the economic
interests of Britain than with the development of the Indian
Economy.

• It made our Economy into supplier of raw materials and

consumer of finished industrial products from Britain.

• Colonial government never made any sincere attempt to

estimate India's national and per capita income
CONDITION OF AGRICULTURE SECTOR
CONDITION OF AGRICULTURE SECTOR

• Indian economy under the British colonial rule was fundamentally

agrarian.
• Agriculture during this period was under stagnation.
• Agricultural productivity became low.
• Stagnation in the agricultural sector was caused mainly because of the
various systems of land and revenue settlement introduced by the colonial
government. (e.g.: zamindari system)
• Inadequate technology, lack of irrigation facilities and fertilizers,
contributed to the low level of agricultural productivity.
• Commercialization of agriculture: instead of producing food crops, farmers
were producing cash crops which were ultimately used by British for their
development.
• Indian agriculture faces low investment, flood-control, drainage etc.
ZAMINDARI SYSTEM

Zamindars are middle men appointed

by the British to collect taxes from
cultivators.
Interest of the zamindars was only to
collect rent without considering
economic condition of the cultivators.
The profit accruing out of the
agriculture sector went to the
zamindars instead of the cultivators.
CONDITION OF INDUSTRIAL SECTOR
 CONDITION OF INDUSTRIAL SECTOR
• India failed to develop a strong industrial base under the colonial rule. India’s handicraft
industries declined.
• The British government systematically de-industrialised India made India a mere exporter
of raw materials and turned India into a wide market for their finished products.
• The decline of the indigenous handicraft industries created massive unemployment in India.
• The TATA Iron and Steel Company (TISCO) was the only large scale industry established in
1907.
• The growth rate of the new industrial sector and its contribution to the Gross Domestic
Product (GDP) remained very small.
• Area of operation of the public sector limited in railways, power generation,
communications, ports and some other departmental undertakings.
CONDITION OF FOREIGN TRADE
CONDITION OF FOREIGN TRADE
 CONDITION OF FOREIGN TRADE
• India is an important trading nation since ancient times. The policies of commodity
production, trade and tariff followed by the colonial government adversely affected the
structure, composition and volume of India’s foreign trade.
• 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.
• The opening of the Suez Canal further made more British control over India’s foreign
trade.( The Suez Canal is an artificial sea-level waterway in Egypt, connecting the
Mediterranean Sea to the Red Sea through the Isthmus of Suez. The Suez Canal greatly
reduces the time and cost of transporting goods through water ways.)
• The most important characteristic of India’s foreign trade during the colonial period
was the generation of a large export surplus. But this surplus came at the cost of Indian
economy. This export surplus did not result in any flow of gold or silver into India.
 DEMOGRAPHIC CONDITION

• Population of British India was first collected through the census in

1881.
• Before 1921, India was in the first stage of demographic transition.
• The second stage of transition began after 1921.
• The Year 1921 was considered as the year of "Great Divide" in Indian
demographic history.
• Mortality rate was very high and
• infant mortality rate was quite alarming.
• Life expectancy was also very low.
Theory of Demographic Transition
The theory of Demographic
Transition was formulated by
Frank Notestein.
This theory explains the effect of
economic development on
population growth.
According to this theory every
country's population passes
through three distinctive stages. Frank Notestein
Theory of Demographic Transition
First stage: A country in the first stage will be an
underdeveloped, agrarian economy. Both birth and death
rates will be high. And economic growth rate will be low. No
increase in population. National income and per capita
income will be low.
Second stage: Second stage occurs in a developing economy.
Death rate comes down. But birth rate continues to be high.
The country experiences population explosion. National
income increases without any change in percapita income.
Theory of Demographic Transition
Third stage: The third stage occurs in a developed country.
Both birth rate and death rate come down. Population
increase will be at a reduced rate. Industrialization and
urbanization improve living standards. Small family
becomes the norm. Economic experts say that there is a
fourth stage in which population becomes steady. Till 1921,
India was in the first stage. After 1921 India entered the
second stage. The year 1921 is described as the 'Year of Great
Divide'. Though India has not reached the third stage both
death rate and birth rate are coming down and the country
is getting ready to enter the third stage.
CONDITION OF OCCUPATIONAL
STRUCTURE

• The occupational structure means distribution of working

persons across different industries
• and sectors. The Agricultural sector accounted for the
largest share of workforce (70-75%). The
• Manufacturing and the Services Sectors accounted for
only 10 and 15-20 per cent respectively
CONDITION OF INFRASTRUCTURE
CONDITION OF INFRASTRUCTURE
CONDITION OF INFRASTRUCTURE
• British developed basic infrastructure such as railways, ports, water transport,
posts and telegraphs.
• The real motive behind this development was to meet their colonial interests.
• The roads that they built were for easy transportation of the army within India and
raw materials to the nearest railway station or the port.
• The British introduced the railways in India in 1850 and it is considered as one of
their most important contributions.

The railways affected the Indian economy in two ways.

1. It enabled people to undertake long distance travel
2. It speeds up commercialisation of Indian agriculture.
3. Railways increased the volume of India’s exports

Along with the development of railways, British also developed roads, inland and Sea
waterways
NEGATIVE IMPACT OF BRITISH RULE
Colonial Economy:
British political dominance led Indian economy a mere British colony

Semi Feudal Economy:

o Both capitalism and feudalism were present and made Indian
Economy a semi feudal economy.

Backward Economy:
o Over exploitation by the British made Indian Economy backward.
Extreme poverty, inadequate and unbalanced diet, low level of income
caste and class oppression, unemployment and under employment
etc..... were the common features
NEGATIVE IMPACT OF BRITISH RULE
Stagnant Economy:
The colonial and feudal exploitation, oppressive political regime, irrelevant
policy of British did not allow the economy to grow and virtually remained
stagnant.

Depleted Economy:
Indian Industries worked over time to meet the increasing demand.
Machines, plants and equipment were
subjected to heavy wear and tear and depletion.

Amputated Economy:
British followed the policy of divide and rule which divided India on the
basis of Caste, Class, religion etc.
POSITIVE IMPACT OF BRITISH RULE

1. Introduction of railway
2. Commercialisation of agriculture
3. Development of infrastructure
4. Promoted education
5. Brought certain social changes
6. Unification of India
7. Strong and efficient administration
Important Questions
 Questions from Previous Years Question Paper

• India could not develop a sound industrial base under colonial rule. Substantiate.

• Compare the major demographic indicators of colonial India with the present condition and comment on it.(March 2012)

• Under colonial rule, basic infrastructure developed considerably in India. What were the real motive behind this development?
(September 2012)

• Pick out the feature of Indian economy with respect to the occupational structure during the British rule.(High mortality rate,
growing regional variation in work force, generation of large export surplus, take root of modern industries) (March 2013)

• While participating in a debate, your friend says, "The introduction of the railway in India by the British is one of their
important contributions". Express your view with justification.(March 2013)

• Development of infrastructure during the colonial period can be considered as a positive contribution of the British. Analyze
the statement.(March 2014)

• List the reasons for agricultural stagnation under the British rule.(September 2015)

• India's agriculture sector was stagnant during the colonial rule.' Do you agree with this statement? Substantiate.(March
2016)

• Explain how the colonial trade policies affected India's foreign trade.(September 2016)