CH 1: INDIAN ECONOMY ON THE EVE OF
INDPENDENCE
REASON FOR STAGNATION IN AGRICULTURE SYSTEM
1. ZAMIINDARI SYSTEM: Under the zamindari system, the profit accruing out of the
agriculture sector went to the zamindars instead of the cultivators. However, a
considerable number of zamindars, and not just the colonial government, did nothing to
improve the condition of agriculture.
The main interest of the zamindars was only to collect rent regardless of the economic
condition of the cultivators; this caused immense misery and social tension among the
latter. To a very great extent, the terms of the revenue settlement were also responsible
for the zamindars adopting such an attitude; dates for depositing specified sums of
revenue were fixed, failing which the zamindars were to lose their rights.
2. COMMERCIALISATION of AGRICULTURE: There was, of course, some evidence of
relatively higher yield of cash crops in certain areas of the country due to
commercialisation of agriculture. But this could hardly help farmers in improving their,
economic condition as, instead of producing food crops, now they were producing cash
crops which were to be ultimately used by British industries back home.
3. LOW PRODUCTVITY: Besides this, low levels of technology, lack of irrigation facilities and
negligible use of fertilisers, all added up to aggravate the plight of the Farmers and
contributed to the dismal level of agricultural productivity. Productivity means per hectare
production.
4. SCARCITY of INVESTMENT: Despite some progress made in irrigation, India’s agriculture
was starved of investment in terracing, flood-control, drainage and desalinisation of soil.
While a small section of 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.
INDUSTRIAL SECTOR
1. Decline of Handicraft Industries: Even as the country’s world-famous handicraft industries
declined, no corresponding modern industrial base was allowed to come up to take pride
of place so long enjoyed by the former.
➢ The primary motive of the colonial government behind this policy of systematically de
industrialising India was two-fold.
• To export important raw materials for the upcoming modern industries in Britain
and,
• second, to turn India into a sprawling market for the finished products of those
industries so that their continued expansion could be ensured to the maximum
advantage of their home country — Britain.
➢ Effect of Decline of Handicraft Industries:
• In the unfolding economic scenario, the decline of the indigenous handicraft
industries created not only massive unemployment in India but also a new
demand in the Indian consumer market, which was now deprived of the supply of
locally made goods.
• This demand was profitably met by the increasing imports of cheap manufactured
goods from Britain.
2. Lack of Capital Goods Industries: There was hardly any capital goods industry to help
promote further industrialisation in India. Capital goods industry means industries which
can produce machine tools which are, in turn, used for producing articles for current
consumption. The establishment of a few manufacturing units here and there was no
substitute to the near wholesale displacement of the country’s traditional handicraft
industries.
3. Low Contribution to GDP: Furthermore, the growth rate of the new industrial sector
and its contribution to the Gross Domestic Product (GDP) or Gross Value Added remained
very small.
4. LIMITED ROLE of PUBLIC SECTOR: Another significant drawback of the new industrial
sector was the very limited area of operation of the public sector. This sector remained
confined only to the railways, power generation, communications, ports and some other
departmental undertakings.
FOREIGN TRADE
India has been an important trading nation since ancient times. But the restrictive
policies of commodity production, trade and tariff pursued by the colonial government
adversely affected the structure, composition and volume of India’s foreign trade.
1. Exporter of Primary Product and Importer of Finished Product: 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 woollen clothes and
capital goods like light machinery produced in the factories of Britain.
2. Britain maintained a monopoly control over foreign Trade: For all practical
purposes, Britain maintained a monopoly control over India’s exports and imports.
As a result, more than half of India’s foreign trade was restricted to Britain while the
rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia
(Iran).
The opening of the Suez Canal further intensified British control over India’s foreign
trade (1869).
3. Drain of Indian Wealth: The most important characteristic of India’s foreign trade
throughout the colonial period was the generation of a large export surplus. But this
surplus came at a huge cost to the country’s economy. Several essential kerosene
etc. — were scarcely available in the domestic market.
Furthermore, this export surplus did not result in any flow of gold or silver into India.
Rather, this was used to make payments for the expenses incurred by an office set up
by the colonial government in Britain, expenses on war, again fought by the British
government, and the import of invisible items, all of which led to the drain of Indian
wealth.
DEMOGRAPHIC CONDITION
Various details about the population of British India were first collected through a census in
1881. The various social development indicators were also not quite encouraging.
1. High birth rate and death rate.
2. The overall literacy level was less than 16 per cent. Out of this, the female literacy level
was at a negligible low of about seven per cent.
3. Public health facilities were either unavailable to large chunks of population or, when
available, were highly inadequate. Consequently, water and air-borne diseases were
rampant and took a huge toll on life.
4. No wonder, the overall mortality rate was very high and in that, particularly, the infant
mortality rate was quite alarming—about 218 per thousand in contrast to the present
infant mortality rate of 33 per thousand.
5. Life expectancy was also very low—32 years in contrast to the present 69 years.
6. In the absence of reliable data, it is difficult to specify the extent of poverty at that time
but there is no doubt that extensive poverty prevailed in India during the colonial period
which contributed to the worsening profile of India’s population of the time.
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 subserve various colonial interests.
1. Road: Roads constructed in India prior to the advent of the British rule were not fit for
modern transport. The roads that were built primarily served the purposes of mobilising
the within India and drawing out raw materials from the countryside to the nearest
railway station or the port to send these too far away England or other lucrative foreign
destinations. There always remained an acute shortage of all-weather roads to reach out
to the rural areas during the rainy season. Naturally, therefore, people mostly living in
these areas suffered grievously during natural calamities and famines.
2. Railway: The British introduced the railways in India in 1850 and it is considered as one
of their most important contributions. The railways affected the structure of the Indian
economy in two important ways. On the one hand it enabled people to undertake long
distance travel and thereby break geographical and cultural barriers while, on the other
hand, it fostered commercialisation of Indian agriculture which adversely affected the
self-sufficiency of the village economies in India. The volume of India’s exports
undoubtedly expanded but its benefits rarely accrued to the Indian people. The social
benefits, which the Indian people gained owing to the introduction of the railways, were
thus outweighed by the country’s huge economic loss.
3. Water transport: Along with the development of roads and railways, the colonial
dispensation also took measures for developing the inland trade and sea lanes. However,
these measures were far from satisfactory. The inland waterways, at times, also proved
uneconomical as in the case of the Coast Canal on the Orissa coast. Though the canal
was built at a huge cost to the government exchequer, yet, it failed to compete with the
railways, which soon traversed the region running parallel to the canal, and had to be
ultimately abandoned.
4. Post and Telegraph: The introduction of the expensive system of electric telegraph in
India, similarly, served the purpose of maintaining law and order. The postal services, on
the other hand, despite serving a useful public purpose, remained all through
inadequate.
POSITIVE CONTRIBUTION BY BRITISH RULE
British Rule also had some positive effects on Indian economy. They are discussed as under:
(1) Self-sufficiency in food grain production: Commercialization of agriculture initiated by
British Government resulted in self-sufficiency in food grain production.
(2) Better means of Transportation: Development of roads and railways provided cheap and
rapid transport system and opened new opportunities of economic and social growth.
(3) Check on Famines: Roads and railways worked as a great check on the occurrence and
impact of famines as food supplies could be transported to the affected areas in case of
droughts.
(4) Shift to Monetary Economy: British rule helped Indian economy to shift from barter system
of exchange (exchange of good for goods) to monetary system of exchange.
(5) Effective Administrative setup: The British Government had an efficient administration
system, which served as a ready reckoner for Indian politicians.
