CHAPTER 1

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

INTRODUCTION

In this chapter we will study about the state of the Indian economy
prior to independence and after independence. We will discuss about
agricultural sector, industrial sector, foreign trade, demographic
condition, occupational structure and infrastructure during that time. To
appreciate the current economic status, we should understand the
factors that led to the underdevelopment and stagnation of the Indian
economy.
 TOPICS TO BE COVERED

1. Characteristics of Indian economy before the advent of British rule.

2. Basic purpose of british rule
3. Agricultural Sector
4. Industrial sector
5. Foreign Trade
6. Demographic Conditions
7. Occupational Structure
8. Infrastructure
 Characteristics of Indian Economy
Before the advent of British rule
• Agrarian economy: Agriculture was the main source of livelihood and it engaged
two-third of the total population.
• Handicraft industry: India was well known for its handicraft industries in the fields of
cotton and silk textiles, metal and precious stone work, etc. These products
enjoyed worldwide market due to their fine quality of material used and high
standards of craftsmanship .
• Prosperous Economy: India was an independent, self reliant and prosperous
economy.

But during the British rule, the British government were concerned more with protection
and promotion of their own economic interests than with the development of Indian
economy.

They transformed the country into a supplier of raw materials and consumer of
finished industrial products from Britain.
BASIC PURPOSE OF BRITISH RULE

The sole purpose of the British colonial rule in

India was to reduce the country to being a feeder
economy for Great Britain's own rapidly
expanding modern industrial base.
 LOW LEVEL OF NATIONAL INCOME AND PER CAPITA INCOME

• There was no official body in India to prepare national income estimate

before independence, the same was prepared by some eminent
personalities in their personal capacity.
• Dadabhai Naoroji prepared the first estimates of national income in
1876.
• The first person to adopt a scientific procedure in estimating national
income was Dr. V.K.R.V Rao in 1931.
• William Digby, Findlay Shirras and R.C Desai were among the other
notable estimators.
• There was very slow growth of economy i.e. the average annual growth
rate of national income was less than two percent and meagre half
percent growth in per capita output per year during the first half of
twentieth century.
 AGRICULTURAL SECTOR
1. Before 1947, over 95% 0f the country’s income came
from its agricultural activity. About 85% of the country’s
population lived mostly in villages and derived livelihood
directly or indirectly from agriculture.
2. Low productivity : Agricultural pro-ductivity became low
though , in absolute terms.

FOLLOWING WERE THE MAIN REASONS FOR

STAGNATION.
 Under cultivation
 Land settlement system like Zamindari system,
ryotwari system and mahlwari system.
 Forced commercialization
 Scarcity of investment and outdated technology.
3. Large section of tenants, small farmers and sharecroppers
neither had resources and technology nor has incentive to
invest in agriculture.
 FOLLOWING WERE THE MAIN
REASONS FOR STAGNATION
1) Land settlement system like Zamindari system, ryotwari system and
mahlwari system

• Under this system profits accruing out of agriculture sector went to

zamindars instead of cultivators.
• The main interest of zamindars was only to collect rent regardless of the
economic conditions of cultivators.
• The zamindaars and colonial government did nothing to improve the
condition of agriculture.
• They exploited farmers by taking over rights of farmers on land by using
harsh legal provisions.
2 ) Forced Commercialization of agriculture:
Commercialization means production of crop for sale
on the market rather than for self consumption.

• There was some evidence of a relatively higher

yield of cash crops in certain areas of country due
to commercialisation yet this failed to improve
economic conditions of farmers because instead
of producing food crops they were producing
cash crops which were to be ultimately used by
British industries back home.

• This fall in production of food crops was

responsible for frequent famines in India during
British rule.
3) Low level of technology :
technology refers to the inputs by which goods are produced.
Low levels of technology, lack of irrigation facilities and
negligible use of fertilisers resulted in low level of productivity.

• The cultivator had neither the means nor the incentive to

invest in agriculture.
• Farmers were mainly dependent on the rains of water
• The Britisher’s spent little on agriculture, technological
improvements
• All this made it difficult to introduce the modern technology
which caused a perpetually low level of productivity.
4) Scarcity of investment : India's agricultural facing scarcity
of investment in terracing, flood control and Drainage. all those
and farmers change the drop in pattern from food crops to
commercial crops, a large sections of tenants, small farmers
and share croppers neither had resources and Technology in
Centre to invest in agriculture.
INDUSTRIAL SECTOR
 INDUSTRIAL SECTOR
India was particularly well known for its
handicraft industries. The policy of British rulers
was to discourage industrialisation. The poor state
of industrial sector during the British rule is
illustrated the following points:

1. De -industrialisation - decline of handicraft

industry:
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

deindustrialization was two fold:
• To get raw materials from India at cheap rates to be used
by upcoming modern industries in Britain
• To sell finished products of British industries in India
market at Higher prices.
2)Adverse affects of decline of handicraft industry-
It affected the economy in the following :

• ways high level of unemployment: The decline of Indian handicraft resulted in

unemployment on mass scale. The displaced our decisions were forced to take
up agriculture for their livelihood. This increased overcrowding in agriculture.
• Import of finished goods: The Indian made goods could not withstand the
foreign competition of machine made cheap goods.it Encouraged the import of
manufactured goods from Britain.

3) Low contribution of GDP : The growth rate of the industrial sector and its
contribution to the GDP remained very small.

4) Limited role of public sector : The public sector remain confined in the
Railways, power generation, communication, ports and some other departmental
undertakings.
5) Lack of capital goods industries :
Referred to those industries which can produce machine tools which in turn used
for producing articles for current consumption.

• There was hardly any capital goods industry to promote further

industrialisation in India.
• Britisher’s always wanted Indians to be dependent on Britain for supply of
capital goods and heavy equipments.

6) Slow growth of modern industry :

• Industries were mainly confined to Cotton Textiles and Jute mills but with very
slow growth.
• A major development was setting up of data Iron and Steel Company(TISCO)
in 1907 in Jamshedpur.
• Few Industries also started coming up in the field of paper, cement , sugar etc.
Second World War. There was Only signs of industrialization. The pace of
growth was very slow.
 FOREIGN TRADE
The state of India is foreign trade during British rule is discuss as follows

1. composition of foreign trade lopsided: 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, in the British Industries. All this made
composition lopsided and consisted mostly of few products.

2. Direction of foreign trade: Britisher’s maintained a Monopoly control

over India's imports and Exports.
• more than half of India’s foreign trade was restricted to Britain while
rest was allowed with other countries like China,ceylon and persia.
• The opening of Suez Canal in 1869 sold as the direct route for the
ships operating between India and Britain.
3. Drain of Indian wealth during British rule: 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.
 DEMOGRAPHIC CONDITION
• The first official census conducted in year 1881 revealed uneveness
in India's population growth.

• 1921 is the year of great divide: Before this India was in first stage of
demographic transition.

• Extremely low literacy rate: Literacy level was less than 16%. The
female literacy level was at negligible low of about 7%.

• Poor health facilities: public health facilities were either unavailable

to large mass of population or when available were highly
inadequate. As a result water and air borne diseases were wide
spread took a huge toll on life.
• High infant mortality rate: infant mortality rate refers to
number of infants dying before reaching one year of age as per
1000 live births in a year. The infant mortality rate was quite
alarming about 218 per thousand, in contrast to the present infant
mortality rate of 40 per thousand.

• Low life expectancy: life expectancy refers to the average

number of years for which people are respected to live. Life
expectancy was also very low 44 years, to present 60 years.
 OCCUPATIONAL STRUCTURE
Occupational structure refers to the distribution of working persons
across different industries and sectors.

SECTORS % OF WORKING POPULATION

PRIMARY 72
SECONDARY 10
TERTIARY 18

• Predominance of primary occupation : The agriculture sector

accounted for largest share of workforce with approximately 70
to 75% while manufacturing and service sectors accounted for
the remaining 28%.
• The share of secondary sector was only 10% because they were
hardly any industries in India except a few like cotton,sugar paper
etc.

• Regional variation: The state of Tamil nadu, Andhra Pradesh,

Kerala, Karnataka, Maharashtra and West Bengal witnessed a
decline dependence of workforce on the agriculture sector with an
increase in the manufacturing and the service sectors.

• 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
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 sub serve various colonial interests.
1. ROADS

• The roads that were built primary serve the interest of mobilizing the army
and shifting raw materials from the countryside to the nearest railway
station.

• 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.
2. RAILWAYS : The
most important contribution of British rule was to
introduce Railways in India in 1850.It affected the Indian economy in two
ways
• Railways enable people to Undertaker long distance travel.It broke
geographical and cultural barriers and promoted National Integration.

• It enhanced commercialisation of Indian agriculture, which

adversely affected the comparative self sufficiency of the village
economies in India.

• The volume of Indian exports and undoubtedly expanded but its

benefits rarely accrued to the Indian people. The social benefits which
Indian people gained were outweighed by the country's huge
economic loss.
3.AIR AND WATER TRANSPORT : British government took
measures for developing the water and air transport.
However, their development was far from satisfactory. Inland
water ways proved to be uneconomical, as in the case of
the coastal canal and Orissa coast. It was built at huge
cost, but it failed to compete with the railways and finally,
Canal had to be abandoned.

4.COMMUNICATION :
• Post and Telegraph 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.
 YEAR EVENTS
1793 Zamindari system introduced
1813 Commercialization of agriculture
1818 1st Cotton textile mill opened in India
1837 Modern postal services introduced
2nd half of 19th century Modern industries began to take root in India
1850 Railways introduced in India
1851 Electric telegraph introduced in India
1854 1st Railway bridge linking Bombay and Thane was established
1855 1st Jute mill opened in India
1869 Opening of Suez canal
1881 1st Census conducted in India
1887 Opening of coast canal in Orissa canal
1907 Incorporation of TISCO
1921 Year of great divide
Before 1921 1st Stage of demographic transition
After 1921 2nd Stage of demographic transition
1932 Tata airlines established
1943 Bengal famine took place
1945 TELCO incorporated
15.08.1947 India got independence
 QUIZ
Railways were started in India in ____________

1850

Suez canal was opened for transport in __________

1869

India’s first official census was undertaken in ___________

1881

Which industry suffered a major setback due to discriminatory trade policy adopted by British?

Handicraft

TISCO was set up in _________

1907
The year of ___________ is regarded as the ‘Year of great divide’.

1921

During the first half of the twentieth century, the rate of growth was less than _______ per annum while per capita
income grew by a just ______ per annum.

2% and 0.5%

Industrial sector in India contributed only ______ of GDP and _____ of total employment.

1/6th and 10%

Name some of the notable economist who estimated India’s per capita income during the colonial period.

Dadabhai Naoroji, William Digby, V.K.R.V Rao, and R.C Desai.

The main reason for stagnation in agricultural sector during British rule was :

A. Land settlement
B. De – industrialization
C. Lack of technology
D. Commercialization of agriculture
Ans – A

The export surplus during the British rule was used:

E. To make payments for expenses incurred by an office setup by the colonial government in Britain
F. To meet expenses on War fought by the British government
G. To import invisible items
H. all of these
Ans- D
Which industry received the major set back during the colonial rule?
A. Cement
B. Handicraft
C. Paper
D. Iron and Steel after partition.
Ans –B

India's jute industry suffered heavily due to ___ after partition.

A. Lack of raw material
B. Famines
C. Earthquakes
D. None
Ans-A
British rule introduced railways in India in the year
E. 1849
F. 1850
G. 1851
H. 1852
Ans-B
More than half of India's foreign trade was restricted to:
A. China
B. Britain
C. Korea
D. Sri lanka
Ans – B

Decline of handicraft industries led to:

E. Massive unemployment
F. Import of finishes goods
G. Both A & B
H. Neither A nor B
Ans – C

Which industry was adversely affected due to partition?

I. Silk
J. Cotton
K. Jute
L. Nylon
Ans – c
_____ was the main source of livelihood for most of the people during the colonial rule.
A. Industries
B. Agriculture
C. Both a and b
D. Neither a nor b
Ans – B

The opening of suez canal served as a direct route for ships operating between :
E. Indian and america
F. India and Sri Lanka
G. India and Pakistan
H. India and Britain
Ans – D
_____ was the most important infrastructure developed during the British rule.
A. Airways
B. Railways
C. Waterways
D. None of these
Ans – B

Occupational structure refers to

E. Distribution of working force among the different occupations
F. Nature of different occupations
G. Size of working force in a country
H. Number of people living in a country
Ans – A

What was the percentage of people living in villages and deriving their livelihood from agriculture during
British period in India?
I. 72 %
J. 88 %
K. 79 %
L. 25%
Ans – A
What was the life expectancy in India during British rule?
A. 65
B. 38
C. 45
D. 32
Ans – D

Farming in which crops are produced to provide for the basic needs of the family is called:
(a) Stagnant economy
(b) Subsistence agriculture
(c) Commercial agriculture
(d) None of these
Ans – B

Decay of handicrafts was caused by:

(a) British tariff policy (b) Competition form man made machines (c) New patterns of demand (d) all of these
Ans – D
A: India could not develop a sound industrial base under the colonial rule.
R: The colonial government reduced India to the status of a mere exporter of important raw
materials for the upcoming modern Industries in Britain.

(a) Both A and R are true and R is the correct explanation of A

(b) Both A and R are true and R is not the correct explanation of A
(c) A is true but R is false
(d) A is false but R is true

Q. Which industries were adversely affected due to partition?

The jute industry was adversely affected as most of the jute-producing areas went to Pakistan. Due
to which export of India initially reduced.

Q. Discuss the state of industry on the eve of independence.

State True or False.

1. During the colonial period, balance of trade remained unfavorable.

TRUE
2. During the colonial period, there was drain of India’s wealth into Britain.
TRUE
3. In the pre-independence period, the area of operation of public sector was large.
FALSE
4. During the colonial period, USA had a major share in India’s foreign trade.
FALSE
5. There was mass illiteracy among the people on the eve of independence.
TRUE
6. The year of 1947 is described as the year of great divide.
FALSE
THANK YOU