Indian Economy On The Eve Of IndependenceClass 11 Indian Economic Development Notes

Introduction

To understand India's economic development after it gained independence on 15 August 1947, it's essential to first look at the state of its economy during the nearly two centuries of British rule. The structure of India's modern economy has deep roots in this historical period.

The primary goal of the British colonial rule was not to develop India, but to use it for the benefit of Great Britain's own expanding industrial base. The British transformed India into a supplier of raw materials and a consumer of British-made finished products. Understanding this exploitative relationship is key to assessing the economic challenges India faced at independence.

Low Level of Economic Development under the Colonial Rule

Before the British arrived, India had an independent and prosperous economy. While agriculture was the main source of livelihood, the country was also famous for its manufacturing activities.

• Pre-British Economy: India was well-known worldwide for its handicraft industries, especially in cotton and silk textiles, metalwork, and precious stone works. These products were famous for their fine quality and high standard of craftsmanship.
• Colonial Economic Policies: The policies of the colonial government were designed to protect and promote the economic interests of their home country, Britain. This led to a fundamental change in the structure of the Indian economy.
• Estimating National Income: The colonial government never made a sincere effort to estimate India's national and per capita income. Some individual attempts were made by economists like Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai. Of these, Rao's estimates were considered very significant.
• Slow Economic Growth: Most studies found that during the first half of the twentieth century, India's growth of aggregate real output was less than two percent, and the growth in per capita output was only half a percent per year.

Agricultural Sector

Under British rule, India's economy remained overwhelmingly agrarian, with about 85 percent of the population living in villages and depending on agriculture for their livelihood. However, this crucial sector faced stagnation and deterioration.

Causes of Agricultural Stagnation

• Land Settlement Systems: The colonial government introduced various systems of land settlement that caused stagnation. The zamindari system, implemented in the Bengal Presidency (which included parts of modern-day eastern states), was particularly damaging. Under this system, the profits from agriculture went to the zamindars (landlords) instead of the cultivators (farmers).
• Attitude of Zamindars: The main interest of the zamindars was only to collect rent. They did little to improve the condition of agriculture. The colonial government also fixed dates for depositing revenue, and zamindars who failed to pay on time would lose their rights. This forced them to extract rent regardless of the farmers' economic condition.
• Lack of Investment and Technology: The agricultural sector suffered due to low levels of technology, a lack of irrigation facilities, and the negligible use of fertilisers. This led to very low productivity.
• Commercialisation of Agriculture: In some areas, there was a shift from growing food crops to growing cash crops for British industries. However, this did not improve the economic condition of most farmers. Small farmers, tenants, and sharecroppers lacked the resources, technology, and incentive to invest in agriculture.

Industrial Sector

Just like agriculture, India's industrial sector fared poorly under colonial rule. The country could not develop a sound industrial base.

Deindustrialisation of India

The colonial government systematically pursued a policy of deindustrialisation, which had a two-fold motive:

1. To reduce India to a simple exporter of important raw materials for modern industries in Britain.
2. To turn India into a large market for the finished products of those British industries.

This policy led to the decline of India's world-famous indigenous handicraft industries. The result was massive unemployment and a new demand for cheap, manufactured goods imported from Britain.

Slow Growth of Modern Industry

• Initial Development: Modern industry began to take root in India during the second half of the nineteenth century, but its progress was very slow. This was initially limited to cotton and jute textile mills.
  • Cotton textile mills were mainly dominated by Indians and were located in Maharashtra and Gujarat.
  • Jute mills were dominated by foreigners and were concentrated in Bengal.
• Iron and Steel: The iron and steel industry began to emerge in the early twentieth century. The Tata Iron and Steel Company (TISCO) was incorporated in 1907.
• Other Industries: A few other industries like sugar, cement, and paper came up after the Second World War.

Shortfalls of the Industrial Sector

• Lack of Capital Goods Industry: There was a severe lack of capital goods industries—industries that produce machine tools needed for further industrialisation.
• Low Contribution to GDP: The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
• Limited Public Sector: The public sector's role was very limited, confined only to areas like railways, power generation, communications, and ports.

Foreign Trade

The restrictive policies of the colonial government severely affected the structure, composition, and volume of India's foreign trade.

• Structure and Composition: India became an exporter of primary products like raw silk, cotton, wool, sugar, and jute, and an importer of finished consumer goods like cotton, silk, and woollen clothes and capital goods like light machinery from Britain.
• Monopoly Control: Britain maintained a monopoly over India's exports and imports. More than half of India's foreign trade was restricted to Britain, with the rest allowed with a few countries like China, Ceylon (now Sri Lanka), and Persia (now Iran).
• Suez Canal: The opening of the Suez Canal in 1869 further tightened British control. It provided a direct shipping route, reducing transportation costs and making it easier for Britain to access the Indian market.

Drain of Indian Wealth

A key feature of India's foreign trade was a large export surplus. However, this surplus did not benefit India.

• Domestic Scarcity: To generate this surplus, essential goods like food grains, clothes, and kerosene were often scarce in the domestic market.
• No Inflow of Gold or Silver: The surplus did not result in any flow of wealth into India.
• Use of the Surplus: Instead, the surplus was used to make payments for expenses incurred by the colonial government's office in Britain, to pay for wars fought by the British, and for the import of "invisible items." This led to a drain of Indian wealth.

Demographic Condition

The demographic profile of India during the colonial period was bleak, reflecting a backward and stagnant economy.

• Census: The first official census was undertaken in 1881. It revealed uneven population growth.
• Demographic Transition: Before 1921, India was in the first stage of demographic transition (high birth and high death rates). The second stage (high birth rate but falling death rate) began after 1921, which is regarded as the defining year of the great divide.
• Poor Social Indicators:
  • Literacy: The overall literacy level was less than 16 percent, with female literacy at a negligible low of about seven percent.
  • Public Health: Health facilities were either unavailable or highly inadequate for large parts of the population. Water and air-borne diseases were widespread.
  • Mortality Rates: The overall mortality rate was very high. The infant mortality rate was an alarming 218 per thousand births.
  • Life Expectancy: Life expectancy was very low at only 32 years.
  • Poverty: Although exact data is unavailable, it is certain that extensive poverty prevailed in India.

Occupational Structure

The occupational structure, which refers to the distribution of the workforce across different sectors, showed little sign of change during the colonial period.

• Dominance of Agriculture: The agricultural sector accounted for the largest share of the workforce, between 70-75 percent.
• Small Share of Other Sectors: The manufacturing sector accounted for only 10 percent, while the services sector accounted for 15-20 percent.
• Regional Variations: There were growing regional differences.
  • Parts of the Madras Presidency (today's Tamil Nadu, Andhra Pradesh, Kerala, and Karnataka), Bombay, and Bengal saw a decline in the dependence on agriculture and a corresponding increase in manufacturing and services.
  • However, states like Orissa, Rajasthan, and Punjab saw an increase in the share of the workforce in agriculture.

Infrastructure

The British did develop some basic infrastructure like railways, ports, water transport, and telegraphs. However, the real motive was to serve their own colonial interests, not to provide basic amenities to the Indian people.

• Roads: Roads were built primarily to help in mobilising the army and for drawing out raw materials from the countryside to the nearest railway station or port. There remained an acute shortage of all-weather roads to rural areas.
• Railways: Introduced in India in 1850, the railways are considered one of Britain's most important contributions. However, they had mixed effects:
  • Positive: Enabled people to travel long distances, breaking geographical and cultural barriers.
  • Negative: Fostered the commercialisation of agriculture, which hurt the self-sufficiency of village economies. The benefits of expanded exports rarely reached the Indian people. The huge economic loss to the country outweighed the social benefits.
• Waterways and Telegraph: The development of inland waterways was not always successful and was often uneconomical. The expensive electric telegraph system was introduced mainly to serve the purpose of maintaining law and order.
• Postal Services: While postal services served a useful public purpose, they remained inadequate for the vast country.

Conclusion

By the time India gained independence in 1947, the two-century-long British colonial rule had left the economy in a very poor state. The challenges facing the newly independent country were enormous:

• Agriculture: Saddled with surplus labour and extremely low productivity.
• Industry: In desperate need of modernisation, diversification, and increased public investment.
• Foreign Trade: Oriented to feed the Industrial Revolution in Britain.
• Infrastructure: The railway network and other facilities needed upgradation, expansion, and a focus on public welfare.
• Social Challenges: Rampant poverty and unemployment were major concerns that required immediate attention from the government.