INDIAN ECONOMY ON

THE EVE OF
INDEPENDENCE
OBJECTIVE

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.
TOPICS COVERED

 Low level of Economic Development under the

Colonial Rule.
 Agricultural Sector
 Industrial Sector
 Foreign Trade
 Demographic Condition
 Occupational Structure • Infrastructure
INTRODUCTION

 Indian economy on the eve of independence deals with the Indian

economy as we inherited it from the British in 1947. It focus on the
following points.
 State of agriculture and industrial sectors on the eve of independence.
 India’s foreign trade under the British rule.
 The primary objective of British Colonial rule in India was to
turn India – As a supplier of raw material and – As a consumer
of finished goods
 https://youtu.be/h0hUolEzuhg
COLONIALISM

Colonialism refers to a system of political and social

relation 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 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 ECONOMIC DEVELOPMENT
BEFORE BRITISH RULE
 India was well known for its handicrafts industries in
the fields of cotton and silk textile, metal and precious
stone works etc. These products enjoyed a world wide
market based on the reputation of fine quality of
material used and the high standards of craftsmanship
seen in all imports from India.
 https://youtu.be/Eao9UEZlUks
LOW LEVEL OF ECONOMIC DEVELOPMENT
DURING BRITISH RULE
 The economic policies pursued by the colonial government in
India were concerned more with the protection and promotion
of the economic interest of their home country than with the
development of the Indian economy. Such policies brought
about a fundamental change in the structure of the Indian
economy – Transforming the country into a net supplier of raw
materials and – Consumer of finished industrial products from
Britain. • The country's growth rate during the first half of the
twentieth century was less than 2% and growth rate of per
capita output was only 0.5%.
ESTIMATION OF NATIONAL INCOME DURING C.G.

 TheC.G. never made sincere attempt to estimate India’s

National Income and Per Capita Income. There were
some individual attempts which were made to
measure.They are as follows: – Dada Bhai Naoroji –
William Digby – Findlay Shirras – V.K.R.V. Rao and –
R. C. Desai
AGRICULTURE SECTOR
 Indian agriculture became backward, stagnant and non-vibrant under the
British rule.
 Weak productive accumulation.
 Unemployment and underemployment
 Low levels of production and productivity.
 Subdivision of landholdings.
 Indian agriculture was primitive and stagnant.
 The main causes of stagnation of agriculture sector was as follows:
1.Tenure system 2.Zamindari system 3.Mahalwari system and 4.Ryotwari
system 5.Commercialization of agriculture 6.Partition of the country .
 AGRICULTURE SECTOR
 Agriculture plays an important part in economic development. It provides the
food security to the country. Also, it’s a backbone for many industries. At the time
of independence, almost 85% of the total population was depended on the
agriculture. India’s agriculture sector saw no growth during the colonial period.
Productivity was stagnant. In fact, it was deteriorating. The total output increased
by just 0.5% per annum before independence. Farm output from year 1891 to
1947 was not more than 0.11%. Many reasons were behind that. But prominent
were the land settlement and exploitation of Indian farming by the British India
for their benefit. In the Zamidari system the real benefits of the agriculture went
straight in the hands of Zamidar’s. Farmers end up getting nothing, even after
toiling hard for it. Lack of fertilizers, inferior quality of seeds and less use of
modern technology were also responsible for the murky state of agriculture.
Adding fuel on that was the commercialization of it.
COMMERCIALISATION OF AGRICULTURE

 The British industrialists were always in the need of raw materials

like cotton, indigo, jute, groundnut, sugarcane, etc. to keep their
factories running; – By offering higher prices, the Indian peasants
were attracted to production of commercial crops instead of food
crops; – The extent of commercial agriculture went so far as to make
many peasants purchase their food requirements from shops in towns;
– This fall in production of food crops was responsible for frequent
famines in India during the British days. – Growing of cash crops
instead of food crops is called Commercialisation of Agriculture .
 https://youtu.be/R_HnJsWKIDU
AGICULTURE SECTOR
 British India compelled Indian farmers to grow more of cash crops instead
of main crop. This eventually helped the British industries back home as
they were getting raw material at very low prices. But farmers were still on
the darker side with no real benefits. Neither the Britishers nor the
Zamindars did any thing for the farmers or farming. Their main interest
was only to collect taxes. Even in the conditions of drought, Famine or
floods there was no mercy upon farmers. Further jolt happened to
agriculture because of the partition. Highly irrigated land went to Pakistan.
On the western front Punjab, which was rich in producing wheat and East
Pakistan (now Bangladesh) known for jute production, went to divided
nation. Thus, Indian jute industry suffered heavily. In a sense contribution
from agriculture sector to Indian economy was nil at the time of
independence.
INDUSTRIAL SECTOR

 Indiacould not develop a sound industrial base under

the Colonial Rule.
 Even the country’s world famous handicraft industries
declined.
 No commercial modern industrial base was allowed to
come up.
 This sector needed modernization, diversification and
increased investment.
Industrial Sector
 The primary motive behind this policy of deindustrialization was: – To
reduce India to the status of mere exporter of important raw materials for
the upcoming modem industries in Britain. – To turn India into a market for
the finished products manufactured by industries in Britain. – The rate of
growth of the industrial sector was low as no help was being provided to
these industries by the colonial government. – Colonial Government
enforced discriminatory tariff policy, which allowed free export of raw
materials from India and free import of final goods from British industry to
India. – The decline of the traditional handicraft industries created massive
unemployment in India. – The fall in supply of locally made goods created
a demand for the import of British goods much to their advantage.
INDUSTRIAL SECTOR

 Indian Industrial sector was also crying off for the development in
the colonial rule. Like agriculture. No importance was given for
the development of Industries. To see India growing industrially
was against British rule. There were two reasons for keeping India
away from modern Industries. One was to keep India reduced to
just as an exporter of prime raw materials for the major Industries
in Britain. Two, it was to turn the domestic market of India into a
prime consumer of finished British goods. And industrialization of
India could have weighed down both the prospects of British
India.
Industrial Sector

 But these unfavorable policies lead to decline in the indigenous

handicraft industry. This created enormous unemployment in the
country. Also, a market which was now deprived of the supply of
locally made goods. Second half of the 19th century saw a little
progress in industrial development. But the pace was very slow and
was confined to certain sectors only. Jute and cotton textile mills were
the first ones. Later, paper, sugar, cement etc. were set up. Major
development came in the form of Tata Iron and Steel Company
(TISCO) in 1907. However, there were hardly any capital goods
industries to promote further industrialization of India.
Foreign Trade

 India’s foreign trade goes back to ancient times. It used to be one

of the most important trading country. In the colonial period
India’s foreign trade was restricted to Britain only. They had the
monopoly over the Indian exports. India was allowed to trade with
only few neighbour countries. Still, there was the generation of
large export surplus. This surplus came with heavy cost. A spurt in
export didn’t bring any fortunes to India. Rather, it was used to
pay for British expenditures on maintaining the army and setups.
So, even high export couldn’t turn around the murky picture of
Indian economy.
Composition of India's Trade

 India became an exporter of primary products such as raw silk, cotton,

wool, sugar, indigo, jute, etc and an importer of finished consumer goods
like cotton, silk and woollen clothes and capital goods like light machinery.
• Volume India's exports were more than its imports so there was a large
export surplus Direction. This refers to the countries we are trading with
Britain maintained a monopoly over India's exports and imports • More
than half of India's foreign trade was restricted to Britain while the rest was
allowed with a few countries like China, Ceylon (Sri Lanka) and Persia
(Iran) • Suez Canal was opened in 1869 • It reduced the cost and time of
transportation and made access to the Indian market easier. • In other
words, exploitation of Indian market was now easier.
DRAIN OF INDIAN WEALTH

 India’s foreign trade generated huge export surplus but

this surplus came at a huge cost to the country’s economy
as it led to the drain of India wealth. The export surplus
was used for: Making payments for the expenses
incurred by an office set up by the colonial government in
Britain. Expenses on war fought by the British
government Import of invisible items
DEMOGRAPHIC PROFILE

 The demographic conditions during the British rule suggested

all the features of a backward economy. Various details about
the population was first collected through a census in
1881.Before, 1921, India was in first stage of demographic
transition. The second stage of transition started after 1921.
However, neither the total population of India nor the rate of
Population growth at this stage was very high. The year 1921
is described as the “Year of Great Divide”. It is because after
1921 population grew continuously and rapidly.
DEMOGRAPHIC PROFILE

 The demographic conditions were as under:- – The

overall literacy level was less than 16%. – Female literacy
was 7%. – Overall mortality rate was high – Infant
mortality rate was 218 per thousand (Present rate is
44/1000) – Life expectancy was also very low-32 years
(Present 68 years) – Extensive poverty was present –
Public health facilities were either unavailable to large
chunks of population or were highly inadequate when
available. – Water and air borne diseases were rampant.
Occupational Structure
 The occupational structure: i.e. the distribution of working people across
different industries and sectors showed very little sign of change during
the British rule. The largest workforce was in agricultural sector
accounting for about 70-75% of the working people. The manufacturing
sector had 10% while the service sector accounted for about 15- 20% of
the working population. A main feature was the growing regional
variation. Areas of the then madras presidency (today's Tamil Nadu,
Karnataka, Andhra Pradesh, and Kerala), Maharashtra and west Bengal
saw a decline of the workforce in agriculture with a parallel increase in the
manufacturing and services sector. during the same time, there was an
increase in the workforce in the agriculture sectors in Orissa, Rajasthan
and Punjab. https://youtu.be/_GNW4S8jHXc
INFRASTRUCTURE
Under the Colonial rule, basic infrastructure such as Roads, Railways,
Ports, Water Transport, Post and Telegraph etc. were developed. But this
development was not to provide basic amenities to the people of the
country, but to subserve the colonial interests. – The roads were built for
mobilizing the army within India and for drawing out raw, materials from
the countryside to the nearest railway station or the port to send these to
England or other foreign lands. – The Railways helped in
commercialization of Indian agriculture which adversely affected the
comparative self-sufficiency of the village economies in India. – The
introduction of the expensive system of electric telegraph in India,
similarly served the purpose of maintaining law and order.
https://youtu.be/oQNTGT__xiA
EFFECTS OF RAILWAYS

 The British introduced the railways in India in 1850. It is

considered one of the most important contributions. It
affected the structure of the Indian railways in many ways, –
It enabled people to undertake long distance travel and
thereby break geographical and cultural barriers. – It helped
in integrating the nation. – It fostered commercialisation of
Indian agriculture which adversely affected the self-
sufficiency of the village economies in India. – The volume
of India's export trade undoubtedly expanded. – It provided
employment opportunities to the people.  
POSITIVE CONTRIBUTION NEGATIVE IMPACT
DURING INDEPENDENCE/CHALLENGES
 They introduced the railway system Per capita income was low. They
developed the modern system of communication. Large scale
unemployment and under- employment. The modern banking system was
established by Britishers They formed the Imperial Bank of India Till the
establishment of Reserve Bank of India (1935), the Imperial Bank served
as the government's banker and also managed its public debt The industrial
sector was crying for modernization, diversification, capacity building and
public investment. There was no capital goods industry. They developed
irrigation works, which created new grain and cotton producing regions
The agricultural sector was saddled with surplus labour and extremely low
productivity. Political and unification of country Mass illiteracy.