ORIGIN OF BRITISH RULE

•The British rule over India changed the course of history in India (The
foundation of British Empire in India was (aid by Battle of Plassey, fought
in 1757.

BASIC PURPOSE OF BRITISH RULE

•Basic Purpose of British Rule in India was to use Indian Economy asteeder
economy for t h e development of British Economy.

LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER COLONIAL RULE

1.Before (British Rule):
•Prosperous E c o n o m y
•Agrigarian E c o n o m y
•We l l k n o w n h a n d i c r a f t I n d u s t r i e s

2.After (British Rule):

The economic policies pursued b y Colonial Government were concerned
more with the protection and promotion of their own economic interests.
Their policies brought a
fundamental change in the Structure of Indian Economy

L O W LEVEL O F NATIONAL I N C O M E A N D P E R C A P I TA I N C O M E

• There was no official estimate on National Income and Per Capita Income
of India under the colonial rule.
• However, some individuals, such a s Dadabhai Naoroji, William Digby,
Findlay Shirras, VKRV Rao a n d RC Desai m a d e s o m e attempts t o study
t h e level of growth during t h e colonial period.
• However estimates of Dr. VKRV Rao were considered very significant
• Studies reveal that country's growth of GDP during first half of 20th
century was less thal 2% and only(0.5% growth in per capita income.
• Most of the studies revealed that country's growth of aggregate real
output during the first half of the twentieth century was less than 2% and
only 0.5% growth in per capita output per year.

STATE OF AGRICULTURAL SECTOR

During the pre-British period, the condition of Indian agriculture was not at
all satisfactory.

• India's economy under the British colonial rule was overwhelmingly rural
and agricultural i n c h a r a c t e r .
• Nearly 85% of the country's population lived mostly in villages and
derived livelihood, directly or indirectly from agriculture.
•Even with this large proportion of population engaged in agriculture, the
country was not self-sufficient in food and raw materials for industry.)

MAIN R E A S O N FOR S TA G N AT I O N IN AGRICULTURAL S E C TO R

1.L a n d Settlement System:
The most important reason for stagnation in agriculturg sector was the
introduction of "Zamindari System' by the colonial government. TEEN
GUNA LAGAAN

• Under this system, profits accruing out of agricultural sector went to the
zamindars in the form of lagaan;
• The m a i n interest o f t h e zamindars w a s only t o collect l a g a a n
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 l o s e their rights.
DENA PAREGA
• The zamindars and the colonial government did nothing to improve the
condition of agriculture.

Zamindari System (also known as Permanent Settlement System) was

Introduced by/Lord Cornwallis in 1793. The basic aim for starting this was
to increase the revenue of Colonial Government. Under this 'Land Tenure
System, zamindars merely collected rent from the actual tillers of t h e
soil.

2.Commercialisation of agriculture
Commercialisation of agriculture means production of crops for sale in the
market rather than for self consumption.

• During the British rule, farmers were given higher price for producing
cash crops, like cotton or jute. However, this did not improve the economic
condition of farmers because instead of producing food crops, they were
producing cash crops, which were to be ultimately used by the British
Industries.
• Thus, British rule promoted shifting of crops from food crops to cash
crops.

3.Low level o f productivity

Low levels of technology, lack of irrigation facilities and negligible use of
fertilizers resulted in low level of productivity.
• The cultivator had neither the means nor any incentive to invest in
agriculture.
• The zamindar had no roots in the villages, while the British rule speni
little on agricultural, technical or mass education.
• All this m a d e it difficult to introduce modern technology, which c a u s e
d a perpetually low level of productivity.
4.Scarcity of Investment
India's agriculture was facing scarcity of investment in terracing, flood-
control and drainage. Although some farmers changed their cropping
pattern from food crops to commercial crops, a large section of tenants,
small farmers and sharecroppers* neither had resources and technology
nor had incentive to invest in agriculture.

*Sharecropping is a form of agriculture in which a landowner allows a

tenant to use the land in return for a share of the crops produced on their
portion of land.

IN D U S T R I A L S E C T O R
•Although agriculture h a d dominated t h e Indian economy during t h e
pre-British period, but some Indian industries, producing certain special
products, enjoyed worldwide reputation. India was particularly well known
for its handicraft industries. Like agriculture, India could not develop a
sound industrial base under the British rule.

The poor state of Industrial sector during t h e British rade is illustrated in

the following points:

1. De-Industrialisation:
British Government systematically destroyed Indian handicraft industries
and no modern industrial base was allowed to come up. The primary
motive of British rule behind the d e - industrialisation was two-fold:
• To get raw materials from India at cheap rates to be used by upcoming
modern industries i n Britain;
• To sell finished products of British industries in Indian market at higher
prices. The two- told policy of British rule was enforced to ensure the
maximum advantage of their
h o m e c o u n t r y.

REASONS FOR DECLINE O F HANDICRAFT INDUSTRY

The main reason for decline of India's renowned handicraft industry was
the introduction of Discriminatory Tariff Policy by the colonial govemment,
according t o which
•As There was Duty-free export of raw materials from India: and
•There was Duty-free import of final goods of British industry to India
• But, heavy duty was imposed on the export of Indian handicrafts a result,
Indian markets were full of finished goods from Britain which were low
priced. It led to the decline of Indian handicrafts, both in the domestic
market a s well a s in the export market Moreover, Indian craftsmen were
unable to introduce new patterns and designs, which suited European
tastes.

2.A d v e r s e e ff e c t s of d e c l i n e o f Handicraft Industry

Decline of handicraft industries adversely affected the Indian economy in
the following w a y s :
• High Level of Unemployment: The decline of Indian handicrafts resulted
in unemployment on a mass scale. The displaced artisans were forced to
take u p agriculture for their livelihood. This increased the burden of
population on villages and over-crowding in agriculture.
• Import of Finished Goods: The Indian made goods could not withstand
the foreign competition of machine made cheap goods. It resulted in the
new demand in Indian consumer market, which was not fulfilled through
locally made goods. Rather, this demand was profitably met by increasing
imports of manufactured goods from Britain.

3. Lack of capital goods industries Capital goods industry refer t o those

industries which can produce machine tools, which are, in turn, used for
producing articles for current consumption.

• During t h e British rule, there was hardly any capital goods industry to
promote further industrialisation in India.
• British rulers did not pay any attention for their promotion as they always
wanted Indians t o b e dependent on Britain, for t h e supply of capital
goods and heavy equipments.

4 . Low contribution t o g ro ss d o m e s t i c p r o d u c t s
The growth r a t e of t h e new industrial sector and its contribution to the
GDP or Gross Value Added (GVA) remained v e r y s m a l l

5 . Limited role of public s e c t o r

Due t o lack of public investment, India could not develop a sound
industrial base under the colonial rule. The Public sector remained
confined only to the railways, power
generation, communications, ports and some other departmental
undertakings. Finally, it can b e concluded that India remained backward in
the industrial sector during t h e British rule.

MODERN INDUSTRIES OPERATING DURING INDEPENDENCE

Due to initiative of the private sector, modern industries started to come
up during the second half of the 19th century.

•The industries established in this period were mainly confined t o cotton

textile and jute mills and their progress remained very slow.
•The cotton textile mills were mainly dominated by Indians and were
located in the western parts of the country, namely, Maharashtra and
Gujarat.
•The jute mills dominated by the foreigners were mainly concentrated in
Bengal.
•The major breakthrough was setting up of Tata Iron and Steel Company
(TISCO) in the year 1907 in Jamshedpur (Bihar).
•A few other industries in the fields of sugar, cement, paper, etc. also
came up a f t e r t h e S e c o n d Wo r l d W a r .

FOREIGNTRADE
India h a s b e e n a n important trading nation since ancient times.
However, t h e restrictive policies adopted by t h e colonial government
adversely affected t h e structure, composition and volume of India's
foreign trade. The s t a t e of India's foreign t r a d e during British rule i s
discussed a s under:

1.Exporter of Primary Products and Importer of Finished Goods:

India became a n exporter of primary products such a s r a v silk, cotton,
wool, sugar, indigo, jute, etc. and an importer of finished consumer goods
like cotton, silk and woollen clothes and capital goods like light machinery,
produced in t h e British Industries.

2.Monopoly Control o f British Rule:

British Government maintained a monopoly control over India's exports
and imports.

• More than ½ of India's foreign trade was restricted t o Britain while the
rest was allowed with few other countries like China Ceylon (Sri Lanka)
and Persia (Iran).
•The opening of t h e Suez Canal in 1869 served a s a A direct route for the
ships operating between India a n d B r i t a i n .

3.Drain of Indian wealth during British rule:

Under t h e British rule, India became a n exporter of primary products
(raw material) a n d a n importer o f finished goods. There was huge export
surplus due t o
excess exports. However, export surplus was used:

• To make payments for expenses incurred by a n office set up by the

colonial government in Britain.
• To meet expenses on war fought by the British government.
• To import invisible items.

INDUSTRIAL SECTOR
TRADE THROUGH THE SUEZ CANAL:
Suez Canal is a n artificial waterway running from n o r t h t o s o u t h a c r
o s s t h e I s t h m u s of Suez in north- eastern Egypt.

• The opening of Suez Canal in 1869 reduced the cost of transportation a n

d m a d e a c c e s s to the: Indian market easier.
• The canal provided a direct trade route for ships operating between
Britain and India and a v o i d e d t h e n e e d t o sail a r o u n d Africa.
• Strategically and economically, it is one of the most important waterways
in the world.

DEMOGRAPHIC CONDITION
Demographic conditions during the British Rule exhibited all features of a
stagnant and backward Indian economy.

•1st Official Census: The first official c e n s u s w a s conducted in the year

1881) Though suffering from certain limitations, the census revealed
unevenness in India's population growth. From 1881 onwards, census
operations were carried o u t after every ten y e a r s
•1921: Year of the Great Divide, Before 92), ), India was in the first stage of
demographic transition. The second stage of transition began after 1921.
So, the year 1921 is described as
t h e 'Year o f t h e G r e a t Divide'.

Q.WHY 1921 IS CALLED 'YEAR OF GREAT DIVIDE?

• Before 1921, India was in the first stage of demographic transition with
very high birth and high death rates. The death rate fluctuated from ear to
year, and as a consequence, the size of population remained almost
stationary.
• With the beginning of decline in death rates, the population of the ountry
entered the 2nd stage of transition. The second stage of transition began
after 1921. From the year 1921 onwards, India's population never declined
and recorded a consistent rise. Due to this reason, 1921 is called 'Year of
Great Divide.

BRITISH RULE WAS THE MAIN REASON TO WORSEN THE PROFILE OF

INDIA'S POPULATION.
Demographic condition during colonial rule:

•High Birth Rate a n d D e a t h R a t e

•High Infant Mortality R a t e
•Extremely Low Literacy r a t e
•Low Life Expectancy
•P o o r H e a l t h f a c i l i t i e s
•Widespread Poverty

The demographic condition during the Colonial rule i s described in the

following points:

• High Birth Rate and Death Rate:

Birth Rate refers to n u m b e r o f children b o r n p e r t h o u s a n d i n a y e
a r. Death rate refers t o number of people dying p e r thousand persons in
a year. Both birth rate a n d death rate were very high at nearly 48 and 40
per thousand respectively.
• Extremely Low Literacy rate: Literacy rate refers to total number of
literate persons, expressed a s a percentage of the total population. The
overall literacy level was less than16%. Out of this, the female literacy
level was a t a negligible low of about 7%.

• P o o r Health facilities:
Public h e a l t h facilities w e r e e i t h e r unavailable to large mass of
population or, when available, were highly inadequate. As a result, water
and a i r - b o r n e d i s e a s e s w e r e w i d e s p r e a d a n d t o o k a h u g
e toll o n l i f e .

• High Infant Mortality Rate:

Infant mortality rate refers to number of infants dying before reaching one
year of a g e per 1,000 live births in a year. The infant mortality rate was
quite alarming- about 218 per thousand, in contrast t o t h e infant
mortality r a t e of 33 p e r thousand in 2017, 32 per thousand in 2018 and
27 (approx.) per thousand i n

• Low Life Expectancy:

life Expectancy refers to t h e a v e r a g e n u m b e r of y e a r s for which
people a r e expected to live. Life expectancy was also very low 32 years,
in contrast to t h e present 69 years.

• Widespread Poverty:
There was no reliable data about t h e extent of poverty. But, there is no
doubt that extensive poverty prevailed in India during t h e colonial period.
The overall standard of living of common people in India w a s very low a n
d there was widespread poverty in t h e country.

OCCUPATIONAL STRUCTURE
Occupational structure refers t o distribution o f working persons across
primary, secondary and tertiary (service) sectors of the economy. So, all
the production units of an
economy are grouped into three broad sectors:

• Primary Sector:
It includes production units exploiting natural resources like land, water,
subsoil assets, etc.
For example, farming, fishing, mining, animal husbandry, forestry, etc.

• Secondary Sector:
It includes production units which are engaged in transforming one good
into another good. These units convert raw materials into finished goods.
For example, firms engaged in converting sugarcane into sugar,
construction companies, power generation, etc. It is called secondary
because it depends on primary sector for raw materials.

• Tertiary Sector:
It includes production units engaged in providing services. For example,
transport, education, finance, government administration, etc. This sector
finds third place because its growth is primarily dependent on primary and
secondarysectors.

OCCUPATIONAL STRUCTURE
During t h e colonial period, t h e occupational structure of Indiavshowed
little sign of change. The state of occupationalvstructure during the British
rule can be summarized as under:

• Predominance of Primary Occupation:

The agriculturalvsector accounted f o r t h e l a rg e s t s h a r e o f
workforce withv70-75%. The manufacturing and service sectors
accountedvfor 10% and 15-20% respectively.
• Regional Variation:
Another striking aspect was t h e growing regional variation.

The states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra

a n d We s t Bengal witnessed a decline in dependence of
workforce on t h e 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 a s Orissa, Rajasthan a n d P u n j a b .

I N F R A S T R U C T U R A L S E C T O R:
Infrastructure refers to all such activities, services and facilities, which are
needed t o provide different kinds of services in a n economy. It includes
infrastructure associated with means of transport, communication, energy
and banking (i.e. Economic Infrastructure) a n d infrastructure a s s o c i a t
e d with facilities o f health, education and housing (i.e. Social
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 motive behind
such infrastructural development w a s t o s e r v e v a r i o u s c o l o n i a l i
nterests.

1.R o a d s
The colonial administration c o u l d n o t accomplish m u c h o n
construction of roads due to scarcity of funds. The roads that were built,
primarily served the interests of mobilising the army a n d shifting raw
materials.

• There always remained a n 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 n a t u r a l c a l a m i t i e s a n d f a m i n
es.

2.RAILWAYS
The m o s t important contribution of t h e British rule w a s t o 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.
• I t enhanced commercialisation of Indian agriculture, which adversely
affected the comparative self- sufficiency of t h e village economies in
India.

Railways also promoted t h e foreign trade b u t it benefited t h e Britishers

more than the Indians. The construction of railways led t o h u g e
economic losses to t h e Indian economy.

India's First Passenger Train ran from Bombay to Thane, a distance of 34

km on 16th April, 1853

AIR A N D WAT E R TRANSPORT

• British Government took measures for developing the water a n d air
transport. However, their development was far from satisfactory.
• Inland waterways proved to be uneconomical, as in the case of t h e C o a
s t C a n a l o n t h e O r i s s a c o a s t . This c a n a l w a s b u i l t a t a huge
cost, but it failed to compete with the railways, and finally, c a n a l h a d t o
beabandoned.

COMMUNICATION:
Posts a n d telegraphs were t h e m o s t popular m e a n s 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.

REASONSFORINFRASTRUCTURALDEVELOPMENT
The basic objective of British Government to develop infrastructure was
not to provide basic amenities to the people, but to serve their own
colonial i n t e r e s t .

1. The Roads were built for mobilizing the army within india and for
drawing out raw materials from the countryside to the nearest railway
station or port and to send these to England or other lucrative foreign
destinations.

2. Railways were developed by t h e Britishers mainly for three reasons:

(i) To have effective control and administration over the vast Indian
territory;
(ii) To earn profits through foreign trade by linking railways with major
ports;
(iii) T o m a k e profitable investment o f British f u n d s in India.

3. The system of Electric Telegraph was introduced a t h e purpose o f

maintaining law a n d order.

CONCLUSION
By the time India won its independence in 1947, the impact of 200 years of
British colonial rule was already showing on all aspects of the Indian
economy. Following points are the clear proofs of economic
underdevelopment during the British period.

• The constant per capita income over a long period. Increasing

dependence of population on agriculture.
• The Zamindari System.
• Traditional m e t h o d s o f cultivation.
• High-frequency of Famines.
• Destruction of Indian Handicrafts.
• I n a d e q u a t e industrialisation.

The hostile policy of British Government led to the complete ruin of the I n
dianeconomy.

POSITIVE C O N T R I B U T I O N O F BRITISH RULE

•GROWTH IN AGRICULTURE:
Although agricultural productivity was very low during the British Rule, but
in absolute terms, there was growth in agricultural sector due to expansion
of aggregate area
u n d e r cultivation.

•BETTER MEANS OF TRANSPORTATION:

Development of roads a n d railways provided cheap a n d rapid transport
system and opened up new opportunities of economic and social growth.

•CHECK ON FAMINES:
Roads and railways worked a s a great check on the occurrence and impact
of famines a s food supplies could b e transported to t h e affected areas in
c a s e of droughts.

•SHIFT TO MONETARY ECONOMY:

British rule helped Indian economy to shift from barter system of exchange
(exchange of goods for goods) to monetary system of exchange.

•EFFECTIVE ADMINISTRATIVE SETUP:

The British Government had a n efficient administration system, which
served as a ready reckoner for Indian politicians.

STATE OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

During the British rule, the Britishers transformed t h e Indian economy
into a colonial, backward, semi-feudal, stagnant, backward, depleted a n d
amputated economy.

1. Colonial Economy:
In India, colonial exploitation has a long history, spread over nearly 200
years
• British rule resulted in huge drain of wealth from India, in order to
facilitate growing British industry with the supply of raw materials from
India.
• They also encouraged commercialisation of Indian agriculture to
transform Indian economy into a British colony.
• The impact of the British colonial policy was deep on India, even at the
time of Independence.

2. Semi-feudal Economy:
By the close of the British period, there were two aspects of the Indian
economy.
• Introduction of Feudal System: The land settlement system gave birth to
feudal relations (landlord-tenant relations). The landlords used to charge
very high rate of lagaan and were very cruel to the cultivators.
• Introduction of Capitalist System: The establishment of modern
industries led to creation of two classes - capitalist and labourers.
• So, India inherited the features of both feudal and capitalist system in the
Indian economy.

3. Stagnant Economy: A stagnant economy is one which is growing at a

very low rate. On the eve of independence, Indian economy was a stagnant
economy as country's growth of aggregate real output during the first half
of 20th century was less than 2% and growth in per capita output w a s
only 0.5%.

4 . Backward Economy: At t h e e n d o f British rule, Indian e c o n o m y w a

s backward a n d underdeveloped. The main reasons for the backwardness
of Indian economy were:
• Low level of productivity
• Low p e r capita income;
• Traditional methods of agriculture;
• High birth and death rate;
• Mass illiteracy.

5. Depleted (or Depreciated) Economy: At the time of independence,

Indian economy was a 'Depleted Economy. Depleted Economy refers to an
economy, where no arrangements have been made to replace the physical
assets, depreciated due t oe x c e s s i v e u s e .

• During the 2nd World War, Indian industries had to work beyond their
capacities to meet the increased demand of plant, machinery, equipments,
etc. for the war.
• However, British rulers did not make any arrangements to replace the
depreciated physical assets. As a result, British rulers had left a seriously
depleted economy

6. Amputated Economy: The Britishers policy of 'divide and rule always

promoted discrimination between various groups on the basis of religion,
caste, language
andculture.
• As a result, on the eve of Independence, country w a s geographically
divided into two parts: India and P a k i s t a n .
• Partition of the country virtually disrupted t h e economy due to:
(i) Problem of rehabilitation of large number of refugees from Pakistan;
and
(ii) Shortage of raw material for jute and cotton mills a s most of the cotton
and jute growing areas went to Pakistan. L e c e n d