Introduction of Indian Economy on the Eve of Independence

The structure of India’s present-day economy is not the result of the current conditions, it has its roots
dating back to history, particularly the State of Indian economy on the eve of Independence. India
was a British colony before its independence.

Colonialism here refers to a system of political and social relations between two countries of which
one is the ruler and the other is its colony. The ruling country not only has political control over the
colony but also determines the economic policies of the subjugated country.

The sole purpose of the British colonial rule in India was to reduce the country to being a supplier of
raw materials for Britain’s booming markets and its rapidly increasing industrial base.

Economic Conditions under colonial rule and the state of the economy on the eve of independence

India had an independent economy before the advent of British rule. It had its own flourishing
markets; the livelihood of people was mainly based on agriculture.

Handicrafts and textile industries of India along with metallic work industries enjoyed a worldwide
market. Things were all going well, till the British established power in the country.

British exploitation of India

The British had exploited India over a period of two centuries but the form of exploitation was not the
same throughout the period.

a) Firstly, East India company indirectly caused plunder under the guise of trade. India was forced to
be a producer of raw materials and export raw materials to Britain.

b) Secondly, under the East India company land revenue was an instrument of plundering the
peasants, land settlement systems were introduced by the British Government under which land
revenue rates were high and small farmers were forced to pay such high revenues to the officials and
the Zamindars, under the Zamindari system. They were thus left looted.

c) Thirdly, the corrupt and unscrupulous officers of the East India Company adopted all possible
means to make large fortunes; and

d) Post-acquisition, the Diwani rights for the civil administration of Bengal, Bihar, and Orissa, British
officers constantly kept exploiting the local people, mainly peasants and farmers of these states.

The colonial government did not make any sincere attempt to measure the national and per capita
income of India. This was tried by some individuals, which yielded conflicting results.

One of the most notable attempts was done by Dadabhai Naoroji who wrote about it in his book,
‘Poverty and Un-British rule in India.’
State of the Indian Economy on the eve of independence with reference to the various sectors

State of Indian Economy on the eve of independence with reference to the agricultural sector

The period on the eve of independence was basically characterized by agrarian domination of the
Indian economy. About 85% of the population survived on agriculture as their main occupation.

However, the sector faced consistent struggle on the following grounds.

1. Low Productivity of crops due to agricultural deterioration.

2. The sector suffered from stagnation due to the introduction of land settlement systems
by the British Government authorities. For example, the introduction and
implementation of the Zamindari system in parts of the Bengal presidency saw the
drain of profits from the cultivators to the zamindars. This caused misery and social
tension.
3. Due to the commercialization of crops (production of cash crops in large amounts for
purpose of export in the foreign markets), there was evidence of a relatively high
yield of cash crops. However, this hardly helped the small farmers and hardly added
anything to improve the economic condition of India on the eve of independence.
4. Small farmers neither had resources nor technology to improve the agricultural
produce.
5.

Indian Economy on the eve of independence with reference to the industrial sector

Condition of the Indian industrial sector

The condition of the Indian industrial sector was almost similar to that of agriculture. India failed at
developing a strong industrial base under colonial rule. Rather, the Britishers did not let that happen
mainly due to two following reasons, which resulted in ‘De-industrialization’ and a subsequent
decline in the handicrafts industry.

1. Reduce India to mere suppliers of raw material to Britain so that Britain’s industrial
base could flourish.
 2. Develop India as a market for finished British goods for which the Britishers would
earn large amounts of revenue.
The decline of handicrafts witnessed massive unemployment and an increase in demand for British
manufactured goods and this had an adverse effect on the Indian economy prior to independence.

Modern Industries

Modern Industries began to progress slowly in India during the second half of the nineteenth century.
Cotton and Jute textile industries had their advent, cotton in the western parts of the country mainly in
Maharashtra and Gujarat and Jute found its way in parts of Bengal.

The Tata Iron and Steel Company opened up in 1907. A few other industries came up after 1940.
However, there was no development of major capital goods industries in the country which would
enhance the production of cheap machinery.

Furthermore, the growth rate of the new industrial sector and its contribution to the Gross Domestic
Product (GDP) or Gross Value Added (GVA) remained very small. Another significant limitation of
the new industrial sector was the very limited connection with the public sector.

State of Indian Economy on the eve of independence with reference to the external sector

India has always been one of the most important trading nations since time immemorial. But the
colonial government kept on playing with India’s trade policies, introducing restrictive trade practices
and tariffs that hampered commodity production and trade.

Consequently,’ India was transformed to an exporter of primary products and an importer of finished

goods from Britain.’ Britain thus maintained monopoly control over India’s exports and imports.

A large part of the trade was only restricted to the ruling country and other small parts were opened
to China, Ceylon; Srilanka, and Persia; The opening of the Suez Canal in 1869 further amplified
trade, and this British- India trade relations had adverse effects on India’s Balance of a Payment
schedule.
Surprisingly, Our exports were more than imports but it was not for India’s growth and development,
it was to meet the administrative and the war expenses of the British government. Britain’s
exploitation of India led to the drain of wealth.

Fig: the condition of India towards the end of British rule

State of Indian Economy on the eve of independence with respect to the other indicators

Demographic Structure

The first census data was collected in the year 1881 by the British government. This census revealed
the unevenness of India’s population growth. The death rate and birth rate both were high. The life
expectance of the people was low. For India, the first stage of demographic transition (a major change
in population over time) occurred before 1921 and the second stage began after 1921. But the growth
in population was considerably low in the second stage.

Occupational Structure

People mainly owed their livelihood to agrarian activities. There were growing regional variations.
Some parts of the country saw a shift in occupational trends from agriculture to industry and then to a
certain extent to the service sector. The occupation transition was not sufficient as the other sectors
were not able to provide employment opportunities and nor contributed much to GDP. Our more than
75% population was engaged in agriculture sector only.

Social Development Indicators

The social development indicators did not show encouraging results. Overall literacy Level (Total
number of literate persons in a given age group, expressed as a percentage of the total population in
that age group) was only at 16% with female literacy rates being more and more discouraging.

The overall mortality rate was very high, health conditions of the people saw no improvement.
Malnourishment prevailed. Infant mortality rates were also alarming. The same was true for life
expectancy ratios.
Basic Infrastructure

Basic infrastructure like transport and communication facilities did develop but the ultimate motive
behind this was the facilitation of service of the colonial powers.

Roads were built for facilitating inland trade. One of the contributions of the British colonial rule in
India was the introduction of railways in 1853. This led to the increase in the volume of exports but
all of these rarely proved to be beneficial to the commoners of the nation.

General evaluation

By the time India became independent, the impact of the two-century long British colonial rule was
already showing on all aspects of the Indian economy.

The agricultural sector was already burdened by the problems of surplus labor and extremely low
productivity. The industrial sector needed some first-hand reforms, modernization, diversification,
capacity building, and more public investment.

Trade reforms were also necessary. Discriminatory trade policies were to be done away with. The
country was suffering from major poverty, malnourishment, and unemployment problems. Therefore,
after independence, there were major challenges that the country had to do away with.
Points to remember
Economy of a country includes all production, distribution or economic activities that relate with
people and determines the standard of living. On the eve of independence Indian economy was in very
bad shape due to the presence of British colonial rule. The sole purpose of the British colonial rule in
India was to reduce the country to being a feeder economy for Great Britain’s own rapidly expanding
modern industrial base. Thus, in 1947, when British transferred power back to India, we inherited a
crippled economy.
Conditions in The Indian Economy On The Eve Of Independence
Agricultural Sector
1) Low level of agricultural productivity: Agricultural productivity became very low and this
stagnation in agriculture sector was mainly due to systems of land settlement that were
introduced by the British Government. The Zamindari system, the profit accuring out of the
agriculture sector went to Zamindaris instead of the cultivators. This lead to discouragement
amongst the cultivators to produce less.
2) High dependence on Monsoon: Agriculture sector was mainly dependent on monsoon. No
effort was ever made under the British rule to develop permanent means of irrigation.
3) Lack of Proper Input: Low level of technology, lack of irrigation facility and negligible use of
fertilizers, added to aggravate the plight of the farmers and contributed to the dismal level of
agricultural productivity.
• Industrial Sector
1) Discriminatory Tariff Policy: The British Government allowed tariff free export of raw
materials from India and tariff free import of British industrial products into India. But a
heavy duty on the export of Indian handicrafts products. It leads to decay of handicrafts
industry in India.
2) Competition from machine: Industrial revolution in Britain gave a stiff competition to the
handicraft industries in India. Due to low cost and better quality product produced by machine
forced the Indian craftsmen to shut down the handicraft Industry in India.
3) New Patterns of Demand: Owing to British rule in India, a new class of people emerged in
India. This changed the pattern of demand in India against the Indian products and in favour
of British products. As a result, the Indian Industry tended to Perish.
4) More market for British Goods: An introduction of railways facilitated the transportation of
the British products to different parts of the country. As a result, the size of the market for the
low cost British product expanded while it started shrinking for the high cost Indian products.
This lead to decay of Industry in India.
• Foreign Trade
1) Due to discriminative tariff policy adopted by the British Government, India became net
exporter of raw materials and primary products. On the other hand, it became net importer of
finished goods reproduced by the British Industry.
2) Composition of exports and imports showed the backwardness of Indian economy. Exports
and imports were largely restricted to Britain only due to monopoly control of India’s foreign
trade.
3) Surplus profit made and account of foreign trade during the British rule was distributed on
administrative and as well as on war expenses. It was only used to increase the pursuits of the
British Government.
• Demographic Condition
 1) High birth and High death rate implied low survival rate, which was nearly 8 per thousand per
annum.
2) Life expectancy was as low as 32 years which shows the lack of health care facilities, lack of
awareness as well as lack of means for health care.
3) Literacy rate was as low as 16 percent, which reflects the social and economic backwardness
of the country
• Occupational Structure
1) Agriculture was the principal source of occupation and about 72.7 percent of working
population was engaged in agriculture.
2) Only 10.1% of the working population were engaged in the manufacturing sector, which
showed the backwardness of Indian Industry at the time of Independence.
3) Only 17.2 percent of the working population were engaged in the service sector, which also
proved the slow growth of tertiary sector at the time of Independence.
4) There was an unbalanced growth of Indian economy at the time of Independence.
• Infrastructure
1) There was some infrastructural development during the British in the area of transport and
communication.
2) Introduction of railways, was a major breakthrough followed by the development of some
ports and the construction of some roads.
3) But the main motive of the British government was to foster the interest of the British
Government rather than to accelerate the growth of Indian economy.
4) There was transition from barter system of exchange to monetary system of exchange,
which facilitated division of labour & large scale production.