INDIAN ECONOMY

1
ON THE EVE
OF INDEPENDENCE
LEARNING OBJECTIVES
1.1 INTRODUCTION
2 LON LEVEL OF
ECONOMIC
1.3 AGRICULTURAL SECTOR DEVELOPMENT UNDER COLONIAL RULE
1.4 INDUSTRIAL SECTOR
1.5 FOREIGN TRADE
1.6 DEMOGRAPHIC CONDITION
1.7 OCCUPATIONAL STRUCTURE
1.8 INFRASTRUCTURE
1.9 POSITIVE CONTRIBUTIONS OF BRITISH RULE
1.10 STATE OF INDIAN ECONOMY ON
THE EVE OF INDEPENDENCE

1.1 INTRODUCTION

The main objective of this book, "Indian Ecomomic Development" is tofamiliarise with the
basic features of the Indian economy and its process of development. In order to understand
the various phases of development, it is important to first look at the state of India's economy
form an idea of the various considerations that shaped
prior to the country's independence and
India's post-independence development strategy.

Origin of British Rule foundation of British

India changed the course of history in India. The
The British rule over
in 1757.
Empire in India was laid by Battle of Plassey, fought

Basic Purpose of British Rule Indian economy

as feeder economy
to use
in India was

n e man purpose of the British rule rule tempered

the Indian economy
British colonial
economy. the for of thei
glory
Tor the development of British human
resources

as well as
them the 15
India's natural on

Very badly. They

exploited
gainedindependencefrom
200 years of
British rule, India
OWn country. Finally,
after

August, 1947. 1.1

 1.2
*******************************************s*seeseete****n*stsets * oridaratsa
Indian Economic Developrment
In this
chapter: We will study a brief introduction of the state of Indian
and just after the
attainment of independence. To appreciate the current Economy prior to i.
should understand the factors that led to the economiOndependen
dependence
underdevelopment and stagnation of the Indie f India, we
1.2 LOW LEVEL OF ECONOMIC DEVELOPMENT ormy.
UNDER
Before the advent of British rule, Indian economy was characterised with COLONIAL
RULE
the
e follcwsin
following teatures
Prosperous Economy: India was an independent, self-reliant and
prosperoue atures
Agrarian Economy: Agriculture was the main source of livelihood for
most no
engaged about two-third of the total population. dit
Well Known IndustrIes: India was also known for
Handicraft its handicraft indtustrie
fields of cotton and silk textiles, metal and precious stone works, etc. in the
enioved a worldwide market due to its reputation of fine
Handicraft prod.ducts
of quality material used and H
high standards of craftsmanship. the

TextileIndustry in Bengal
Muslin, a cotton fabric of plain weave, is a type of cotton textile which had its origin in Bengal
(now Bangladesh), specially in places in and around Dhaka (spelled as 'Dacca' during the
pre-independence period).
Daccai Muslin' had gained worldwide fame as an exquisite
type of cotton textile and
was exported to Europe, Middle East, and other markets, in the 17h and 18h
centuries.
Thefinest variety of muslin was called malmal and foreign travellers also used to refer
to it as malmal shahi or malmal khas, implying that it was worn by, or fit for, the
royalty.
However, during the British rule, the economic policies pursued by the Colonial Govenment
(5ritish Government) in India, were concerned more with the protection and promotion of
their own economic interests, than with the development of the Indian economy. Their polices
brought a fundamental change in the structure of Indian economy.heir two-fold strategy
(discussed later in the chapter under the heading"De-industrialisation-DeclineofHandicraft Industry')
transformed the country into a supplier of raw materials and consumer offinished industrial products
from Britain.

Meaning of Colonialism
Colonialism refers to a system of political and social relations between two countries, ofwhich
one is the ruler and the 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.
In case of India, the unequal relationship between the colony (India) and the ruling country
(Britain) resulted in underdevelopment of India.
Low Level of National Income and Per Capita Income
The economic condition of a nation can be judged with the data of national income and per
capita income.
However, no sincere attempt was made by the British Government to estimate India's
national and per capita income.
Some individual attempts were made by experts like Dadabhai Naoroji, William Digby,
Findlay Shirras, V.K.R.V. Rao and R.C. Desai. But, all these estimates produced conflicting
and inconsistent results.
 Indian Economy on the Eve of
Independence 1.3
However, estimates of
Dr. Rao on national and
significant. per capita incomes werc
Most ot the
studies revealed
first half of the that country's
twentieth century was less growth of aggregate real output **O the
output per year. than 2%% and only 0.5%%
growth im pe e apita
1.3 AGRICULTURAL SECTOR
During the pre-British
India's
period, the condition of Indian
economy under the British colonial rule agriculture was not at all satistactory
in character. was
overwhelmingly rural and agricuitua ra

Nearly 85% of the

directly or indirectlycountry's
from
population lived mostly in villages and derived livelihood,
Even with this agriculture.
large proportion of population engaged in
self-sufficient in food and raw materials for agriculture, the country was not
Main Reasons for
industry.
The stagnation in the
Stagnation in Agricultural Sector
agricultural sector was caused due to the following reasons:
1. Land Settlement
System: The most important reason for
stagnation in
agricultural sector was the introduction of
Zamindari System' by the colonial
Under this system, profits
government.
accruing out of agricultural
sector went to the zamindars in
the form of "lagaan'.
The main interest of the zamindars was
only to collect lagaan
regardless of the economic condition of the cultivator.
.The dates for depositing specified sums of lagaan to British
Government were also fixed, failing which the zamindars Stagnation in Agricultural
were to lose their rights. sector during the British
colonial rule
The zamindars and the colonial government did nothing
to improve the condition of agriculture.

Zamindari System
Zamindari System (also known as Permanent Settlement System) was introduced by Lord Cornwallis in
1793. The basic aim for starting this was to increase the revenue of Colonial Government.
Under the system, zamindars were recognized as owners of the land and were given the rights to collect
the rent (Lagaan) from the farmers. Thus, the zamindars were to function as intermediaries between
the cultivators and the British Government.
This system was based on exploitation as zamindars were allowed to extract as much rent or lagaan
as they wished. So, zamindars imposed exorbitant lagaan and the rates of lagaan were so high that
farmers were not left with enough foodgrains to feed themselves.
This made the farmers economically and physicallyweak. Zamindars were only interested in pleasing
the British Government and did nothing to improve the condition of agriculture.
 Indian EConomic Developmen
A ******

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* * * * * * * * * * * *

Commercialization
of
Agriculture:Commercialization

griculture means production ofof crops

crops
2. consumption
market rather
than for self
for sale in the were given higher price for producine
he British rule, farmers ing cash crops,
esst

However, this did

not improve the economic conditiom. of farmers
like cotton
or jute.
instead of producing crops, they food were
producing cash crops, which were
crops
Ge 1st
Industries.
used by the British
to be ultimately
of crops from food crops to cash
rule promoted shifting ops.
Thus. British

resulted in Famines
Commercialization of Agriculture
was
commercialized to cater to the needs of the Rrita
tish
During the British rule, agriculture
materials.
industries for necessary raw
in need ofraw materials like cotton, jute,
groundinut
industrialists were always
.The British
factories running.
sugarcane, etc. to keep their
were attracted to production of commercial
the Indian peasants
Byoffering high prices,
of food crops.
crops instead to make many peasants purchase
agriculture went so far
as
commercial
.The extent of
from shops in towns.
their food requirements
for frequent famines in India during
food crops was responsible
This fall in production of
the British days.

. Low level of
of technology,
Productivity: Low levels MAIN REASONS FOR STAGNATION IN
AGRICULTURAL SECTOR
and negligible use of
lack of irrigation facilities
Land Settlement System
fertilisers resulted in low level of productivity.
Commercialization of Agricuiture
The cultivator had neither the
means nor any
Low Level of Productivity
incentive to invest in agriculture.
Scarcity of Investment
while
The zamindar had no roots in the villages,
technical
the British rule spent little on agricultural,
or mass education.

All this made it difficult to introduce modern technology, which caused a perpetually
low level of productivity.
investment in terracing&
1. Scarcity of Investment: India's agriculture was facing scarcity of
flood-control and drainage. Although some farmers changed their cropping pattern ron
food crops to commercial crops, a large section oftenants, small farmers and sharecroppers
neither had resources and technology nor had incentive to invest in agriculture.
"Sharecropping is a form of agriculture in which a landowner allows a tenant to use ne
land in retun for a share of the crops produced on their portion of land.
 **********************************************sur
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1.5
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Adverse Effects of Partition *****tant""""*a ante"*****dadrdr**i**uthed**. ""*detet"*******

India's agricultural
production received
time of independence. afurther set back due to the country's
partitiona he

ASeaDle portion of the undivided

country's highly irrigated and fertile land went
Pakistan. to
Almost, the whole
of jute producing area became part of East Pakistan
India's jute goods industry, which had enjoved a world (now Bangladesn
for lack of raw
material monopoly so far, suffered
neav

1.4 INDUSTRIAL SECTOR

Although agriculture had dominated the Indian
economy during the pre-British period, but
some Indian industries,
producing certain special products, enjoyed worldwide reputation.
India was particularly well known for its handicraft industries.
Like agriculture, India could not develop a sound industrial base under the British rule. The
poor state of Industrial sector during the British rule is illustrated in
the points: following
1. De-industrialisation-Decline of Handicraft Industry: British Government systematicaly
destroyed Indian handicraft industries and no modern industrial base was allowed to come
up. The primary motive of British rule behind the de-industrialisation was two-fold:
T o get raw materials from India at cheap rates to be used by upcoming moderm
industries in Britain;
(i) To sell finished products of British industries in Indian market at higher prices.
The two-fold policy of British rule was enforced to ensure the maximum advantage of

their home country.

Reason for Decline of Handicraft Industry

The main reason for decline of India's renowned handicraft industry was the introduction of |
to which:
Discriminatory Tariff Policy' by the colonial government, according
from India; and
.There was Duty-free export of raw materials
of British industry to India;
There was Duty-free import offinal goods
on the export of Indian
handicrafts.
But, heavy duty was imposed
low priced. It led
full offinished goods from Britain which were
As a result, Indian markets were
both in the domestic marketas wellas in the export market.
to the decline of Indian handicrafts,

of Handicraft Industry: Decline of handicraft industries adversely

2. Adverse effects of decline
in the following ways:
affected the Indian economy
resulted in unemployment
The decline of Indian handicrafts
(i) High Level ofUnemployment: for their
artisans were forced to take up agriculture
on a mass scale.
The displaced
and over-crowding
This increased the burden of population on villages
livelihood.
in agriculture.
 OpIient
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could not withstand the

(i) lmport of Finished Goods:

The ndian made
machine made cheap goods.
It resulted
goods
demand inin Indian
demand in the new foreign
ln
competitionof made goods, Ratha
which was not fulfilled through locally
market, , this
Consumer
met by increasing imports
of manutactured goods 6
demand was profitably om
Britain. to those industries zwhicl.
Goods Industries: Capital goods imdustry rejer ch can
3. Lack Capital
of
in tur1, used for producingarticlesfor
current
produce machine tools, which are, mptio
the British rule, there was hardly any
capital goods industry to promote fturdi
urther
During
industrialisation in India.
for their promotion as they always wanted Indi
British rulers did not pay any attention dians
of capital goods and heavy equipment
to be dependent on Britain, for the supply
rate of the new industria
4 Low contribution to Gross Domestic Product (GDP):The growth
sector and its contribution to the GDP or Gross Value Added remained very small
5. Limited role of Public Sector: The limited area ot operation of the public sector was ale
0
a significant reason for drawback of the industrial sector. The Public sector remained
confined only to the railways, power generation, communications, ports and some other
departmental undertakings.
Finally, it can be concluded that India remained backward im the industrial sector during the British rule.

INDUSTRIAL SECTOR DURINGTHE BRITISH RULE

De-industrialisation- Adverse Efects of Lack of Capital Goods Low Contribution Limited Role of Public
Decline of Handicraft decline of Handicraft Industries to Gross Domestic Sector
Industry Industry Product (GDP)

Modern Industries operating during Independence

Due to initiative of the private sector, modern industries started to come
up during the second
half of the 19th century.
The industries established in this period were
mainly confined to cotton textile and jute
mills and their progress remained very slow.
.The cotton textile mills were mainly dominated Indians and were
by located in the western
parts of the country, namely, Maharashtra and Gujarat.
.The jute mills dominated by
the foreigners were mainly concentrated in Bengal.
.The major breakthrough was setting
up of Tata Iron and Steel Company (TISCO) in the
year 1907 in Jamshedpur (Bihar).
.A few other industries in the fields of
sugar, cement, paper, etc. also came up after the
Second World War.

1.5 FOREIGN TRADE

India has been an important trading nation since ancient times.
However, the restrictive policies
adopted by the colonial government adversely affected the structure, composition and volume
of India's foreign trade.
 STATE OF INDIA M ADE DURING BRITISH RULE
Products
and
Monopoly Control of Britieh
of
Primary
Rule Drain of Indian Wsalth
xporter
of
Finished
Goods

British Rule
during
Importer

f Primary Products ana Tporter o Tinishcd Goods:

of Prim.
1.
Exporter India became an exporter
1. such as raw silk, cotton,
primaryproducts wool, sugar, indigo, jute, etc. and an
of consumer goods like cotton, silk and importer
o ff i n i s h e d woollen clothes and capital
produced in the British
Industries.
goods like
1ioht machinery,
Control of British
Rule: British Government maintained a monopoly control
exports and imports.
over India's
AMare than 2 of India's foreign trade was restricted to Britain while the rest was allowed
with few other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
The Opening of the Suez Canal in 1869 served as a direct route for the ships operating
between India and Britain.

Drain of Indian wealth during British rule: Under the British rule, Indiabecameanexporter
of primary products (raw material) and an importer of finished goods. There was huge
was used:
export surplus due to excess exports. However, export surplus
incurred by an office set up by the colonial
(i) To make payments for expenses
government in Britain.
British government.
(i) To meet expenses on w a r fought by the

(ii) To import invisible items.

Trade through the Suez Canal

from north
Suez Canal is an artificial waterway running
9ndon Asia
Europe
Suez in north-eastern
to south across the lsthmus of
Egypt. SUEZ
CANAL
200 Mlas a

Canal in 1869reducedthe
The opening of Suez Africa
a c c e s s to the
and made
Cost of transportation
Indian market easier. Indian

direct trade
route for ships Ocean

The canal provided a avoided

and India and Atlantic
between Britain Ocoan
operating
In 1869, the Suez Canal
was
around Africa.
the need to sail the
it is one of the opened, greatly reducing
and
distance between Britain
economically,
Strategically and the world.
waterways in by some 5,100 miles
as
India
most important needed to
ships no longer
Africa.
travel round southern
 sssesiesesDm
Indian EConomic Developrnenr
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1.6 DEMOGRAPHIC CONDITION exhibited all features of aa

S of stao
stagnant and
British Rule
conditions during the
Demographic
backward Indian economy.

1 t Official Census: The first official

census was
conducted in theyear
in India's
sufferin
1881. Though suffo

ation
population
from certain limitations,
the census revealed unevenness

ten years.
growth
or.

were carried out atter every

census operations
From 1881 onwards,
in the first stage of demogranl.
Great Divide: Before 1921, India was

1921: Year of the 1921. So, the year 1921 is deseri ed

stage of
transition began after
transition. The second
Divide'.
as the Year of the Great

Why Divide ?
1921 is called 'Year of Great
transition with very high birth and high death
.Before 1921, India was in thefirst stage of demographic
a consequence, the
size of population
from year to year, and as
rates. The death rate fluctuated
remained almost stationary entered the 2nd stage of
of decline in death rates, the population of the country
With the beginning
after 1921. From the year 1921 onwards, India's
transition. The second stage of transition began 1921 is called 'Year of
never declined and recorded a
consistent rise. Due to this reason,
population
Great Divide'.

in the following points:

The demographic condition during the Colonial rule is described
High Birth Rate and Death Rate DEMOGRAPHICrHigh Infant Mortality Rate
cONDITION
Low Life Expectancy
Extremely Low Literacy rate DURING
COLONIAL
Poor Health facilities RULE Widespread Poverty

1. High Birth Rate and Death Rate: Birth Rate refers to number
of children born per thousand in a year. Death rate refers to
number of people dying per thousand persons in a year. Both
birth rate and death rate were very high at nearly 48 and
40 per thousand respectively.

2. Extremely Low Literacy rate: Literacy rate refers to total

number of literate persons, expressed as a percentage of the total
population. The overall literacy level was less than 16 per
Poverty, malnutrition and poor
cent. Out of this, the female literacy level was at a
low of about 7 per cent.
negligible health facilities led to high
death rate during British Rule

3. Poor Health facilities: Public health

facilities were either unavailable to large mass of
population or, when available, were highly inadequate. As a result, water and air-borne
diseases were widespread and took a huge toll on life.
 1.9
Indian Economy on the Eve of Independence

rencng
4. High Infant Mortality Rate: lnfant mortality rate refers to numberofinfants dying before
one year of aS° per 1,000 live births in a year. The infant mortality rate was quite alarming-
thousand in 201/
per thousand, in contrast to the infant mortality rate of 33 per
about 216

and 32 per thousand in 2018.

5. Low Lite Expectancy: Life Expectaney refers to theaverage number ofyearsfor which peopie ure
expected to ve. Lite expectancy was also very low 32 years, in contrast to the present

years.
But, there is
6. Widespread Poverty: There was no reliable data about the extent of poverty.
The overall
no doubt that extensive poverty prevailed in India during the colonial period.
standard of living of common people in India was very low and there was widespreau

poverty in the country.

It can be concluded that British rule was the main reason to worsen the profile of India's population.

1.7 OCCUPATIONAL STRUCTURE

and tertiary
Ocupational structure refers to distribution of working persons across primary, secondary
into three broad sectors:
(service) sectors ofthe economy. So, all the production units ofan economy are grouped
resources like land, water,
.Primary Sector: It includes production units exploiting natural etc.
subsoil assets, etc. For example, farming, fishing, mining, animal husbandry, forestry,
one good
Secondary Sector: It includes production unitswhich are engaged transforming
in
finished goods. For example, firms
into another good. These units convert raw materials into
construction companies, power generation,
engaged in converting sugarcane into sugar, materials.
on primary sector for raw
etc. It is called secondary because it depends
units engaged in producing services. For example,
Tertiary Sector: It includes production etc. This sector finds third place
administration,
transport, education, finance, government sectors.
and
secondary
growth is primarily dependent primary
on
because its
structure of India showed little sign of change.
The
During the colonial period, the occupational
the British rule can be summarized as under:
state of occupational structure during
The agricultural sector accounted for the largest
1. Predominance of Primary Occupation:
accounted for 10%
The manufacturing and service sectors
share of workforce with 70-75%.
and 15-20% respectively. variation.
2. Regional Variation: Another striking aspect was the growing regional
Karnataka, Maharashtra and West
.The states of Tamil Nadu, Andhra Pradesh, Kerala, of workforce on the agricultural sector with
decline in dependence
Bengal witnessed a
a commensurate
increase in the manufacturing and service sector.
share of workforce
However, during the same time, there had been an increase in the
such as Orissa, Rajasthan and Punjab.
in agriculture in states

1.8INFRASTRUCTURE
services and facilities, which are needed to provide different
Infrastructure refers to all such activities,
economy. It includes infrastructure associated with means of transport,
kinds of services in an
 1.10 nIC Dev
InalalECOITOIIIC Developman
**********

communication, energy and banking (i.e. Economic Infrastructure) and intrastructure assoe
with facilities of health, education and housing (i.e. Social Infrastructure). sociatet
The infrastructure facilities during British rule were very poor. 5ome efrorts were mad.
aevelop basic infrastructure like roads, railways, ports, water transport, posts and telegra.
But, the main motive behind such infrastructural
development was to serve various col
interests. The state of
infrastructure as inherited from the British rule, is discussed below blonial
.
Roads: The colonial administration could not accomplish much on construction of
due to
scarcity of funds roa.
oads
The roads that were
built, primarily served the interests of mobilising the
shifting raw materials. armv
and as

There always remained an acute shortage of all weather roads to reach out
areas to ri ral
during the rainy season. As a result, people living in these areas
during natural calamities and famines. suffered bad
2.
Railways: The most important contribution of the British
rule was to introduce
railways in India in 1850. The railways
affected the structure of the Indian
economy in two important
ways:
i) Railways enabled
travel. It broke
people to undertake long distance
geographical and cultural
barriers and
promoted national integration.
(i) It enhanced
which
commercialization of Indian agriculture,
adversely affected the comparative
sufficiency of the village economies in India. self- India's First
Railways also promoted the foreign trade but it ran from
Passenger Train
Bombay to Thane, a
Britishers more than the Indians. benefited the distance of 34 km
led to huge economic The construction of 16th
losses to the Indian railways on
April, 1853.
3. Air and Water economy.
for
Transport: British Government took
developing the water and air transport. measures
development was far from satisfactory. However, their
Inland waterways proved to be uneconomical, as in
Coast Canal on the Orissa coast. This the case of the
cost, but it failed to canal was built at a
had to be abandoned.
compete with the
railways, and
huge
finally, canal
4. Communication: Posts and
popular means of
telegraphs were the most
communication.
.The introduction of the
telegraph in Indiaexpensive system of electric J.R.D.Tata, pioneer of Indian
served the purpose of
law and order. maintaining aviation, in 1932

The postal services, despite serving a useful

inadequate public purpose, remained all throug
 ******-******* . ueiCe 1.11
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Reasons for Infrastructural

The basic objective of
British Government to
Development
develop infrastructure not to provide asic
amenities to the
people, but to serve their own
was

1. The Roads were built colonial interest.

for
mobilizing the army within India and for drawing O uraw e
materials irom the
countryside to the nearest railway station or port and to sena
England or other
lucrative
foreign destinations.
ue
2. Railuvays were developed by the Britishers mainly for three reasons:
(i) To have effective control and
administration over the vast Indian territory
(1i) To earn profits through
foreign trade by
(ii) To make profitable investment of British linkinginrailways
with major portsy
funds India.
3. The system of Electric
Telegraph was introduced at a high cost to serve the purposE
maintaining law and order.
Conclusion
By the time India won its independence in 1947, the impact of 200 years of British colonial rule
was already showing on all aspects of the Indian economy. Following points are the clear prooys
of economiC
underdevelopment during the British period.
.The constant per capita income over a long period.
.Increasing dependence of population on agriculture.
The Zamindari System.
Traditional methods of cultivation.
High-frequency of Famines.
.Destruction of Indian Handicrafts.
.Inadequate industrialisation.
The hostile policy of British Government led to the complete ruin of the Indian economy.

British Rule - Systematic Exploitation of India

The various forms of exploitation by the Britishers on the Indian economy can be broadly
analysed with the following points:
() India remained an agricultural country throughout the British period and its agricultural
sector remained totally backward. There was commercialization
of agriculture, to serve

the interests of Great Britain.

industrial structure of India. There
(ii) British rulers never tried to modernise the prevailing
was large-scaledestruction of world famous handicrafts and cottage industries of the

country.
protection, Britishers gained complete control
(l) By following the policy discriminating
of
over the entire Indian markets.
the Indian economy intoa primary producing country,
(iv) British rulers graduallytransformed
and raw materials necessary for industries in Britain
exporting only agricultural products
from Britain.
and importing finished goods
.12 indian EConomIC evelopment
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* * * * * * * * * * * * * * * * * * * * * * * * * * " * * * * * * * *
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****

their natural resources of India to advantage.

(V)To promote foreign trade and to exploit
British ruler built up economic infrastructure,
which includes roads and railway network.
etc.
ports and shipping, irrigation and electricity,
Indian economy through economic drain.
(vi) The British rulers thoroughly exploited the
British rulers resulted in large-scale poverty.
The aforesaid nature of exploitative policies of the
alongwith a huge drain of economic
stagnation and backwardness of the Indian economy,
resources of the country to Great Britain.

9 POSITIVE CONTRIBUTIONS OF BRITISH RULE

ritish Rule also had some positive effects on the
Indian economy. They are discussed as under
Commercialization of agriculture initiated by
1. in food grain production:
Self-sufficiency
in food grain production.
British Government resulted in self-sufficiency

2. Better means of transportation: Development

of roads and railways provided cheap and
new opportunities
of economic and social growth.
rapid transport system and opened up
worked as a great check on the occurrence and
3. Check on Famines: Roads and railways
to the affected areas in case of
impact of famines as food supplies could transported
be

droughts.
Indian economy to shift from barter system
4. Shift to Monetary Economy: British rule helped
of exchange.
of exchange (exchange of goods for goods) to monetary system
Government had an efficient administration
5. Effective administrative setup: The British
system, which served as a ready reckoner for Indian politicians.

INDEPENDENCE
10STATE OF INDIAN ECONOMY ON THE EVE OF
Indian economy into a colonial, backward,
uring the British rule, the Britishers transformed the
mi-feudal, stagnant, backward, depleted and amputated economy.
over nearly 200
1. Colonial Economy: In India, colonial exploitation is a long history, spread
years.
.British rule resulted in huge drain of wealth from India, in order to facilitate growing
British industry with the supply of raw materials from India.
also encouraged commercialisation of Indian agriculture to transform Indian
They
economy into a British colony.
.The impact ofthe British colonial policy was deep on India, even at the time of
Independence.
2. Semi-feudal Economy: By the close of the British period, there were two aspects of the
Indian economy.
Introduction of Feudal System: The land settlement system gave birth to feudal relations
(landlord-tenant relations). The landlords used to charge very high rate of lagaan and
were very cruel to the cultivators.
 1.13
dian Economy on the Eve of Independence * * n d i a s n o - i r d r o o i s s *

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Introduction of Capitalist System: The establishment of modern industries led to creation

of two classes capitalist and labourers.
So, India inherited the features of both feudal and capitalist system in the Indian economy.

3. Stagnant Economy: A stagnant economy is one which is growing at a very low rate. On the eve or

independence, Indian economy was a stagnant economy as country's growth of aggregate

real output during the first half of 20th century was less than 2%, and growth in per capita
output was only 0.5%.

4. Backward Economy: At the end of British rule, Indian economy was backwara aid
underdeveloped. The main reasons for the backwardness of Indian economy were:
Low level of
productivity;
Low per capita income;
Traditional methods of agriculture;
High birth and death rate;
Mass illiteracy.
5. Depleted (or Depreciated) Economy: At the time of independence, Indian economy was

Depleted
abeen Economy'. Depleted Economy refers to an economy, where no arrangements have
made to replace the physical assets, depreciated due to excessive use.
During the 2nd World War, Indian industries had to work beyond their capacities to
meet the increased demand of plant, machinery, equipments, etc. for the war.
However, British rulers did not make any arrangements to replace the depreciated
physical assets. As a result, British rulers had left a seriously depleted economy.
. The Britishers of 'divide and rule'
Amputated Economy: policy always promoted
discrimination between various groups on the basis of religion, caste, language and culture.
As a result, on the eve of Independence, country was geographically divided into two
parts: India and Pakistan.
Partition of the country virtually disrupted the economy due to: (i) Problem of
rehabilitation of large number of refugees from Pakistan; and (ii) Shortage of raw
material for jute and cotton mills as most of the cotton and jute growing areas went to
Pakistarn.