INDIAN ECONOMY ON THE EVE OF INDEPENDeNCE 1|Page

Before the British rule

1) The Indian economy of the 18th century was primarily an agricultural economy.
2) The prominent handicraft industries which gave prime place to India in the world market were
cotton and silk textile; metal industries; precious stone works; gold and silver jewellery;
perfumery etc.
But during the British rule
1. Own Economic interest: - To protect and promotion of economic interests of Britain’s rather than the
development of the Indian economy
2. Feeder economy: - British government changed the whole structure of the Indian economy and transformed
it into a supplier of raw materials and consumer of finished product of British industries

Impact of
Sectors

Agricultural
Sector Industrial Occupational Demographic
Sector Foreign Trade Profile
Structure

Agriculture Sector
 Nearly 85 % of the country’s population lived mostly in villages and derived livelihood, directly or
indirectly from agriculture
 But the Agriculture sector was stagnant
 During the pre-British period, the condition of Indian agriculture was not at all satisfactory

1. Land revenue system: -

 Under the Zamindari system the Zamindars exploit the cultivator by imposing lagan irrespective
of their Poor economic condition
 Zamidars took the land of farmers when they were not able to deposit the Lagan on fixed dates
 Profit accruing out of the agriculture sector went to the Zamindars instead of the cultivators did
nothing to improve the condition of agriculture.
2. Force Commercialization of agriculture: -
 British transformed Indian agriculture into a raw material for their industries
 They forced the commercialization of agriculture in which they encouraged the production of cash
crops instead of food crops
 Due to shortage of food crops country had to suffered from frequent famines
3. Low level of Productivity:
 Dependence on rain/lack of modern technology
 No means or incentives to invest in agriculture
 Low levels of technology,
 Lack of irrigation facilities
 Negligible use of fertilizers
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Industrial Sector (LIGHT)

India could not develop a sound industrial base under the British rule and was in poor state.

1. Limited contribution of industries to GDP

 Growth rate of the new modern industrial sector and its contribution to the country’s GDP was very
small.
 Only one sixth (about17%) of the GDP
Slow and limited industrial development
o Cotton textile mill by Indians in Maharashtra and Gujarat,
o Jute mills dominated by the foreigners in Bengal.
o Tata Iron and Steel Company (TISCO) were incorporated in 1907.
2. Inadequate role of Public Sector
 Very limited operation is of public sector
 Only restricted to the railways, power generation, communication, ports etc
3. Got Shortage of Capital Goods Industry
 During the British rule, there was hardly any capital goods industry to promote further
industrialization process.
 They always wanted Indians to be dependent on them, for the supply of capital goods and heavy
equipment.
4. Huge Competition from machine-made goods
 Machine-made products from Britain were low cost products and gave a hard competition to the
handicraft products in India.
 It forced the Indian craftsmen to shut-down their enterprises and leads to massive unemployment
5. Two fold De-Industrialization policy
 Reduce India to exporter of raw materials for rapid industrialization in Britain
 Convert India to importer for the cheap finished products
Impact
o Decline in Indian handicraft industries leads to massive unemployment
o Demand for cheap imported manufactured goods from Britain rises

Foreign Trade (DIM)

India has been an important trading nation since ancient times. But the restrictive policies of commodity
production, trade and tariff follow by the colonial government adversely affected the structure and volume of
India’s foreign trade

1. Drain of Indian wealth:

 Export surplus from foreign trade did not result in any flow of gold or silver into India
 This Export surplus was used make to payments for expenses incurred on war fought by the
British government
2. Importer of finished goods and Exporter of primary products
 India became an exporter of primary products such as raw silk, cotton, silk and woolen clothes
and capital goods like light machinery, produced in the British Industries.
 As a result there was a shortage of essential commodities in domestic market. Large export surplus
created.
3. Monopoly control of British:
 More than half 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).
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INDEPENDENCE

 The opening of the Suez Canal in 1869 served as a direct route for the ships operating between India
and Britain.

Demographic Profile (PILL)

Study of various aspects of population like birth rate, death rate, sex ratio etc.
Demographic conditions during the British Rule exhibited all features of a stagnant and backward Indian
economy.

 1st official Census: The first official census was conducted in the year 1881. Though suffering from
certain limitations, the census revealed unevenness in India’s population growth. From 1881 onwards,
census operations were carried out after every ten years.
 1921: Year of Great Divide: before 1921, India was in the first stage of demographic transition. The
second stage of transition began after 1921. So, the year 1921 is described as the ‘year of the Great
Divide’.

1. Poverty Wide poverty prevailed in India during the colonial period worsening profile of India’s population
of the time
2. Illiteracy rate:-Literacy rate was as low as which reflects the social and economic backwardness of the
country. The average literacy rate was 16 % and woman literacy rate was only 7%.
3. Lack of Public health facilities Health facilities were either unavailable to large portion of population or,
when available, were highly insufficient.
4. Low population growth Life expectancy was as low as 44 years which shows the lack of health care
facilities water and air-borne diseases, as well as lack of means for health care. Infant mortality rate was as
high as 218.
5. Life Expectancy: 44 Years.

Particulars DATA Present

Literacy rate 16%. 74%
Female literacy 7% 48%
Infant mortality 218 Per thousand 40 per thousand
rate
Life expectancy 44 years 68 years

Infant (Child) Mortality (Death) Rate (IMR):- is the number of deaths per 1,000 live births of children under
one year of age

Occupational Structure
Means distribution of labor force in the three main sectors of the economy- agriculture, industry and services
1. Agriculture was the principal source of occupation
 Agriculture sector 70-75per cent
 Manufacturing sector 10%
 Service sector 15-20 per cent

2. Unbalanced growth/ Regional variation:

 Decrease in the share of workforce in the agriculture sector in Tamil Nadu, Andhra
Pradesh, Kerala, Karnataka, Maharashtra and West Bengal.
 Increase in the share of workforce in the agriculture sector in Orissa, Rajasthan and Punjab.
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Infrastructure
Infrastructure: -Capital invested in the country that helps in production distribution and consumption.
 Economic infrastructure such as transport, irrigation, banking and credit, power
 Social infrastructure includes water supply, sanitation, health, education etc

1. Roads
 The colonial administration could not construct large roads due to shortage of funds.
 The roads that were built to
o Mobilizing the army
o Shifting raw materials.
 There was shortage of roads to reach out to rural areas during the rainy season.
 As a result, people living in these areas suffered badly during natural calamities and famines.
2. Encourage Railways
 British introduced the railways in India in 1850 and it is considered as one of their most
important contributions.
 Affected the structure of the Indian economy two important ways
o Helped them take long distance travel and thus break geographical and cultural barriers.
o It improved commercialization of Indian agriculture.
3. Air and Water Transport:
 Construction of the inland trade and sea lanes was not satisfactory and was costly.
 Indian waterways 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 complete with the railways, and finally, canal
had to be abandoned
4. Communication:
 Posts and telegraphs were the most popular means of communication.
 The introduction of the expensive system of electric telegraph in India served the purpose of
maintaining law and order.

Positive impact of British rule in India (BASIC)

1. Barter system to monetary system:- Barter transactions was replaced by monetary exchange
system which increase the size of trade.
2. Administration system: - Indian economy got the system of efficient administration from Britishers
who bring all the independent states into common frame
3. Spread of railways: -British introduced the railways in India in 1850. The railways enabled people
to undertake long distance travel and thereby break geographical and cultural barriers.
4. Increasing Commercialization of agriculture: - Promote commercialization of Indian agriculture
and volume of the India’s export trade undoubtedly expanded.
5. Check on famines: - Expanding means of transportation help to check the famine hit areas as they
rush to the drought hit areas.