CHAPTER 1

-INDIAN ECONOMY ON THE EVE OF

INDEPENDENCE-

📌The British Rule started with the battle of Plassey in

1757 between the East India Company and Nawabs of

📌
Bengal.
Indian economy collected from being a "Vibrant and
Prosperous" economy to "Backward and Stagnant"
economy.

⭐STATUS OF INDIAN ECONOMY BEFORE THE

BRITISH RULE :-
1. Prosperous economy: India was an independent, self
reliant and prosperous economy.

2. Agrarian economy: Agriculture was the main source

of livelihood for most of the people. However the
country's economy was characterised by various kinds
of manufacturing activities.

3. Well known handicraft industries: India was well

known for its handicraft industries in the field of cotton
and silk textiles, metals and precious stones work etc.
These products enjoyed a worldwide market due to the
use of fine quality of material and high standard of
craftmanship.
For example: Muslin also called Malmal a type of cotton
textile from Dhaka, Bangal.
📌The main purpose of British rule in India was to use
Indian economy as a feeder economy for the
development of the British economy. After almost 200
years of British rule India gained independence on 15th

📌
August 1947.
Britishers transformed the country into a supplier of
raw materials and a consumer of finished goods and
industrial products from Britain.

⭐ INDIAN ECONOMY DURING BRITISH RULE:-

(Exploitation and Transformation) :-

Can be divided into 2 aspects-

1. Demand Aspect:- Indian market was used as demand
that is finished goods were brought at a high price.

2. Supply Aspect:- In which raw materials or natural

resources were supplied for production in Britain.

⭐ FEATURES OF INDIAN ECONOMY ON THE EVE

OF INDEPENDENCE:-

1. Stagnant economy: On the eve of independence,

Indian economy was completely a stagnant economy.
A stagnant economy, is the one which shows little or no
growth in income. As a result of stagnation there was
unemployment, death, and suffering due to lack of food.
2. Backward economy: Indian economy was a backward
economy on the eve of independence.
An economy is called backward when it has a very low
per capita income (PCI).
In 1947-1948 the PCI was just Rs230 in India. Britishers
exploited the Indian economy and planning. Economic
grow slowly or not at all.

3. Dominance of Agriculture: As most of the population

was engaged in agriculture the contribution in GDP was
not enough.
For example 70% of the population depending upon
agriculture gave GDP of 50% only. The level of
productivity was low.

4. Bleak industrialisation: Bleak means slow growth.

Under British rule growth of modern industry was very
slow. The handicraft was destroyed by Britishers by their
policies. Small scale and cottage industries declined
while there was no or very slow growth in heavy
industries as the economy was dependent on Britishers
for finished goods.

5. Heavy dependence on imports: Country was heavily

dependent on Britishers for machine made goods. Also
for some consumers goods like sewing machines,
medicine etc.
6. Limited urbanisation: Urbanisation was limited during
British rule. In 1948 only 15% of Indian population lived
in urban areas while 85% of in rural areas due to lack of
job opportunities for people living in rural areas.

7. Semi- feudal economy: The economy at that time was

not feudal nor capitalist.
Feudal Economy is one where means of production are
owned by political domain or by public sector.
Capitalist Economy is one where means of production
are owned by private sectors.

📌The British government never attempted to estimate

India's national per capita income (PCI). However,
Dadabhai Naoroji, William Digby, Findlay Shirras, V. K.
R. V. Rao and R.C Desai were some notable individuals
who attempted to estimate India's national and per
capita income.
V. K. R. V. Rao's estimates were considered very
significant at that time.
⭐ EXPLOITATION OF INDIAN ECONOMY UNDER
BRITISH RULE:-

The Indian economy under British rule is subjected to

colonial exploitation, by the British government.
COLONIAL EXPLOITATION OF-
i) AGRICULTURE SECTOR
ii) INDUSTRIAL SECTOR
iii) FOREIGN SECTOR

i) Agricultural Sector on the eve of independence:-

1. Low production and productivity:

Due to the absence of innovative methods and
fragmented ownership of cultivated land's existence,
the total output per hectare of land was very low.
Production refers to total output.
Productivity refers to output per hectare of land.

2. Exploitative land settlement systems:

The British government in India introduced a unique
system of land settlement. This was popularly known as
Zamindari System.
Under this system, profit occurring out of the agricultural
sector went to the Zamindars in the form of Lagan.
Zamindars were declared as the owners of the soil and
they had to pay a fixed amount to the government by
way of land revenue and they were free to extract as
much as they wished from the tillers of the soil.
3. Forced commercialisation of agriculture: Refers to
shift from subsistence cultivation to cultivation of cash
crops for market.
Even though there was a shortage of resources. The
British rule insisted on widespread commercialisation to
being more profit.

4. Lack of investment in agriculture infrastructure: The

colonial government or Zamindars took no interest in
promoting investment in agricultural infrastructure.
Agriculture was heavily dependent on rainfall and
therefore continued to be uncertain.

5. Gulf between owners of the soil and tillers of the soil:

Agriculture during the British raj was characterized by a
huge gulf between 'owners of the soil' on the one hand
and the 'tillers of the soil' on the other.
While the owners shared the output, they seldom
(hardly) shared the cost of production. They were
merely interested in maximizing their rental income (in
terms of share of output).

6. Small and Fragmented Holdings: Land holding were

both small as well as fragmented.
Accordingly, most landholdings were economic: yielding
low output at high cost.
7. Subsistence Outlook: Farming was taken mostly as a
means of subsistence. Subsistence farming is a former
farming in which the crops are produced to provide for
the basic needs of the family.

📌Briefly, on the eve of independence, Indian

agriculture was both backward as well as stagnant
(non-vibrant).

ii) Industrial Sector on the eve of independence:-

1. Policy of De-industrialisation:
- Decline of Indian handicraft industries.
That have 2 motives:-
i) to get raw materials from India at a cheap rate.
ii) to sell manufactured goods in India at higher prices to
earn maximum profit.
- Adverse effect to decline of Indian industries on Indian
economy:
i) it creates large unemployment.
ii) fall in demand for Indian handicraft goods resulting in
increasing demand for manufactured goods.

2. Slow growth of certain industries:

- Cotton textile mills by Indians in Maharashtra and
Gujarat.
- Jute mills dominated by the foreigners in Bengal.
- Tata iron and Steel company (TISCO) were
incorporated in 1907.
- Few other industries in the fields of sugar, cement,
paper etc came up after the second world war.

3. Lack of Capital Goods industries:

- During British rule, there was hardly any capital goods
industry to promote further industrialisation process.

4. Low contribution to Gross domestic product:

- Growth rate of the new modern industrial sector and its
contribution to the country's GDP was very small.

5. Limited role of public sector:

- Very limited operation of the public sector.
- Only restricted to the railways, power generation,
communication, ports etc.

iii) Foreign Trade On the eve of Independence:-

1. The restrictive trade policy of the British Government.

2. Net Exporter of Raw materials/Primary products and

Importer of finished goods:
- Due to exploitative colonial policies of trade and tariff,
India became a net exporter of raw materials and
primary products (like raw silk, cotton, wool, jute, Indigo,
sugar etc).
At the same time, it became a net importer of finished
goods produced by the British industry. Our imports
included cotton, silk and woollen clothes, besides
several types of capital goods produced in England.

3. Monopoly control of India's foreign trade:

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

4. Generation of large export surplus and Drain of Indian

wealth:
- Generation of large export surplus from foreign trade
but did not result in any flow of gold or silver into India.
- This export surplus was used to make to payments for
expenses incurred in war fought by the British
government and for the import of invisible items.

⭐ DEMOGRAPHIC PROFILE:-
India's demographic profile showed high birth rate, high
death rate, high infant mortality rate, low expectancy of
life and low rate of literacy.
These characteristics point to economic and social
backwardness of the country.

📌- BIRTH RATE: number of live births per 1000 people

in a year.
- DEATH RATE: number of people dying per 1000
people in a year.
- INFANT MORTALITY RATE: death rate of children
below the age of one year per 1000 live births.
- LIFE EXPECTANCY: a statistical measure that
estimates the number of years an individual is expected
to live.
- LITERACY RATE: the proportion of individuals of a
particular age group who have the ability to read and
write.

DEMOGRAPHIC CONDITIONS DURING THE BRITISH

RULE:-

Demographic conditions during British rule exhibited all

features of a stagnant and backward economy.

1. Birth Rate and Death Rate:

Both Birth Rate (BR) and Death Rate (DR) were very
high, nearly 48 and 40 per thousand respectively. High
BR and high DR suggest a state of massive poverty in
the country.
2. Infant mortality Rate:
Infant mortality rate was very high. It was about 218 per
thousand, while at present it is 33 per thousand.
High infant mortality rate is a sign of poor healthcare
connected with extreme poverty.

3. Life expectancy:
Life expectancy was low at 32 years, while presently it is
69 years. Low life expectancy reflects lack of healthcare
facilities, lack of awareness as well as lack of means to
avail them.

4. Literacy Rate:
Literacy rate was less than 16%, reflecting social
backwardness as a reflection of economic
backwardness. Female literacy rate was still worse-
about 7%. This indicated gender-bias in the society.

⭐ Occupational Structure:-
It refers to the distribution of the working population
across primary, secondary and tertiary sectors of the
economy.

1. Predominance of Agricultural Sector: The agriculture

sector accounted for the largest share of the workforce
at a high of 70- 75% while the manufacturing and
service sector accounted for only 10% and 15-20%.
2. Regional variation:
- Decrease in the share of workforce in the agriculture
sector in Tamilnadu, Andhra Pradesh, Kerala,
Karnataka, Maharashtra and West Bengal.
- Increase in the share of the workforce in the agriculture
sector in Orissa, Rajasthan and Punjab.

⭐ INFRASTRUCTURE:-
It refers to the elements of-
i) economic change
(like means of transport, communication, banking,
power/energy) and elements of
ii) social change
(like growth of educational health and housing facilities)
which serve as a foundation for growth and development
of a country.

OR

Infrastructure: Support system required for the growth

and development of the country.

- Basic infrastructure such as railways, ports, water

transport, post and telegraph did developed during the
British period.
- however, the real motive behind this development was
not to provide basic amenities to the people but to
subserve various colonial interests.

1. ROADS
- Roads were not fit for modern transport.
- The roads were built to:
i) mobilizing the army
ii) drawing and shifting raw materials.
- There was shortage of road to reach out to rural areas
during the rainy season.

2. 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 in 2
important ways-
i) helped them take long distance travel and thus break
geographical and cultural barriers.
ii) it improved commercialisation of Indian agriculture
that adversely affected self-sufficiency of village
economies of India.

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
compete with the railways, and finally, the Canal had to
be abandoned.

4. COMMUNICATION
- The introduction of the expensive electric telegraph
system in India served the purpose of maintaining law
and order.
- The postal services, on the other hand, despite
serving a useful public purpose, remained inadequate.

⭐ POSITIVE IMPACT OF BRITISH RULE IN INDIA:-

1. Commercial outlook of the farmers: Forced
commercialisation of agriculture under the British rule
exposed the subsistence farmers to uncertainties of the
market. True, but it also led to a gradual change in
outlook of the farmers. The farmers started considering
market price of the produce as an important determinant
of the production decisions.

2. New opportunities to employment: Spread of railways

and roadways opened up new opportunities of economic
and social growth.
3. Control of Famines: Rapid means of transport
facilitated rapid movement of food grain to the
famine-affected areas. Accordingly, famines was
controlled.

4. Monetary system of exchange: There was a transition

from battery system of exchange to monetary system of
exchange.

5. Efficient system of administration: The British

government in India left a legacy of an efficient system
of administration. This served as a ready-reference for
our politicians and planners.

6. Development of Post and telegraph: services for

maintaining law and order.

7. Introduction 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.