Indian Economy on the Eve of Independence:
Notes
Introduction
The Indian economy in 1947 was shaped by nearly two centuries of British colo-
nial rule, which prioritized British economic interests over Indian development.
The economy was primarily agrarian, with a declining handicraft industry and
limited modern industrial growth. This document outlines the key features of
the Indian economy on the eve of independence, highlighting its challenges and
colonial impacts.
1. Low Level of Economic Development
• Pre-Colonial Economy: Before British rule, India had a self-sufficient econ-
omy with thriving handicraft industries (e.g., cotton, silk textiles, metal-
work) known globally for quality.
• Colonial Impact: British policies reduced India to a supplier of raw mate-
rials for Britain’s industries and a market for British finished goods.
• Income Estimates: Notable economists like Dadabhai Naoroji, William
Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai attempted to estimate
India’s income. V.K.R.V. Rao’s estimates were significant, showing less than
2% growth in aggregate output and 0.5% in per capita output annually dur-
ing the first half of the 20th century.
2. Agricultural Sector
• Dominance: About 85% of the population depended on agriculture, yet the
sector faced stagnation due to:
– Zamindari System: Profits went to zamindars, not cultivators, dis-
couraging agricultural improvements.
– Low Technology: Lack of irrigation, fertilizers, and modern techniques
led to low productivity.
– Commercialization: Shift to cash crops (e.g., indigo, cotton) for British
industries reduced food crop production, worsening farmers’ economic
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conditions.
• Stagnation: Despite some growth in cultivated area, agricultural produc-
tivity remained low, with minimal investment in infrastructure like irriga-
tion or flood control.
3. Industrial Sector
• Deindustrialization: British policies systematically destroyed India’s hand-
icraft industries (e.g., textiles) to favor British industrial goods.
• Limited Modern Industry:
– Cotton textile mills (Indian-dominated) in Maharashtra and Gujarat.
– Jute mills (foreign-dominated) in Bengal.
– Tata Iron and Steel Company (TISCO) established in 1907.
– Other industries (sugar, cement, paper) emerged post-World War II.
• Challenges: No capital goods industry, limited public sector involvement
(confined to railways, power, communications), and slow industrial growth.
4. Foreign Trade
• Trade Pattern: India exported raw materials (e.g., cotton, jute, silk) and
imported finished goods (e.g., textiles, machinery) from Britain.
• British Monopoly: Over 50% of India’s trade was with Britain, with limited
trade to China, Ceylon, and Persia. The Suez Canal (opened 1869) strength-
ened British control.
• Export Surplus: Large export surplus was used to pay for British admin-
istrative expenses, war costs, and invisible imports, leading to a drain of
wealth with no inflow of gold or silver.
5. Demographic Condition
• Census: First census in 1881; regular censuses every 10 years post-1881.
• Population Growth: Pre-1921, India was in the first stage of demographic
transition; post-1921, it entered the second stage with low population growth.
• Social Indicators:
– Literacy: Overall 16%, female literacy 7%.
– Health: Inadequate public health facilities; high mortality (infant mor-
tality 218 per 1,000 vs. 33 today); life expectancy 32 years (vs. 69 to-
day).
– Poverty: Widespread, exacerbating poor demographic outcomes.
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6. Occupational Structure
• Agriculture Dominance: 70–75% of the workforce was in agriculture; man-
ufacturing (10%) and services (15–20%) had smaller shares.
• Regional Variations: Decline in agricultural workforce in Madras Presi-
dency, Bombay, and Bengal, with increases in Orissa, Rajasthan, and Pun-
jab.
7. Infrastructure
• Developments: Railways (introduced 1850), ports, roads, telegraphs, and
postal services were built, but primarily for colonial interests:
– Railways: Facilitated raw material transport and commercialization
of agriculture, but benefits accrued to Britain.
– Roads: Built for military and raw material transport, inadequate for
rural access.
– Inland Waterways: E.g., Orissa’s Coast Canal was uneconomical and
abandoned.
• Motives: Infrastructure served British administrative and economic needs,
not public welfare.
8. Economic Challenges at Independence
• Agriculture: Surplus labor, low productivity, and need for modernization.
• Industry: Lack of diversification, modernization, and capital goods indus-
tries.
• Trade: Reorientation needed to reduce dependence on Britain.
• Infrastructure: Expansion and public orientation required.
• Social Issues: Poverty, unemployment, low literacy, and poor health facil-
ities demanded welfare-focused policies.
9. Positive Contributions of British Rule
• Railways: Broke geographical barriers and enabled long-distance travel.
• Commercialization: Some agricultural regions saw higher cash crop yields.
• Administrative Systems: Introduced modern governance structures, though
primarily for colonial benefit.
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Conclusion
The Indian economy in 1947 was marked by stagnation, exploitation, and under-
development due to British colonial policies. Agriculture and industry suffered
from neglect, while trade and infrastructure served British interests. Widespread
poverty, low literacy, and poor health underscored the need for post-independence
reforms. Understanding this colonial legacy is crucial to appreciating India’s
post-independence development efforts.