Cheat Sheet: Indian Economy on the Eve of Independence | Economics Class 12 - Commerce PDF Download

Low Level of Economic Development

• Pre-Colonial Economy: Independent, prosperous, with renowned handicrafts (e.g., cotton/silk textiles, metalwork, precious stones) and agriculture supporting most livelihoods.
• British Policy Objectives: Turn India into a raw material supplier for British industries and a market for British goods, causing de-industrialisation.
• Handicraft Decline: Collapse of industries like Dhaka’s Muslin without a modern industrial base replacement.
• Agricultural Stagnation: Despite 85% population reliance, agriculture faced decline and low productivity.
• Economic Growth: Overall output growth <2% (1900-1950), per capita output growth ~0.5% annually.
• Economists’ Estimates: Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, R.C. Desai assessed national/per capita income due to British neglect.

Agriculture Sector

Overview: 85% population lived in villages, relied on agriculture, yet faced stagnation and low productivity.

​Causes of Decline:

Industrial Sector

Overview: No sound industrial base developed due to British policies.

• Systematic Deindustrialisation: India as a raw material supplier and market for British goods.
• Handicraft Destruction: Collapse caused unemployment, increased demand for British imports.
• Slow Modern Industry Growth: Cotton mills (Indian-run, Maharashtra/Gujarat), jute mills (foreign-run, Bengal) emerged late 19th century; TISCO (1907) started iron/steel; sugar, cement, paper post-WWII.
• No Capital Goods Industry: Lack of machinery/tools production hindered growth.
• Low GDP Contribution: Minimal industrial sector growth and GDP impact.
• Limited Public Sector: Focused on railways, power, communications, ports; needed post-independence expansion.

Foreign Trade

Overview: Restrictive British policies reshaped India’s trade to benefit Britain.

• Composition: Exported primary products (e.g., raw silk, cotton, jute); imported finished goods (e.g., textiles, machinery).
• Direction: Over 50% trade with Britain; limited with China, Ceylon, and Persia.
• Volume: The Suez Canal (1869) increased trade by reducing transport costs.
• Structure: Large export surplus caused local shortages (e.g., food grains, clothing).
• Use of Surplus: Funded British offices, wars, invisible imports; drained Indian wealth.

Demographic Transition

Definition: Shift from high birth/death rates to low rates with development.

• The first census (1881) showed uneven growth.
• Pre-1921: First stage (high birth/death rates).
• Post-1921: Second stage began; low population growth rate; 1921 called ‘Year of Great Divide.’

1. Literacy: <16% overall, 7% for females.
2. Health: Inadequate public facilities; high disease spread.
3. Mortality: High, infant mortality ~218/1000 (vs. 33/1000 now).
4. Life Expectancy: ~32 years (vs. 69 now).
5. Poverty: Widespread, worsened population conditions.

Occupational Structure

Infrastructure

Overview: Developed to serve colonial interests, not public welfare.

• Roads: Built for army movement, raw material transport; lacked all-weather rural access, worsened during rains/famines.
• Railways (1850): Enabled long-distance travel, broke cultural barriers; commercialised agriculture, reducing village self-sufficiency; benefited Britain, not India.
• Waterways: Inland trade/sea lanes developed but uneconomical (e.g., Orissa’s Coast Canal abandoned).
• Post and Telegraph: Expensive telegraph for law/order; inadequate postal services.

• Tata Airlines (1932): Started the aviation sector.
• Modern education: Created a clergy class.
• Modern banking: Supported British administrative accounts.

Conclusion

By independence, British rule had left India’s economy weakened. Agriculture suffered from over-reliance and low productivity, handicrafts collapsed without a modern industry replacement, and trade favoured Britain, draining wealth. Infrastructure served colonial needs, not public welfare. Widespread poverty and unemployment underscored the need for a welfare-focused policy post-independence.