INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
The present structure of India's economy has its roots steeped in history, particularly in the
period when India was under British rule which lasted for almost two centuries.
STATE OF THE INDIAN ECONOMY BEFORE THE ADVENT OF THE BRITISH
1. Prosperous and independent economy: India had an independent, self-reliance and
prosperous economy before the advent of British rule.
2. Agrarian economy: Agriculture was the main source of livelihood for most people.
However, the country's economy was characterized by various kinds of manufacturing
activities.
3. Well established handicraft industries: India was particularly well known for its
handicraft industries in the field of cotton and silk textiles, metal and precious stone
works. These products enjoyed a worldwide market.
BASIC PURPOSE OF BRITISH RULE
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The sole purpose of the British colonial rule in India was to reduce the country to
being a raw material supplier for Britain's own rapidly expanding modern industrial
base.
The economic policies pursued by the colonial government in India were concerned
more with protection and promotion of the economic interests of their home country
rather than with the development of Indian economy.
Such policies brought about a fundamental change in the structure of the Indian
economy transforming the country into a supplier of raw material and a consumer of
finished industrial products from Britain.
LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER BRITISH RULE
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The colonial government never made any sincere attempt to estimate India's national
and per capita income.
Some notable estimators who made attempts to estimate India's national and per
capita income included Dadabhai Naoroji, William Digby, Frindlay Shirras, VKRV
Rao and RC Desai.
Most studies revealed that India's growth of aggregate real output during the first half
of the 20th century was less than 2% with a meagre half percent growth in per capital
output per year.
STATE OF AGRICULTURAL SECTOR
1. Agrarian economy: Indian economy under the British rule was fundamentally
agrarian with about 85% of the country's population dependent directly or indirectly
on agriculture.
2. Agricultural stagnation and low productivity: Despite being the occupation of such
a large population, the agricultural sector under British rule experienced stagnation.
The country was not self-sufficient in food grain production.
CAUSES OF STAGNATION IN AGRICULTURAL SECTOR
1. Land Settlement System: Agricultural stagnation was caused mainly because of the
various systems of land settlement such as the zamindari system introduced by the
colonial government. According to this system profits accruing out of agricultural
sector went to the zamindar. The main interest of the zamindars was only to collect
rent regardless of the economic condition of the cultivators. The zamindars did
nothing to improve the condition of agriculture.
2. Revenue Settlement: To a great extent the terms of the revenue system were also
responsible for or the attitude of the zamindars. The zamindars had to deposit
specified sums of money to the British government on fixed dates failing which the
zamindars were to lose their rights.
3. Low level of technology: Agriculture under British rule was characterized by low
level of technology, lack of irrigation facilities and negligible use of fertilizers. All
this further contributed to the dismal level of agricultural productivity.
4. Commercialisation of agriculture: commercialization of agriculture means
production of cash crops for sale in the market in place of food grains. Production of
cash crops did not help the farmers in improving their economic condition as these
cash crops were ultimately used by British industries.
5. Lack of investment: Indian agriculture lacked investment in terracing, flood control,
drainage and desalinization of soil. Most of the small farmers neither had the
resources and technology nor the incentive to invest in agriculture.
STATE OF THE INDUSTRIAL SECTOR
India could not develop a sound industrial base under the British rule. The poor state of
industrial sector during the British rule is highlighted in the following points:
1. Decline of handicraft industries: The British systematically destroyed the world
famous handicraft industries of India and no corresponding modern industrial base
was allowed to come up. The primary motive of the British rule behind the de
industrialisation of India was twofold:
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First to get raw material from India at cheap rates to be used by the upcoming modern
industries in Britain.
Second to sell finished products of British industries in the Indian market at higher
prices.
2. Adverse impact of decline of handicraft industries: The decline of the indigenous
handicraft industries created massive unemployment in India.
Indian market which was now deprived of the supply of locally made goods now
became dependent on import of manufactured goods from Britain.
3. Lack of capital goods industries: There was hardly any capital goods industry in
India to help promote industrialisation of the country. During the second half of 19th
century modern industry began to take root in India but its progress remained very
slow. The cotton textile mills, mainly dominated by Indians, were located in the
Western parts of the country.
4. Low contribution to GDP: The growth rate of the industrial sector and its
contribution to GDP remained very small.
5. Limited role of public sector: Another significant drawback of the industrial sector
was the limited area of operation of the public sector. The sector was confined only to
railways, power generation communication, ports and some other departmental
undertakings.
FOREIGN TRADE
India was an important trading nation in ancient times. However the restrictive policies of the
British government adversity affected the structure, composition and volume of India's
foreign trade.
1. Exporter of primary products and importer of finished goods: Under the British
rule India became an exporter of primary products such as raw silk, cotton, wool,
sugar, indigo jute etc and an importer of finished consumer good like cotton silk and
capital goods like machines.
2. British Monopoly over trade: Britain maintained a monopoly control over India's
exports and imports. More than half of India's foreign trade was restricted to Britain
while the rest was allowed with a few other countries like China, Sri Lanka and
Persia. The opening of the Suez canal further intensified British control over India's
foreign trade.
3. Drain of wealth: the most important characteristic of India's foreign trade during
British rule was the generation of a large export surplus. However, this expert surplus
did not result in any flow of gold or silver into India. It was used to make payments
for the expenses incurred by an office set up by the colonial government in Britain
and also for expenses on wars fought by the British government. This resulted in the
drain of Indian wealth.
DEMOGRAPHIC CONDITION
The first official census in India was conducted in the year 1881. The demographic condition
of India during the colonial rule can be described in the following points:
1. High birth rate and death rate: Before 1921 India was in the first stage of
demographic transition. The second stage of transition began after 1921. However
neither the total population of India nor the rate of population growth at this stage was
very high.
2. Low literacy rate: The overall literacy rate for the country was less than 16% and
female literacy rate was extremely low at about 7%.
3. Poor health facilities: Public health facilities were either unavailable or when
available were highly inadequate. As a result water and airborne diseases were
rampant.
4. High infant mortality rate: The overall mortality rate in the country was very high
and in particular the infant mortality rate was alarming at about 218 per thousand.
5. Low life expectancy: Life expectancy in the country was also very low at 44 years.
6. Widespread poverty: extensive poverty prevailing India during the colonial. The
overall standard of living of people in India was very low.
OCCUPATIONAL STRUCTURE
Occupational Structure refers to the distribution of working persons across different
industries and sectors.
The main features of India’s occupational structure during colonial rule is as under:
1. Predominance of Agriculture: The agricultural sector accounted for the largest share
of workforce which remained at a high of 70 to 75%. The manufacturing sector
accounted for only 10% of the working population and the services sector 15 to 20%.
2. Regional variation: another striking aspect of the occupational structure was the
growing regional variation.
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Some states such as Tamil Nadu, Andhra Pradesh, Kerala, Karnataka,
Maharashtra and West Bengal witnessed a decline in the dependence of
workforce on agriculture and increase in dependence on the manufacturing
and service sectors.
However during the same time, there was an increase in the share of
workforce in agriculture in states such as Orissa, Rajasthan and Punjab.
INFRASTRUCTURE
The state of infrastructure on the British rule was as follows:
1. Roads
 The roads were built during colonial period primarily to serve the colonial
interest of mobilising the army and transporting raw materials.
 There was a shortage of all-weather roads to reach out to the rural areas during
the rainy season.
2. Railways
The British introduced railways in India in 1850. It is regarded as one of the most
important contributions of the British.
Reasons for development of Railways by the British
 to have effective control and administration over the country.
 to earn profit through foreign trade by linking railways to major ports.
Impact of development of Railways:
 Railways enabled people to undertake long distance travel. It broke
geographical and cultural barriers and promoted national integration.
 Development of Railways fostered commercialization of Indian agriculture
which adversely affected the self-sufficiency of the village economy in India.
 It led to an increase in the volume of India's exports but the benefits rarely
came to the Indian people.
3. Communication
 The British introduced the expensive system of electric telegraph in India with
the purpose of maintaining law and order.
 The postal services, despite being useful for the people, remained inadequate.