Indian Economy on the Eve of Independence Class 12 Economics

Introduction

India's current economy has been influenced not just by recent events but also by its past, especially the period of British rule. Before British rule, India had a thriving economy with flourishing handicrafts and strong agriculture. However, British policies focused on benefiting their own country, turning India into a source of raw materials and a market for their goods. This led to the downfall of local industries, increased problems in farming, and left India poor. As India neared independence, it faced the huge challenge of rebuilding its economy after years of being exploited by the British.

Low Level of Economic Development Under the Colonial Rule

• India was an independent, self-reliant and prosperous economy.
• Agriculture was the main source of livelihood for most of the people. Yet, the country’s economy was characterized by various kinds of manufacturing activities.
• India was well known for its handicrafts industries in the field of cotton and silk textiles, metal and precious stone works etc. These products enjoyed a worldwide market due to the use of fine quality of material and high standards of craftsmanship. (For e.g., Muslin also called malmal – a type of cotton textile from Dhaka, Bengal was famous worldwide for its royal texture).
• Objectives/Nature of British policy in India: The British colonial government's economic policies in India were focused on benefiting their own country and not the development of India's economy. 
• These policies aimed to reduce India into a supplier of raw materials for the upcoming industries in Britain and a big market (or consumers) for finished industrial products from Britain. In other words, Indians had to buy products from Britain which were made from Indian raw materials. 
• Individual economists who attempted to estimate India’s national and per capita income: Dadabhai Naoroji, William Digby, Findlay Shirras, V. K. R. V. Rao and R. C. Desai (the British government did not make sincere efforts to estimate the same)
• Most of the studies revealed that the country’s growth of aggregate real output during the first half of the 20^th century was less than 2% and growth in per capita output per year was only 0.5%.

Agriculture Sector

Under the British colonial rule, India was primarily an agrarian economy with about 85% of country’s population living in villages and deriving their livelihood directly or indirectly from agriculture. However, despite a large proportion of population being engaged in agriculture, the Indian agriculture sector continued to experience stagnation and low productivity during British rule.

The main causes for this were:

1. Land Settlement System

• The colonial government introduced various systems of land settlement like the Zamindari System which was implemented in the then Bengal presidency (comprising parts of India’s present-day eastern states). 
• The profit accruing out of the agriculture sector went to the zamindars instead of the cultivators. 
• Zamindars did nothing to improve the condition of agriculture. 
• The main interest of zamindars was only to collect rent regardless of the economic condition of the cultivators. 
• This caused immense misery and social tension among them.

2. Revenue settlement system

• The dates for depositing specified amount of revenue were fixed, 2 failing which the zamindars were to lose their rights. 
• As a result, zamindars exploited farmers.

3. Use of primitive techniques of production

• Indian agriculture was characterised by manual labour in the absence of machines
• Low levels of technology, lack of irrigation facilities and negligible use of fertilisers, all together resulted in low level of agricultural productivity.

4. Commercialisation of agriculture

• It means the production of crops for sale in the market rather than for self-consumption. 
• During British rule farmers were promoted to produce cash crops instead of food crops (by giving them higher price for producing cash crops like cotton or jute) which were to be ultimately used by British industries. However, this did not improve the economic condition of farmers.

5. Lack of investment from government and farmers

• Problems with irrigation: India’s agriculture sector lacked investment in terracing, flood control, drainage and desalinisation of soil. 
• Although some farmers changed their cropping pattern from food crops to commercial crops yet a large section of tenants, small farmers and share croppers neither had resources and technology nor had incentive to invest in agriculture.

Industrial Sector

• Systematic Deindustrialisation policy: This policy of the British government aimed at:
  1. Reducing India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain.
  2. Turning India into a big market for the finished products of British industries. 

• Destruction of handicraft industry: The decline of indigenous handicraft industries (due to the introduction of ‘Discriminatory Tariff Policy’ by the colonial government) created not only massive unemployment in India but also a new demand in the Indian consumer market which was profitably met by the increasing imports of cheap manufactured goods from Britain.
• Slow growth of modern industries: In India modern industries started coming up during the second half of the 19th century but their progress remained very slow. Initially, these industries were confined to cotton and jute textile mills. (the cotton textile mills, mainly dominated by Indians were located in western parts of the country, namely Maharashtra and Gujarat while the jute mills dominated by foreigners were concentrated in Bengal) Subsequently the iron and steel industries began coming up in the beginning of the 20th century. The Tata Iron and Steel Company (TISCO) was set up in 1907. A few other industries like sugar, cement, paper, etc. came up after the Second World War.
• Lack of capital goods industry: Capital Goods Industry are those industries which can produce machine, tools etc. which are in turn used for producing articles for current consumption. During British rule there was hardly any capital goods industry to promote further industrialisation in India.
• Inadequate industrial growth: The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
• Limited role of public sector: The area of operation of the public sector was very limited. It remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.

Foreign Trade

• Change in composition of trade: 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.
• Change in direction of 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 countries like China, Ceylon (Sri Lanka) and Persia (Iran).
• Change in volume of trade: The opening of Suez Canal in 1869 intensified the British control over India’s foreign trade. It reduced the cost of transportation and made access to the Indian market easier.
• Change in the structure of trade: India’s foreign trade resulted in the generation of a large export surplus. This surplus came at a huge cost to the country’s economy. As export of primary products (raw materials) resulted in a scarcity of several essential commodities food grains, clothes, kerosene etc. in the domestic market.
• Use of export surplus: The export surplus did not result in any flow of gold or silver into India. Rather this export surplus makes payments for the expenses incurred by an office set up by the colonial government in Britain, meets war expenses fought by the British government and imports of invisible items. 

All these led to the drain of Indian wealth.

Demographic transition

Demographic transition is the shift from high birth and death rates to low birth and death rates as a country develops. This process usually results in slower population growth and a more stable population over time.

India’s first official census operation was undertaken in 1881. It revealed that India’s population growth was uneven. Before 1921, India was in the first stage of demographic transition. The second stage of transition began after 1921. Hence the year 1921 is also called the ‘Year of Great Divide’.
The social development indicators during British rule were not encouraging:

• The overall literacy level was less than 16%. Out of this female literacy level was at a negligible low of about 7%.
• Public health facilities were either unavailable to a large mass of populations or when available, were highly inadequate. Consequently, water and air-borne diseases were widespread and took a huge toll on life.
• The mortality rate was very high. Particularly, the infant mortality rate was quite high about 218 per thousand in contrast to the present 33 per thousand.
• Life expectancy was very low about 32 years in contrast to the present 69 years.
• Extensive poverty prevailed during the colonial period which worsened the profile of India’s population at that time.

Occupational Structure

Occupational Structure refers to the distribution of working persons across different industries and sectors.

Features of India’s pre-independence occupational structure:

• The agriculture sector accounted for the largest share of the workforce, i.e., 70-75%.
• The manufacturing and the service sectors accounted for only 10% and 15-20% respectively. 
• There was growing regional variation. The states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka (Parts of the then Madras Presidency), Bombay (Maharashtra) and West Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and service sector. However, during the same time, there had been an increase in the share of the workforce in agriculture in states such as Orissa, Rajasthan and Punjab.

Infrastructure

During British rule, basic infrastructure facilities such as railways, ports, water transport, posts and telegraphs did develop however the main aim behind such development was to serve various colonial interests rather than providing basic amenities to the people.

• Roads were built for mobilising the army within India and drawing out raw materials from the countryside to the nearest railway station or port to send these to England. There always remained an acute shortage of all-weather roads to reach out to the rural areas during the rainy season. This affected badly the people living in these areas, especially during natural calamities and famines.
• Railways were introduced by the British in India in 1853. It is considered as one of their most important contributions.

Indian Railways under the Colonial Rule

• The railways affected the structure of the Indian economy in two important ways:
  1. It enabled people to undertake long-distance travel and thereby break geographical and cultural barriers.
  2. It fostered the commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.

• India’s volume of exports expanded undoubtedly but its benefits were not enjoyed by the Indian people, but the British government. Thus, the construction of railways led to huge economic loss to the Indian economy.

• Waterways: Besides railways and roads the British government also took measures for the development of inland trade and sea lanes (water transport). However, these measures were far from satisfactory.
  The inland waterways developed by the British proved to be uneconomical as in the case of the Coast Canal on the Orissa coast. This canal was built at a huge cost but it failed to compete with railways and finally, it had to be abandoned.
• Post and telegraph: The British introduced an expensive system of electric telegraph in India which served the purpose of maintaining law and order.
  The postal services despite serving a useful public purpose, remained all through inadequate.

Note: (a) Tata Airlines, a division of Tata and Sons was established in 1932 inaugurates the aviation sector in India.
(b) The British also started the modern education system for the purpose of creating clergy class.
(c) They also laid the foundation of modern banking system in India for administrative purposes i.e. maintaining accounts for the British in India. (Positive contributions of British rule).

Conclusion

• The agriculture sector was overcrowded with surplus labour. It continued to experience stagnation and extremely low productivity despite the fact that the largest section of the Indian population depended on it for sustenance.
• The collapse of India’s world-famous handicraft industries and deindustrialization policy by the Britishers did not result in the formation of any industrial base in India. The industrial sector was thus lacking in terms of modernisation, diversification, capacity building and increased public investment.
• The foreign trade was oriented just to feed the Industrial Revolution in Britain.
• Some efforts were made by the colonial government to develop/improve certain infrastructure facilities but they all were guided with their self-interest motive. Hence these facilities including the famed railway network needed upgradation, expansion and public orientation.
• The prevalence of extensive poverty and unemployment in the economy required welfare orientation of public economic policy.