1. Indian Economy on the Eve of Independence

Class – 12

Chapter – 1

Indian Economy on the Eve of Independence

Agricultural Sector

During the pre-British period, the condition of Indian agriculture was not at all satisfactory.

• India’s economy under the British colonial rule was overwhelmingly rural and agricultural in character.
• Nearly 85% of the country’s population lived mostly in villages and derived livelihood, directly or indirectly from agriculture.
• Even with this large proportion of population engaged in agriculture, the country was not self-sufficient in food and raw materials for industry.

Main Reason for Stagnation in Agricultural Sector

The stagnation in the 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 government.

• Under this system, profits accruing out of agricultural sector went to the zamindars in the form of ‘lagaan’.
• The main interest of the zamindars was only to collect lagan regardless of the economic condition of the cultivator.

2. Commercialization of Agriculture: Commercialization of agriculture means the production of crops for sale in the market rather than for self-consumption.

• During the British rule, farmers were given higher prices for producing cash crops, like cotton or jute. However, this did not improve the economic condition of farmers because instead of producing food crops, they were producing cash crops, which were to be ultimately used by British Industries.
• Thus, British rule promoted shifting of crops from food crops to cash crops.

3. Low level of Productivity:- Low levels of technology, lack of irrigation facilities and negligible use of fertilizers resulted in low level of productivity.

• The cultivator had neither the means nor any incentive to invest in agriculture.
• The zamindar had no roots in the villages, while the British rule spent little on agricultural, technical or mass education.
• All this made it difficult to introduce modern technology, which caused a perpetually low level of productivity.

4. Scarcity of Investment:- India’s agriculture was facing scarcity of investment in terracing, flood-control and drainage. Although some farmers changed their cropping patterns from food crops to commercial crops, a large section of tenants, small farmers and sharecroppers neither had resources and technology nor had incentives to invest in agriculture.

 

Industrial Sector

Indian industries, producing certain special products, enjoyed a worldwide reputation. India was particularly well known for its handicraft industries. The poor state of Industrial sector during the British rule is illustrated in the following points:

1. De-industrialization – Decline of Handicraft Industry:– British Government systematically destroyed Indian handicraft industries and no modern industrial base was allowed to come up. The primary motive of British rule behind the de-industrialization was two-fold:

• To get raw materials from India at cheap rates to be used by upcoming modern industries in Britain;
• To sell finished products of British industries in Indian market at higher prices.

 

2. Adverse effects of decline of Handicraft Industry:- Decline of handicraft industries adversely affected the Indian economy in the following ways:

• High level of Unemployment: The decline of Indian handicrafts resulted in unemployment on a mass scale.
• Import of Finished Goods: The Indian-made goods could not withstand the foreign competition of machine-made cheap goods.

 

3. Lack of Capital Goods Industries:- Capital goods industry refer to those industries that can produce machine tools, which are, in turn, used to produce articles for current consumption .During the British rule, there was hardly any capital goods industry to promote further industrieazation in India.
4. Low contribution to Gross Domestic Product (GDP):- The growth rate of the new industrial sector and its contribution to the GDP or Gross Value added (GVA) remained very small.
5. Limited role of Public Sector:- Due to lack of public investment, India could not develop a sound industrial base under the colonial rule. The Public sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.

 

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.

1. Exporter of Primary Products and Importer of Finished Goods:- 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 woolen clothes and capital goods like light machinery, produced in the British Industries.
2. Monopoly Control of British Rule:- The British Government maintained a monopoly control over India’s exports and imports.

• More than ½ of India’s foreign trade was restricted to Britain, while the rest was allowed with a 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.

3. Drain of Indian wealth during British rule:- Under the British rule, India became an exporter of primary products (raw material) and an importer of finished goods. There was a huge export surplus due to excess exports.

 

 

Demographic Condition

The demographic condition during the Colonial rule is described in the following points:

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.
2. Extremely Law 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%.
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.
4. High Infant Mortality Rate:– Infant mortality rate refers to number of infants dying before reaching one year of age per 1,000 live births in a year.
5. Low Life Expectancy:– Life Expectancy refers to the average number of years for which people are expected to live. Life expectancy was also very low – 32 years, in contrast to the present 67 years.
6. Widespread Poverty:– There was no reliable data about the extent of poverty. But, there is no doubt that extensive poverty prevailed in India during the colonial period. The overall standard of living of common people in India was very low and there was widespread poverty in the county.

 

Occupational Structure

• Primary Sector:- It includes production units exploiting natural resources like land, water, subsoil assets, etc. For example – farming, fishing, mining, animal husbandry, forestry, etc.
• Secondary Sector:- It includes production units which are engaged in transforming one good into another good. These units convert raw materials into finished goods. For example – firm engaged in converting sugarcane into sugar, construction companies, power generation, etc.
• Tertiary Sector:– It includes production units engaged in providing services. For example – transport, education, finance, government administration, etc.

 

Infrastructure

Infrastructure refers to all such activities, services and facilities, which are needed to provide different kinds of services in an economy. It includes infrastructure associated with means of transport, communication, energy and banking (i.e. Economic Infrastructure) and infrastructure associated with facilities of health, education and housing (i.e. Social Infrastructure).

The state of infrastructure as inherited from the British rule is discussed below:

1. Roads:- The colonial admiration could not accomplish much on construction of roads due to scarcity of funds. The roads that were built, primarily served the interests of mobilizing the army and shifting raw materials.
2. Railways:- The most important contribution of the British rule was to introduce railway’s in India in 1850. The railways affected the structure of the Indian economy in two important ways:

• Railways enabled people to undertake long distance travel. It broke geographical and cultural barriers and promoted national integration.

3. Air and Water Transport:- The British Government took measures to develop water and air transport. However, their development was far from satisfactory.
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 Contributions of British Rule

British Rule also had some positive effects on the Indian economy. They are discussed as under:

1. Growth in Agricultural Sector:- Although agricultural productivity was very low during the British Rule, but in absolute terms, there was growth in agricultural sector due to expansion of aggregate area under cultivation.
2. Better means of transportation:- Development of roads and railways provided a cheap and rapid transport system and opened up new opportunities for economic and social growth.
3. Check on Famines:- Roads and railways worked as a great check on the occurrence and impact of famines as food supplies could be transported to the affected areas in case of droughts.
4. Uniformity in Monetary System:- British rule helped to bring uniformity in the monetary system in the Indian economy and there was enactment of Coinage Act to 1835. The British rule also undertook to build a banking system that could handle the deposit and loans necessary for the smooth functioning of domestic and foreign commerce.
5. Effective administrative setup:- The British Government had an efficient administration system, which served as a ready reckoner for Indian politicians.

 

State of Indian Economy on the Eve of Independence

1. Colonial Economy:- In Indian, colonial exploitation has a long history, spread over nearly 200 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.
2. Semi-feudal Economy:- By the end 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.
3. Stagnant Economy:- A stagnant economy is one that is growing at a very low rate. On the eve of independence, Indian economy was a stagnant economy as country’s growth of aggregate real output during the first half of 20% century was less than 2% and growth in per capita output was only 0i.5%.
4. Backward Economy:- At the end of British rule, Indian economy was backward and underdeveloped. The main reasons for the backwardness of Indian economy were:

• Law 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 a ‘Depleted Economy’. Depleted Economy refers to an economy, where no arrangements have been made to replace the physical assets, depreciated due to excessive use.
6. Amputated Economy:- The Britishers policy of ‘divide and rule’ 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.