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INDIAN ECONOMIC DEVELOPMENT
INDIAN ECONOMY ON THE EVE OF INDEPENEDENCE
(CHAPTER – 1)
Colonial Rule: - It refers to a system between 2 countries under which one
country being the ruler and another being the colony and the ruling country
determines the economic policies of the colony.
In India, the colonial rule stays for around 200 years (1757 (Battle of
Plassy)-1947) under which the Britishers exploited the Indian country and form
the economic policies in India.
Stagnant economy: - Stagnant economy refers to the economy which is
stuck or very low at its path of development.
Features of Indian economy before colonial rule
Agriculture was the main source of employment and livelihood for the
people of our country Around 85% economy derived their livelihood
directly or indirectly from agriculture.
The farmer raised only those crops which he needed for his own use and
shared the same with the village artisan who supplied him with simple
manufacture that he needed for his domestic consumption.
India enjoyed extensive trade both within the country and with other
countries of asia and Europe.
India was famous for its handicraft industries all over the globe
Indian was an independent, self-reliant and prosperous economy.
#Did you know
Before colonization India was known as golden bird (popularly known as 'Sone
ki chidia")
It was a reference to the wealth and economic prosperity of India
Low Level Of Economic Development Under the Colonial Rule
India had an independent and prosperous economy before the British arrived.
Though agriculture was the main source of livelihood for most people, the
economy also included many manufacturing activities.
India was well known for its handicraft industries, especially in cotton and
silk textiles, metal works, and precious stone crafts, which had high
international demand.
These products became popular due to:
Fine quality of raw material nolo:
High standard of craftsmanship
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Focus of British Economic Policies
The British policies focused more on protecting the economic interests of
Britain than on developing the Indian economy.
These policies ignored India's growth and aimed at turning India into a
market for British goods and a supplier of raw materials.
Impact of These Policies
Such policies changed the structure of the Indian economy by:
Turning India into a supplier of raw materials
Making India a consumer of British finished goods
#Did you know
Economists who estimated India's Per Capita Income
The British government never made serious attempts to estimate India's
national or per capita income.
Some individual economists made efforts, including:
o Dadabhai Naoroji
o William Digby
o Findlay Shirras
o V.K.R.V. Rao
o R.C. Desai
Out of these, V.K.R.V. Rao's estimates were considered the most reliable.
Growth Findings
Most studies found that during the first half of the 20th century:
o GDP growth was less than 2%
o Per capita income growth was only around 0.5%
Additional Point
Daccai Muslin of Bengal became world famous for its fine cotton textile.
The best quality, known as malmal shahi or malmal khas, was considered fit
for royalty.
Agricultural sector at the eve of independence
The characteristics of agricultural sector at the eve of independence was as
follows
1. Zamindari system (land tenure system)
Under this system, ownership right of the land was transferred from farmers to
zamindars, i.e. zamindars were the nominal head of the land who collects the
revenue from the farmers (in the form of lagaan) and deposit it to the colonial
government.
The zamindar collects lagan from the farmers regardless to the economic
condition of the cultivator.
The zamindar and the colonial government took no initiative to improve or to
strengthen the condition of agriculture.
2. Commercialization of Agriculture
It refers to the production of crops for sale rather than for self consumption
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Farmers were given higher prices for production of cash crops ( like cotton, jute,
indigo) so that they can use them as raw material for British industries
High level of prices forced the farmers to produce cash crops rather than food
crops.
3. Low level of productivity
Productivity refers to the output per hectare of land.
During colonial period the productivity of Indian agriculture was very low
Reasons of which are as follows:-
o Lack of irrigation facility
o Low level of technology
o Negligible use of fertilizes
4. High degree of uncertainty
During the colonial period, the main source of irrigation for Indian agriculture
was rainfall, as there were no proper irrigation facilities developed by the British
or the zamindars. This made agriculture highly dependent on monsoon, resulting
in a high level of uncertainty.
If the rainfall was good, the crop yield was satisfactory.
But in case of poor or delayed rainfall, it caused crop failure, food
shortages, and financial distress for farmers.
This uncertainty discouraged investment in agriculture and kept productivity
and income levels low, making the livelihood of farmers extremely risky and
unstable.
Industrial sector on the eve of independence
1. Decline of handicraft industries
During colonial rule, the Britishers systematically destroyed the Indian
handicraft industries and forced the people to indulge into agriculture sector.
The basic motive of british rule behind this de-industrialization was 2- fold
a. To convert India into a supplier of raw material for the industries of
Britain
b. To develop India as a market of British manufactured goods
2. Discriminatory tariff policy
The British Indian government followed
Free trade or unrestricted entry of British goods
Tariff free export of raw material from india to Britain
Heavy duty was placed on the export of Indian handicraft products, due to
which the Indian handicraft industry start losing its pride and place.
VIDYASAGAR INSTITUTE 75509-85061; 95634-47201
3. Competition from machine made products
The pride of Indian handicraft industries stated to decline when it faced the
competition from machine made products. As they are of low cost and easily
available.
Indian craftsmen are far behind the speed of machines and hence the only
alternative available for them is to shut down their enterprises
4. Lack of capital goods industries
Capital goods industry refers to those industries which are capable of producing
machine tools.
During colonial period there was no capital goods industry worth the name
(TISCO-Tata Iron And Steel Co. Ltd. Established in 1907, Jamshedpur ),
moreover Britishers don't pay any attention in promoting or supporting these
industries as they want India to be a supplier of raw materials only.
5. Change in pattern of demand
The impact of British culture started to arise in the public, as a results a new
class emerged in India which was keen to adopt the western lifestyle. This
changed the pattern of demand against the Indian products.
6. Negative effects of Railways
Although introduction of Railways was one of the positive impact of colonial
period but at that time, Railways proves to be a terror for Indian industries.
Britishers use railways for their benefits only as a result, Size of market of low-
cost British product started to expand whereas high-cost handmade products
began to shrink.
Shortfalls of the Industrial Policy under British Rule
1. Lack of Capital Goods Industry
There was hardly any development of capital goods industry in India during
British rule.
Capital goods industries are those that produce machinery and tools which are
used to make other goods.
Due to this, India had to depend on Britain for machines and industrial tools,
which blocked further industrialisation in the country.
2. Destruction of Handicraft Industries
British policies caused the near total displacement of India's traditional
handicraft industries.
These industries could not compete with cheap machine-made goods from
Britain, which led to a sharp decline in employment and loss of livelihood for
Indian artisans.
3. Low Growth of Modern Industries
The growth of the new industrial sector during British rule was very slow.
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Its contribution to GDP or Gross Value Added (GVA) was very small, as the
British focus remained on raw material extraction, not industrial growth in
India.
4. Limited Public Sector Development
The public sector during British times was restricted only to railways, power,
ports, and communication.
There was no focus on expanding industries or welfare services, and most
development was done only to serve British economic interests.
Foreign trade
Since ancient period, India has been an important trading nation. India was well
known exporter of finished goods like silk, fine cotton, textiles, ivory work,
handicrafts, precious stones etc. But the discriminatory trade and tariff policies
of Britishers brought it to an end The condition of foreign trade is explained
below
1. Exporter of primary products and importer of finished goods
During colonial rule, India became the exporter of raw materials ( such as raw
silk, cotton, indigo, jute etc) which are of low cost. And became the importer of
finished goods (such as capital goods, woolen clothes, silk clothes and other
machine made products) which are of high cost.
Due to this the economic condition of our economy started to decline.
2. Monopoly control on trade by britishers
During colonial period the British government maintained a monopoly control
over Indian trade policies.
• Majority of trade was restricted to Britain ( more than ½ ) while the rest
was allowed with some other countries only ( such as china, Srilanka(Ceylon)
and Iran ( Persia)
• Opening of Suez Canal in 1869 provides a direct trade route for ships
operating between Britain and India
Suez Canal::
It is an artificial waterway running from north to south across the Isthmus of
Suez in north - eastern Egypt. The opening of canal reduced the
transportation cost as now there is no need to sail around Africa.
• Tariff free import and export between India and Britain whereas heavy
duty was placed on the export of Indian handicraft products (which increase
their price in the market )
3. Economic exploitation :-
Due to the exporter of raw material, India has a huge export surplus. But the
amount of export surplus does not give any push to Indian economy as, the
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amount of surplus is used by the government in non developing activities
(Draining of indian wealth), such as
• To meet expenses of war fought by the British government
• To make payment of office setup of colonial government
• To make trade of invisible items ( services)
Demographic Condition
Demographic refers to the study of various aspects of population, such as age,
sex, education level, income level, marital status, birth rate, death rate etc.
1. High birth rate and death rate
Birth rate refers to the number of children born per thousand in a year
Death rate refers to the number of people dying per thousand persons in a year
During colonial period both birth rate and death rate are very high (nearly 48
and 40)
Which means India was at the First stage of demographic transition (before
1921)
Year 1921, is regarded as the year of Great divide as thereon India has started
its entry into the second stage of demographic transition
First stage - High Birth rate and high death rate (stagnant economy)
Second stage - High Birth rate and low death rate (initial stage of
development)
Third stage - Low Birth rate and low death rate (developing or developed
economy)
2. Low literacy rate
Literacy rate refers to the number of persons who is 7 or above, who has the
ability to read, write and understand and one language. During colonial period
the overall literacy rate of the economy was less than 16 percent. Moreover the
female literacy rate was about 7 percent.
3. High Infant mortality rate
Infant mortality rate refers to the number of infants dying before the age of 1
year per thousand live births annually The IMR during colonial period was about
218 per thousand (before 1921).
4. Poor Health facilities
Public health facilities were either unavailable or when available, were higher
inadequate. Due to which, Water and air-borne diseases were widespread and
took a huge toll on life.
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5. Low life expectancy
It refers the average number of years for which a person is expected to live. Due
to poor health facilities, the life expectancy during colonial rule was as low as 32
years, whereas as per the latest WHO data published in 2018, the current overall
life expectancy of India is 68.8 years.
6. High level of poverty
During colonial period, India faced the condition of extensive poverty, per capital
consumption was very low. The overall standard of living of common people of
India was very low.
Occupational Structure
It refers to the distribution of working persons across different industries and
sectors
1. Predominance of Agriculture
As colonial government aims at making India as an exporter of raw material, as a
result about 72.7% of working population was engaged in agriculture. As the
income generation rate of agriculture sector is very low, this predominance
reflects backwardness of the economy
2. Unbalanced growth
Growth of an economy is said to be balanced when all the 3 sectors are equally
developed, but in case of Indian economy, only primary sector is the main source
of employment, whereas secondary and tertiary sector were in their infant stage
of growth.
Infrastructure
It refers to the basic physical and organizational structure and facilities
(Buildings, roads, power supplies etc) needed for the operation of an economy. er
The state of infrastructure was very poor during colonial period, although some
efforts were taken by the British government to improve the condition of
infrastructure in the economy (railways, ports, post and telegrams, roads etc) so
that it can serve economics benefits to them.
The condition of infrastructure was explained here:-
1. Railways
One of the biggest contributions of colonial rule was the introduction of railways
in India in
1850. It helps to remove geographical and cultural barriers in the economy.
Although the benefits of railways was mostly restricted to Britishers during
colonial period but it also helps in developing the Indian economy post colonial
period. It also foster commercialisation of indian agriculture
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2. Roads
The construction of roads during colonial rule was very limited (due to scarcity of
funds).
The roads that were built, primarily served the interests of mobilizing the army
and shifting of raw materials so that they can be transported to Britain via ports.
3. Air and Water Transport
The colonial government made some efforts to develop ports and air transport,
mainly to serve their own interests.
Ports were improved to export raw materials and import British goods.
However, the overall development of air and water transport was very limited and
did not benefit the Indian people.
It remained unsatisfactory and inadequate for economic development
4. Communication
During colonial period, Posts and telegraphs were the most popular means of
communication. The system of electric telegraph was introduced at a high cost to
serve the purpose of maintaining law and order.
Despite serving a useful public purpose, the postal service remained all through
inadequate
Positive contributions of British rule
As every coin has 2 sides, similarly the colonial rule had some leads some
positive impacts on our economy which are as follows
1. Introduction of railways
The first and the most efficient contribution was the introduction of railways in
India. Britishers introduced railways so that they can transport their products
and the raw materials easily from one place to another but in post colonial
period railways turned out to be the key factor for the economy
2. Commercialization of agriculture
Under pre- colonial period, farmers grow crops just to sustain themselves and
other people of the village. But forced commercialization of agriculture under
colonial rule brings new opportunities for farmers in the market
3. Monetary system of exchange
Barter system of exchange was no longer effective in the economy. Britishers
brings a new system of exchange popularly known as monetary system of
exchange (Introduction of money)
4. Effective system of administration
The colonial government in India left a legacy of an efficient system of
administration, which serve to be a readymade reference for our economic and
political planners
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Important Points:
The first official census of India was conducted in 1881
V.K.R.V. Rao has given a significant role estimating national income
and per capita income.
1921, is the year of great divide, as the first stage of demographic
transition has ended and India has entered into its second stage of
demographic transition.
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