Lecture 1 - Indian Economy: Pre-independence and after | Indian Economy - In Depth Analysis - Economics PDF Download

 Page 1


Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Pre-independence and after 
Lesson Developer : Taruna Rajora 
College/Department: Research Scholar,CCS University 
Page 2


Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Pre-independence and after 
Lesson Developer : Taruna Rajora 
College/Department: Research Scholar,CCS University 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) Colonialism. 
3) Phases of British colonialism. 
? First stage 
? Second stage 
? Third stage  
    4) Drain of wealth theory. 
5) Semi- feudal economy. 
6) Backward economy. 
7) Stagnant economy. 
8) Reasons for recession. 
9) Effects of recession. 
10) The great depression. 
11) Keynes view regarding depression. 
     12) Glossary. 
13) References. 
Page 3


Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Pre-independence and after 
Lesson Developer : Taruna Rajora 
College/Department: Research Scholar,CCS University 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) Colonialism. 
3) Phases of British colonialism. 
? First stage 
? Second stage 
? Third stage  
    4) Drain of wealth theory. 
5) Semi- feudal economy. 
6) Backward economy. 
7) Stagnant economy. 
8) Reasons for recession. 
9) Effects of recession. 
10) The great depression. 
11) Keynes view regarding depression. 
     12) Glossary. 
13) References. 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Learning outcomes 
After reading this you will be able to know about-: 
I. Colonialism and its different phases. 
II. Drain of wealth theory. 
III. Semi – feudal economy. 
IV. Backward economy. 
V. Stagnant economy. 
VI. The great depression. 
VII. Keynes and monetarist view regarding depression. 
 
 
  
 
 
 
Page 4


Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Pre-independence and after 
Lesson Developer : Taruna Rajora 
College/Department: Research Scholar,CCS University 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) Colonialism. 
3) Phases of British colonialism. 
? First stage 
? Second stage 
? Third stage  
    4) Drain of wealth theory. 
5) Semi- feudal economy. 
6) Backward economy. 
7) Stagnant economy. 
8) Reasons for recession. 
9) Effects of recession. 
10) The great depression. 
11) Keynes view regarding depression. 
     12) Glossary. 
13) References. 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Learning outcomes 
After reading this you will be able to know about-: 
I. Colonialism and its different phases. 
II. Drain of wealth theory. 
III. Semi – feudal economy. 
IV. Backward economy. 
V. Stagnant economy. 
VI. The great depression. 
VII. Keynes and monetarist view regarding depression. 
 
 
  
 
 
 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
1. Colonialism  
Colonialism relates to foreign authority which implies that the economy of the colony is 
regulated in such a manner that it serves the welfare of the metropolitan or the ruling 
country the unequal relationship between colony and the ruling country clearly results in 
underdevelopment of the former. It refers to the system of political and social relations 
between two countries, of which one is the ruler and other is its colony .The ruling country 
not only has political control over the colony, but it also determines the economic policies of 
the dominated country. 
The history of the western countries growth shows exploitation of the colonies for their 
industrialization by them and they also created market for the industrial product 
manufactured by them. 
The people of the colony cannot take independent decision for utilization of the resources of 
the country, development of agriculture, industries. The economic policies of the colony 
were made for the well being of the ruling countries. In colonial system the economy of the 
colony is integrated to economy of the ruler country. 
1.1 PERIOD OF BRITISH COLONIALISM 
 
Period of colonial exploitation by Britishers in India can be divided into three stages. First 
stage of colonial exploitation starts in16th century upto the end of 18
th
 century. Second 
stage starts from 19
th
 century and continues throughout the 19
th
 century. Third stage starts 
from the late 19
th
 century and continues upto independence. 
 
1.1  a. First stage 
In 1600, the main objective of east India Company was to acquire the largest share of 
profits from the international trade. In 1757, when the east India company came into power 
there exists lots of scope for development of the capitalist class in the Indian economy, but 
the intervention of Britain in Indian economy for their own benefits destroy the growth 
possibilities of this small capitalist class. In the beginning, the east India Company had 
nothing which can be offered to the colonies in exchange of trade. So for making exchange 
of goods between countries the east India Company allowed the use of gold and bullion and 
the coins made by these metals. But, the British capitalist who purchase the goods in 
exchange of gold and silver are not able to digest the fact of giving gold and silver in 
exchange of Indian goods. After the battle of plassey lots of changes are made in trading 
process. The east India Company with the help of political power and status exert pressure 
and move the balance of exchange in their favor. Land revenue is one of the measures to 
plunder the farmers wealth. Various methods are adopted by the corrupt officials of the east 
India Company to acquire wealth from India. As a result of this when they return home they 
large amount of wealth. The ‘diwani rights’ for civil administration in Bengal, orissa and 
Bihar are acquired by the east India company with the help of these rights east India 
company able to conquer the wealth of rich section of India. Due to these rights land 
revenue in these states has been increased which literally ruined the farmer’s wealth in 
these states.  
 
When Cornwallis introduced the permanent settlement in 1793, the land revenue was fixed 
and after collection the land revenue collected is not used for public welfare .Efforts were 
made to generate surplus in which the east India company succeeded . But that surplus was 
Page 5


Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Pre-independence and after 
Lesson Developer : Taruna Rajora 
College/Department: Research Scholar,CCS University 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Table of contents 
1) Learning outcomes. 
2) Colonialism. 
3) Phases of British colonialism. 
? First stage 
? Second stage 
? Third stage  
    4) Drain of wealth theory. 
5) Semi- feudal economy. 
6) Backward economy. 
7) Stagnant economy. 
8) Reasons for recession. 
9) Effects of recession. 
10) The great depression. 
11) Keynes view regarding depression. 
     12) Glossary. 
13) References. 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
Learning outcomes 
After reading this you will be able to know about-: 
I. Colonialism and its different phases. 
II. Drain of wealth theory. 
III. Semi – feudal economy. 
IV. Backward economy. 
V. Stagnant economy. 
VI. The great depression. 
VII. Keynes and monetarist view regarding depression. 
 
 
  
 
 
 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
 
1. Colonialism  
Colonialism relates to foreign authority which implies that the economy of the colony is 
regulated in such a manner that it serves the welfare of the metropolitan or the ruling 
country the unequal relationship between colony and the ruling country clearly results in 
underdevelopment of the former. It refers to the system of political and social relations 
between two countries, of which one is the ruler and other is its colony .The ruling country 
not only has political control over the colony, but it also determines the economic policies of 
the dominated country. 
The history of the western countries growth shows exploitation of the colonies for their 
industrialization by them and they also created market for the industrial product 
manufactured by them. 
The people of the colony cannot take independent decision for utilization of the resources of 
the country, development of agriculture, industries. The economic policies of the colony 
were made for the well being of the ruling countries. In colonial system the economy of the 
colony is integrated to economy of the ruler country. 
1.1 PERIOD OF BRITISH COLONIALISM 
 
Period of colonial exploitation by Britishers in India can be divided into three stages. First 
stage of colonial exploitation starts in16th century upto the end of 18
th
 century. Second 
stage starts from 19
th
 century and continues throughout the 19
th
 century. Third stage starts 
from the late 19
th
 century and continues upto independence. 
 
1.1  a. First stage 
In 1600, the main objective of east India Company was to acquire the largest share of 
profits from the international trade. In 1757, when the east India company came into power 
there exists lots of scope for development of the capitalist class in the Indian economy, but 
the intervention of Britain in Indian economy for their own benefits destroy the growth 
possibilities of this small capitalist class. In the beginning, the east India Company had 
nothing which can be offered to the colonies in exchange of trade. So for making exchange 
of goods between countries the east India Company allowed the use of gold and bullion and 
the coins made by these metals. But, the British capitalist who purchase the goods in 
exchange of gold and silver are not able to digest the fact of giving gold and silver in 
exchange of Indian goods. After the battle of plassey lots of changes are made in trading 
process. The east India Company with the help of political power and status exert pressure 
and move the balance of exchange in their favor. Land revenue is one of the measures to 
plunder the farmers wealth. Various methods are adopted by the corrupt officials of the east 
India Company to acquire wealth from India. As a result of this when they return home they 
large amount of wealth. The ‘diwani rights’ for civil administration in Bengal, orissa and 
Bihar are acquired by the east India company with the help of these rights east India 
company able to conquer the wealth of rich section of India. Due to these rights land 
revenue in these states has been increased which literally ruined the farmer’s wealth in 
these states.  
 
When Cornwallis introduced the permanent settlement in 1793, the land revenue was fixed 
and after collection the land revenue collected is not used for public welfare .Efforts were 
made to generate surplus in which the east India company succeeded . But that surplus was 
Pre-independence and after 
Institute of Lifelong Learning, University of Delhi 
treated as profit of the company and returned to England.  This surplus has been used for 
industrialization revolution in Britain. 
During this period the exploitation was so fast that it transformed the most prosperous 
regions into the most backward ones.  
 
1.1 b. SECOND STAGE 
 
Due to industrial revolution the methods of exploitation has been changed .In this period 
the Britain focus on making India a market for British industries. The dual strategy is 
followed by britishers in Indian colony. India textile industry suffers a lot due to this 
strategy. Indian textile industries are very competitive as compared to British textile 
industries because British goods were inferior and expensive as compared to India goods so 
for creating market for in India they made import of british goods duty free and levy heavy 
duty on Indian exports to their country. Due to this strategy Indian goods become 
expensive which restricts imports of Indian textile goods to England and exports of British 
goods have been increased. The british capitalist are only interested in earning profits. They 
help in development of jute industry, tea, coffee, rubber, and indigo which is being used 
mere as a raw material by them, it hampers the capitalist development in Indian economy. 
The British rulers always want to maintain a large army for retaining political power in their 
hands. In 19
th
 century the expenditure on army was almost 1/3 of the total expenses. The 
expenditure on British army positioned in India is borne by the Indian government which is 
a big loss to the revenue of the country. Farmers have to pay large amount of land revenue 
due to which they grow cash crops and main food crops remained low in quantity as 
compared to population due to which millions of people died to the starvation caused by 
these conditions. 
 
1.1 c. THIRD STAGE 
  
It is ironical that the expenses which are not concerned with India are charged to India. 
These expenses are paid by the revenue earned by britishers from India but it is treated as 
a loan to Indian government given by British. During this period capital was imported for 
the construction of the railways but the interest on this capital was paid by Indian tax 
payers in the form of huge amount of taxes. Under the old guarantee system construction of 
railways was assured a interest rate of 4.5% to 5% to railway companies on capital. In 
1882 the new guarantee system was launched for the construction of railways. Under this 
system the interest rate is 3.5% but this is also proves to be an uneconomic expenditure for 
the country due to this railway companies incurring losses in place of profits. The British 
capitalist had special interest in tea, coffee, rubber, and indigo plantations because of 
geographical factors most importantly the favorable climatic condition, in addition to this 
cheap labor are also available which help in getting the large share of profits. There are 
many areas for example mining, banking, finance, engineering, in which British capital is 
being invested but share of investment was quite low around 3% of the total capital 
invested in India. 
 
ECONOMIC BACKWARDNESS UNDER BRITISH RULE  
 
1) During pre independence period official national income estimates are not available. 
Dadabhai naoroji was the first person which provides the national income estimates for the 
1867-1868 in his book poverty and unbritish rule in India. According to his estimates 
national income was RS 340 crore, per capital income was RS 20 per annum. 
2) Poverty is more widespread during British rule as compared to pre British period. 
According to the grand old man of India dadabhai naoroji American slaves are better than 
the Indian natives because there masters always have a watch on them but the condition in