INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

To Become familiar with the state of the Indian Economy in 1947,the year of Independence. Understand the
factors that led to the underdevelopment and stagnation of the Indian Economy

• Level of Economic Development under the Colonial Rule.

• Agricultural Sector
• Industrial Sector
• Foreign Trade
• Demographic Condition
• Occupational Structure
• Infrastructure
The basic purpose of the British colonial rule over India was to compliment and serve the industrialization
process in Britain.
Thus, the sole aim of colonial government was to reduce India to -
1. Mere supplier of the raw materials.
2. As a consumer of finished goods (supplied from British industries).

Colonialism

• Colonialism is the policy of a nation seeking to extend or retain its authority over other people or territory.
• The ruling country not only has political control, but it also determines the economic policies of the
dominated country.
• The colonising country seeks to benefit from the colonised country or land mass.
• In case of India, colonialism is one of the major factor responsible for its underdevelopment.
 Level of economic development:
Before british rule
Based on the reputation for use of fine quality raw materials, finished products and the high standards of
craftsmanship India was well known for its handicraft industries in the field of cotton and silk textile, metal and
precious stone works etc.

India also enjoyed a world wide market(seen through all imports from India) during this period.

During british rule{low level of economic development}:

According to British economist Angus Maddison, India’s share of the world economy declined from 24.4% to
14.2% between 1700 and 1913.
The economic policies implemented by the colonial government in India which were mainly concerned with
the protection and promotion of the economic interest of their home country than India, this was main reason
behind the downfall of Indian economy.
The country’s growth rate during the 1st half of the 12th century was less than 2% and growth rate of per
capita output was only 0.5%.

Main features of Indian eve of independence:

Stagnant economy: There was very slow or no economic growth in the country. ...
Backward economy: Indian economy was a backward and per capita income was very low and in India, it was
ju
Agricultural backwardness: With 70% of people engaged in agriculture, its contribution to GDP was only
50%.
and Tenure System.

There were three forms of Land tenure system introduced by the British rulers in India. These were:
(a) Zamindari system
(b) Mahalwari system
(c) Ryotwari system
In the Zamindari system, Zamindars or landlords were the owners of land. The actual collections by
Zamindars was much higher than what they had to pay to the Government. Zamindari system led to multiplication
of middlemen between cultivators and Government, absentee landlordism, exploitation of peasants by
unsympathetic agents and enmity between landlords and tenants. Under the system, intermediaries benefited at the
cost of both actual cultivators and the state.

Commercialisation of Agriculture.
Commercialisation of agriculture means production of crops for sale in the market rather than for self
consumption. Farmers were forced to cultivate commercial crops like Indigo. Indigo was required by the textile
industry in Britain for dyeing of the textile. As a result, there was fall in the production of food crops. The farmers
had to suffer from frequent occurence of famine. Indian agriculture was transformed into a raw material exporting
sector for England.

Partition of the Country. Partition of the country in 1947 also adversely affected India’s agricultural
production. The rich food producing areas of West Punjab and Sindh went to Pakistan. It created food crisis in the
country. Also, the whole of fertile land under jute production went to East Pakistan. The jute industry was most
severely affected due to partition.
Thus, Indian agriculture became backward, stagnant and non-vibrant under the British rule. Indian Economy
on the Eve of Independence .

Book Exercises:
1. What was the focus of the economic policies pursued by the colonial government in India? What were the
impacts of these policies?

2. Name some notable economists who estimated India’s per capita income during the colonial period.

3. What were the main causes of India’s agricultural stagnation during the colonial period?
 AGRICULTURE (1950-1990)

Agriculture has always been accorded an important position in Indian society. About 85% of the
country’s population lived in village having agriculture as their main occupation. There’s endless evidence
including several British and European accounts, to show the flourishing state of our agriculture in the Pre-
British period.

Impact on the agriculture of india:

• Britishers introduced a new class of landlords called zamindars who regarded land as their private
property and aimed at obtaining maximum monetary gains out of it, making cultivators the actual
tillers of the land mere tenants.
• Farmers were forced to produce cash crop to feed the industries in England.
• It ruined the self-sufficiency of the village as much of the agricultural production were sent to
market for sale.
• The new revenue system led to the peasant indebtedness.
• Commercialisation of agriculture.
• This ultimately resulted in mass poverty and problem of landlessness.

REASONS FOR STAGNATION:

 Land settlement system- In Zamindari system the profits occurring out of the agricultural sector
went to the Zamindars instead of the cultivators.
 Commercialisation of agriculture.
 Lack of irrigation facilities.
 Low level of technology due to lack of knowledge, means and incentives for modernization.
Commercialization of agriculture:
• Commercialization of agriculture became prominent around 1860 A.D., this brought about a
change from cultivation for home consumption to cultivation for the market.
• Many commercial crops like cotton, jute, tea, tobacco were introduced to meet the demand of
factories running in Britain.
• Forced commercialization
• Lead to shortage of food crops.
• Cash transactions became the basis of exchange and largely replaced the existent barter system.

How agriculture changed after Independence:

Since independence India has made much progress in agriculture. Indian agriculture, which grew at the rate
of about 1 percent per annum during the fifty years before Independence, has grown at the rate of about
2.6 percent per annum in the post-Independence era. ... The fisheries declined from 7.48 percent to 3.25
percent.

MAJOR PROBLEMS FACED BY INDIAN AGRICULTURE.

1. Inequality in Land Distribution:
The distribution of agricultural land in India has not been fairly distributed. Rather there is a considerable
degree of concentration of land holding among the rich landlords, farmers and money lenders throughout
the country. But the vast majority of small farmers own a very small and uneconomic size of holdings,
 resulting to higher cost per units. Moreover, a huge number of landless cultivators has been cultivating on
the land owned by the absentee landlords, leading to lack of incentives on the part of these cultivators.

2. Land Tenure System:

The land tenure system practiced in India is suffering from lot of defects. Insecurity of tenancy was a big
problem for the tenants, particularly during the pre- independence period. Although the land tenure
system has been improving during the post-independence period after the introduction of various land
reforms measures but the problem of insecurity of tenancy and eviction still prevails to some extent due
to the presence of absentee landlords and benami transfer of land in various states of the country.

3. Sub-division and Fragmentation of holdings:

In India, the average size of holding is expected to decline from 1.5 hectares in 1990-91 to 1.3 hectares in
2000-01. Thus the size of agricultural holding is quite uneconomic, small and fragmented. There is
continuous sub-division and fragmentation of agricultural land due to increasing pressure of population
and breakdown of the joint family system and also due to forced selling of land for meeting debt
repayment obligations. Thus the size of operational holdings has been declining year by year leading to
increase in the number of marginal and small holdings and fall in the number of medium and large
holdings.

4. Cropping Pattern:
The cropping pattern which shows the proportion of the area under different crops at a definite point of
time is an important indicator of development and diversification of the sector. Food crops and non-food
or cash crops arc the two types of crops produced by the agricultural sector of the country.

As the prices of the cash crops are becoming more and more attractive therefore, more and more land have
been diverted from the production of food crops into cash or commercial crops. This has been creating
the problem of food crisis in the country. Thus after 50 years planning the country has failed to evolve a
balanced cropping pattern leading to faulty agricultural planning and its poor implementation.

5. Instability and Fluctuations:

Indian agriculture is continuously subjected to instability arising out of fluctuations in weather and gamble
of monsoon. As a result, the production of food-grains and other crops fluctuates widely leading to
continuous fluctuation of prices of agricultural crops. This has created the element of instability in the
agricultural operation of the country.

6. Conditions of Agricultural Labourers:

Agricultural labourers are the most exploited unorganized class in the rural population of the country.
From the very beginning landlords and Zamindars exploited these labourers for their benefit and
 converted some of them as slaves or bonded labourers and forced to continue the system generation after
generation. All these led to wretched condition and total deprivation of the rural masses.

After 50 years of independence, the situation has improved marginally. But as they remain unorganized,
thus economic exploitation of these workers continues. The level of income, the standard of living and
the rate of wages remained abnormally low.

Total number of agricultural workers has increased from 55.4 million in 1981 to 74.6 million in 1991
which constituted nearly 23.5 per cent of the total working population of the country. This increasing
number has been creating the problem of surplus labour or disguised unemployment, which in turn is
pushing (heir wage rates below the subsistence level.

7. Poor Farming Techniques and Agricultural Practices:

The farmers in India have been adopting orthodox and inefficient method and technique of cultivation. It is
only in recent years that the Indian farmers have started to adopt improved implements like steel ploughs,
seed drills, barrows, hoes etc. to a limited extent only. Most of the farmers were relying on centuries old.
Wooden plough and other implements. Such adoption of traditional methods is responsible for low
agricultural productivity in the country.

8. Inadequate Use of Inputs:

Indian agriculture is suffering from inadequate use of inputs like fertilizers and HYV seeds. Indian farmers
are not applying sufficient quantity of fertilizers on their lands and even the application of farm yard dung
manure is also inadequate. Indian farmers are still applying seeds of indifferent quality. They have no
sufficient financial ability to purchase good quality high yielding seeds. Moreover, the supply of HYV
seeds is also minimum in the country.

9. Inadequate Irrigation Facilities:

Indian agriculture is still suffering from lack of assumed and controlled water supply through artificial
irrigation facilities. Thus the Indian farmers have to depend much upon rainfall which is neither regular
nor even. Whatever irrigation potential that has been developed in our country, a very limited number of
our farmers can avail the facilities.

In spite of vigorous programme of major and minor irrigation projects undertaken since 1951, the
proportion of irrigated land to total cropped area now comes to about 53 per cent in 1998-99. Therefore,
in the absence of assured and controlled water supply, the agricultural productivity in India is bound to be
low.
10. Absence of Crop Rotation:
Proper rotation of crops is very much essential for successful agricultural operations as it helps to regain
the fertility of the soil. Continuous production of cereals on the same plot of land reduces the fertility of
the soil which may be restored if other crops like pulses, vegetables etc. are grown there. As the farmers
are mostly illiterate, they are not very much conscious about the benefit of crop rotation. Therefore, land
loses its fertility to a considerable extent.

11. Lack of Organized Agricultural Marketing:

Indian farmers are facing the problem of low income from their marketable surplus crops in the absence of
proper organized markets and adequate transportation facilities. Scattered and sub-divided holdings are
also creating serious problem for marketing their products.

Agricultural marketing in India is also facing the problem of marketing farmers’ produce in the absence of
adequate transportation and communication facilities, Therefore, they fell into the clutches of middlemen
for the speedy disposal of their crops at an uneconomic and cheaper price.

12. Instability in Agricultural Prices:

Fluctuation in the prices of agricultural products poses a big threat to Indian agriculture. For the interest of
the farmers, the Government should announce the policy of agricultural price support so as to contain a
reasonable income from agricultural practices along with providing incentives for its expansion.
Stabilization of prices is not only important for the growers but also for the consumers, exporters, agro-
based industries etc.

In India, the movements of prices of agricultural products are neither smooth nor uniform, leading a
fluctuating trend. In the absence of proper price support and marketing support, prices of agricultural
products has to go down beyond the reasonable limit so as to create a havoc on the financial conditions of
the farmers.
Again the exorbitant prices charged by the middlemen on agricultural crops also pose a serious threat to the
consumers. Thus price, fluctuation may lead to disaster as both falling and rising prices of agricultural
crops are having its harmful impact on the society as well as on the economy of the country.

13. Agricultural Indebtedness:

One of the greatest problems of Indian agriculture is its growing indebtedness. The rural people are
borrowing a heavy amount of loan regularly for meeting their requirements needed for production,
consumption and also for meeting their social commitments. Thus the debt passes from generation to
generation. Indian farmers fall into the debt trap as a result of crop failure, poor income arising out of low
prices of crops, exorbitantly high rate of interest charged by the moneylenders, manipulation and use of
loan accounts by the moneylenders and use of loan for various unproductive social purposes.
 Although they borrow every year but they are not in a position to repay their loans regularly as because
either loans are larger or their agricultural production is not sufficient enough to repay their past debt.
Thus the debt of farmers gradually increases leading to the problem of rural indebtedness in our country.
Thus it is quite correct to observe that “Indian farmer is born in debt, lives in debt and dies in debt.”
Book Exercises:
1. Underscore some of India’s most crucial economic challenges at the time of independence.
2. Highlight the salient features of India’s pre-independence Agriculture structure.
3. Were there any positive contributions made by the British in India? Discuss.
 INFRASTRUCTURE(1950-1997)

WHAT IS INFRASTRUCTURE?

Infrastructure can be referred to the basic supporting structure of a nation such as communication,
transportation, water, sewage, etc. This operation can be highly expensive investments and an important aspect of
the economic development of a country.

During colonial period in India, the basic infrastructure water transport, railways, post & telegraph, and ports
were developed.

But the motive behind this development was simply to foster the colonial interest of the British government.
They were never interested in the growth of the Indian economy.

Infrastructure in India
During the colonial period in India, the basic infrastructure such as water transport, railways, posts and
telegraphs, and ports were developed, but to serve the colonial interest rather than serving the common people.
Roads constructed were not fit for modern India, could not connect rural areas, and the shortage of well-
constructed roads, especially in the rainy season, was the drawback.

However, in the year 1850, the introduction of the railways was one of the most important contributions by
the British. This initiative transformed the Indian economy in two ways. One, it led people to travel long distances
and break the geographical barrier, and second, it commercialised Indian agriculture that adversely influenced the
self-sufficiency of the village economies in India.

With the development of railways and roads, the colonial regulation also took steps for the improvement of
the sea lanes and inland trade. However, for the postal services, though it was useful assistance for the society, it
remained insufficient.
 REASONS FOR DEVELOPMENT OF INFRASTRUCTURE:
State of Infrastructure
Infrastructure comprises of such industries which help in the growth of other industries. Under the colonial
period, basic infrastructure such as railways, port per transport, posts and telegraphs developed.
However, the real motive behind this development was not to provide basic amenities to the people but to sub
serve various colonial interests.
The state of infrastructure under the colonial rule can be understood with the help of following points
1. Roads
Roads constructed before independence were not fit for modern transport. It was very difficult to reach rural
areas during rainy season.
The roads were built only to serve the purpose of mobilising the army within India and transporting raw
materials from the countryside to the nearest railway station or the port for exporting it.

2. Railways
British rulers introduced railways in India in 1850 and it began its operation in 1853. It is considered as one of
the important contribution of Britishers.
The railways affected the structure of the Indian economy in the following two ways

It enabled people to undertake long distance travel and thereby break geographical and cultural barriers.
It fostered commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village
economies in India.
So, the social .benefits provided by the Railways was outweighed by the country’s huge economic loss.
 3. Water and Air Transport
The colonial rulers took measures for the development of water transport. The inland waterways, at times,
also proved uneconomical as in the case of the coast canal on the Orissa coast. The main purpose behind their
development was to serve Britain’s colonial interest.
The colonial government also showed way to the air transport in 1932 by establishing Tata Airlines. Thus, in
this way it inaugurated the aviation sector in India.

4. Communication
Modern postal system started in India in 1837. The first telegraphy line was opened in 1857. The introduction
of the expensive system of electric telegraph in India served the purpose of maintaining law and order.

Book Excersis:
1. Briefly discuss the various reasons for the development of infrastructure by the British government.
2. What were the positive signs in railways under the British rule? What was the motive of constructing
railways by the British government?
3. What were the positive contributions made by the British rule in India?
 INDUSTRIAL SECTOR (1950-1997)

 India could not develop a sound industrial base under the Colonial Rule.
 Even the country’s famous handicraft industries declined.
 Lack of capital good industry.
The Pre-Colonial Industrial Sector in India

The Pre-Colonial Industrial Sector in India:

Before the rise of the British empire in India, it was known for its handicraft industry. Evidently, this
industry enjoyed worldwide demand and was held in a high regard. Indian craftsmanship was applauded
in all parts of the world. The textile industry was among the most important urban handicraft industry.
Articles made up of wool, cotton and silk were famous both inside and outside the country’s boundaries.

Additionally, various metal industries, stone carving, marble work, shipbuilding and tanning and
leather industries were taking shape. These industries potentially accelerated India’s growth, establishing
it on the world map. However, the British Raj took every step to ensure that this wasn’t the case.

Industrial Sector under British Rule

On setting foot in India, the Britishers were looking to cripple out the blooming industrial phase.
With this in mind, they eyed the aforesaid industries. In effect, they chalked out a plan to decentralize
these flourishing industries. This de-centralization served two purposes.
Firstly, Indian export volume was made dominant with raw materials directed to Britain.
Effectively, from a prominent exporter of manufactured handicraft items, India was reduced to a mere
exporter of raw materials. Secondly, this ensured that there was a low level of local supply to meet Indian
demands for finished goods. Hence, India was forced to turn towards British to meet its demands.

Furthermore, the downfall of aforesaid industries gave rise to large-scale unemployment.

Interestingly, colonials shrewdly erased this unemployment, identically born as a result of their policies,
by offering employment for working in tea, coffee, indigo plantations and jute industries, completely
 owned by the colonials. At the same time, increased local demand was being profitably met by the British
imports.
During the second half nineteenth century, the modern industry began taking shape in India at a
very slow pace. The notable ones are cotton and jute textile industries. However, the cotton industries
confined to western parts of India were controlled by Indians. Whereas, the jute textile industries,
controlled by foreigners, were limited to the Eastern part (Bengal).
Further, some other industries started coming up after the second world war for example- sugar,
paper, cement, steel, and iron industry. Notably, 1907 saw the incorporation of the Tata Iron and Steel
Company (TISCO).
Other Factors
Also, there was a dearth of capital goods industries. These industries are responsible for producing
machines which in turn produce consumption goods. In essence, these are essential from the
manufacturing point of view. Although there was an establishment of some units, the slow development
could never fill the void of the textile industry.
This coupled with minimal operation of the public sector ( railways, power generation,
communications, ports and some other departmental undertakings) defined the sorry state of Indian
industrial sector under the British.

The de-industrialization policy adopted by British served two purposes:

Indian export volume was made dominant with raw materials directed to Britain. Effectively, from a
prominent exporter of manufactured handicraft items, India was reduced to a mere exporter of raw materials.

This ensured that there was a low level of local supply to meet Indian demands for finished goods.

Key points to remember about the industrial sector on the eve of independence:

- “Systematic de-industrialization" The decay of India’s world-famous Handicraft industry due to the
discriminatory policies of the Britishers. Bleak growth of modern industry due to lack of investment opportunities.

DECAY OF HANDICRAFTS:

Before the Britisher's came to India, our country was worldwide famous for its excellence and quality of
handicrafts.

REASONS BEHIND THE DECAY OF THE HANDICRAFTS :

1. Discriminatory Tariff (Tax) Policy of the State - Britishers found India best source of raw materials and
best market for their finished goods. They started the following discriminatory tariff policies according to which:
 - The export of raw materials from India tariff-free.

- The import of British Industrial products in India tariff-free.

- Heavy duty (taxes) was placed on the export of the Indian Handicraft products. British finished products
captured Indian markets. Therefore, the decay of the handicrafts was the result.

2. Disappearance of the Princely Courts

- At the time of Independence India was divided into two sets of territories:

- The law of British India was placed in both the central and the local governments which means that the
Princely states somehow existed under the influence of the law.

- Local rulers encouraged(patronize) the handicrafts making them reputed worldwide, with the greater
influence of British law and their discriminatory policy the decay of handicrafts took place.

3. Competition from Machine- made Products-

The machine-made products from Britain were low-cost and gave tough competition to handicrafts products
in India. This competition forced the Indian craftsmen to shut their enterprises forever.

4. New Patterns of Demand-

The impact of the Britishers can be seen on our culture and thinking too. This lead to the emergence of the
new class and new patterns of class that preferred British products against Indian products.

5. Introduction of Railways in India-

Railways were introduced in India by the Britishers for their own selfish motives in order to expand their
markets for the finished products in India. Their expansion leads to decay in handicrafts.

THE IMPACT ON INDIA’S INDUSTRIAL SECTOR

Before the British period, India’s well-known industry was the handicraft and textile industry. India was well-
known for its industries in cotton and silk textiles as well. And in addition, Indians were excellent in metal and
precious stonework as well. When the Britishers came, they were followers of de-industrialization in India. They
did this by creating situations which were conducive to the decay of the handicraft and textile industry. They also
did not make any effort to promote to permit the continuation of the metal and precious stone works.
 The following was the condition of the industrial sector on the eve of independence.
The decay of the Handicraft Industry. The traditional handicraft industry in India initially was in high
demand. But the British rule completely discriminated the practice. The prevalence of discriminatory tariff policy
and the competition from machine-made products was very critical for the downfall. Also, the introduction of
railways in India was the reason for market expansion. Consequently, the demand for the handicrafts began to fall.
All of these directly led to the downfall of our prominent industry.

Slow Growth of the Modern Industry. Due to the limited growth of the PSEs and the lopsided industrial
structure, the growth of the modern industry was slow. In addition, there was a lack of basic and heavy industries.

To conclude,
Not only was the industrial and agricultural sectors of the country affected but so was the foreign trade.
Foreign trade plays a crucial role in the development and earnings of a country. Although it is great to be a self-
sustaining and independent country, foreign trade and globalization are critical to a country’s success. Indian
economy on the eve of independence in relation to the foreign trade was very poor. Due to the rules imposed by
the British, none of India’s products or skills had any recognition. And hence, adversely affecting the structure,
composition and volume of the country’s foreign trade and income.

Book Excerises:
1. Which of the following formed the backbone of Indian industrial sector before colonization:
Steel and Iron
Cement
Urban handicrafts
None of the above
2. When were the railways introduced in India?
3. What was the % of labour that was employed in the manufacturing and service sector in pre-independent
India?
4. How did the export surplus lead to an economic drain of wealth during colonial rule?