DEVELOPMENT POLICIES AND EXPERIENCE
INDIAN ECONOMY ON THE TIME OF INDEPENDENCE
INTRODUCTION
The main root behind the structure of India’s present day economy starts from the period when India was under British rule.
The main purpose of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain’s own rapidly expanding modern industrial base.
Hence, to understand the Indian economic first let us start studying the economic status of India under the British rule.
The main root behind the structure of India’s present day economy starts from the period when India was under British rule.
The main purpose of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain’s own rapidly expanding modern industrial base.
Hence, to understand the Indian economic first let us start studying the economic status of India under the British rule.
LOW LEVEL OF ECONOMIC DEVELOPMENT UNDER THE COLONIAL RULE
Before British ruled the India, it has its own independent economy.
The main source of living for most people was agriculture even when the economy of India at the time of British was characterised by various kinds of manufacturing activities.
India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and
precious stone works etc and these products had a well reputation in the international market as well.
The interest behind the British rule regarding the policies of economics were only concerned more with the protection
and promotion of the economic interests of their home country than with the development of the Indian economy.
Such policies of British rule brought a fundamental change in the structure of the Indian economy by transforming the country into supplier of raw materials
and consumer of industrial products from Britain.
There was no such effort from the the colonial government regarding the growth of India’s national and per capita income.
However, some individual attempts were made to measure such incomes yielded conflicting and inconsistent results.
The notable individuals were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai and V.K.R.V. Rao
estimates during the colonial period was considered most significant.
The main source of living for most people was agriculture even when the economy of India at the time of British was characterised by various kinds of manufacturing activities.
India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and
precious stone works etc and these products had a well reputation in the international market as well.
The interest behind the British rule regarding the policies of economics were only concerned more with the protection
and promotion of the economic interests of their home country than with the development of the Indian economy.
Such policies of British rule brought a fundamental change in the structure of the Indian economy by transforming the country into supplier of raw materials
and consumer of industrial products from Britain.
There was no such effort from the the colonial government regarding the growth of India’s national and per capita income.
However, some individual attempts were made to measure such incomes yielded conflicting and inconsistent results.
The notable individuals were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai and V.K.R.V. Rao
estimates during the colonial period was considered most significant.
AGRICULTURAL SECTOR
When British was ruling India, about 85 per cent of the country’s population lived mostly in villages
and derived livelihood directly or indirectly from agriculture.
Despite such a dependence of huge population on agriculture,
the agricultural sector continued to experience decrement and deterioration.
The different system of land settlement which was introduced by the colonial government was the main reason for the deterioration in the agricultural sector.
Particularly, under the zamindari system which was implemented in the Bengal Presidency ,the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.
The main interest of the zamindars was only to collect rent regardless of the economic condition of the cultivators
and this was the main reason for the immense misery and soical tension among people that time.
Along with this, low levels of technology, lack of irrigation facilities and
very few use of fertilizers, were the reasons for the deterioration in agriculture.
Some evidence of a relatively higher yield of cash crops in certain areas of the country were also noted that time which was due to
commercialization of agriculture but this was not helping farmers in improving their economic condition as, instead of producing food crops, now they were producing cash crops which were to be ultimately used by British industries back in Britian.
While a small section of farmers changed their cropping pattern from food crops to commercial crops, a large section of tenants, small farmers and
sharecroppers neither had resources and technology nor had incentive to invest in agriculture.
and derived livelihood directly or indirectly from agriculture.
Despite such a dependence of huge population on agriculture,
the agricultural sector continued to experience decrement and deterioration.
The different system of land settlement which was introduced by the colonial government was the main reason for the deterioration in the agricultural sector.
Particularly, under the zamindari system which was implemented in the Bengal Presidency ,the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.
The main interest of the zamindars was only to collect rent regardless of the economic condition of the cultivators
and this was the main reason for the immense misery and soical tension among people that time.
Along with this, low levels of technology, lack of irrigation facilities and
very few use of fertilizers, were the reasons for the deterioration in agriculture.
Some evidence of a relatively higher yield of cash crops in certain areas of the country were also noted that time which was due to
commercialization of agriculture but this was not helping farmers in improving their economic condition as, instead of producing food crops, now they were producing cash crops which were to be ultimately used by British industries back in Britian.
While a small section of farmers changed their cropping pattern from food crops to commercial crops, a large section of tenants, small farmers and
sharecroppers neither had resources and technology nor had incentive to invest in agriculture.
INDUSTRIAL SECTOR
Like in agriculture, India could not develop a industrial base under the colonial rule.
Even as the country’s world famous handicraft industries declined, no corresponding modern industrial base was allowed to come up to take pride
of place so long enjoyed by the former. The primary motive of the colonial government behind this policy of systematically deindustrialising India was two-fold.
The intention was, first, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain and,
second, to turn India into a sprawling market for the finished products of those industries so that their continued expansion could be ensured
to the maximum advantage of their home country — Britain.
In the unfolding economic scenario, the decline of the indigenous handicraft industries created not only massive unemployment in India
but also a new demand in the Indian consumer market, which was now deprived of the supply of locally made goods.
This demand was profitably met by the increasing imports of cheap manufactured goods from Britain.
During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow. Initially, this development was confined to the setting up of cotton and jute textile mills.
The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while
the jute mills dominated by the foreigners were mainly concentrated in Bengal.
Subsequently, the iron and steel industries began coming up in the beginning of the twentieth century.
The Tata Iron and Steel Company (TISCO) was incorporated in 1907.
A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
However, there was hardly any capital goods industry to help promote further industrialisation in India.
Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
The establishment of a few manufacturing units here and there was no substitute to the near wholesale displacement of the country’s traditional handicraft industries.
Furthermore, the growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
Another significant drawback of the new industrial sector was the very limited area of operation of the public sector.
This sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.
Even as the country’s world famous handicraft industries declined, no corresponding modern industrial base was allowed to come up to take pride
of place so long enjoyed by the former. The primary motive of the colonial government behind this policy of systematically deindustrialising India was two-fold.
The intention was, first, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain and,
second, to turn India into a sprawling market for the finished products of those industries so that their continued expansion could be ensured
to the maximum advantage of their home country — Britain.
In the unfolding economic scenario, the decline of the indigenous handicraft industries created not only massive unemployment in India
but also a new demand in the Indian consumer market, which was now deprived of the supply of locally made goods.
This demand was profitably met by the increasing imports of cheap manufactured goods from Britain.
During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow. Initially, this development was confined to the setting up of cotton and jute textile mills.
The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while
the jute mills dominated by the foreigners were mainly concentrated in Bengal.
Subsequently, the iron and steel industries began coming up in the beginning of the twentieth century.
The Tata Iron and Steel Company (TISCO) was incorporated in 1907.
A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
However, there was hardly any capital goods industry to help promote further industrialisation in India.
Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
The establishment of a few manufacturing units here and there was no substitute to the near wholesale displacement of the country’s traditional handicraft industries.
Furthermore, the growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
Another significant drawback of the new industrial sector was the very limited area of operation of the public sector.
This 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. But the restrictive policies of commodity production, trade
and tariff pursued by the colonial government adversely affected the structure, composition and volume of India’s foreign trade.
Consequently, 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 produced in the factories of Britain.
For all practical purposes, Britain maintained a monopoly control over India’s exports and imports. As a result, more than half 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 most important characteristic of India’s foreign trade throughout the colonial period was the generation of a large export surplus.
But this surplus came at a huge cost to the country’s economy.
Several essential commodities—food grains, clothes, kerosene etc. were scarcely available in the domestic market.
Furthermore, this export surplus did not result in any flow of gold or silver into India.
Rather, this was used to make payments for the expenses incurred by an office set up by the colonial government in Britain, expenses on war,
again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.
and tariff pursued by the colonial government adversely affected the structure, composition and volume of India’s foreign trade.
Consequently, 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 produced in the factories of Britain.
For all practical purposes, Britain maintained a monopoly control over India’s exports and imports. As a result, more than half 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 most important characteristic of India’s foreign trade throughout the colonial period was the generation of a large export surplus.
But this surplus came at a huge cost to the country’s economy.
Several essential commodities—food grains, clothes, kerosene etc. were scarcely available in the domestic market.
Furthermore, this export surplus did not result in any flow of gold or silver into India.
Rather, this was used to make payments for the expenses incurred by an office set up by the colonial government in Britain, expenses on war,
again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.
DEMOGRAPHIC CONDITION
Various details about the population of British India were first collected through a census in 1881.
Though suffering from certain limitations, it revealed the unevenness in India’s population growth.
Subsequently, every ten years such census operations were carried out.
Before 1921, India was in the first stage of demographic transition.
The second stage of transition began after 1921. However, neither the total population of India nor the rate of population growth at this stage was very high.
The various social development indicators were also not quite encouraging.
The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a negligible low of about seven percent.
Public health facilities were either unavailable to large chunks of population or, when available, were highly inadequate.
Consequently, water and air-borne diseases were rampant and took a huge toll on life.
No wonder, the overall mortality rate was very high and in that, particularly, the infant mortality
rate was quite alarming—about 218 per thousand in contrast to the present infant mortality rate of 40 per thousand.
Life expectancy was also very low—44 years in contrast to the present 68 years.
In the absence of reliable data, it is difficult to specify the extent of poverty at that time but there is no doubt that extensive poverty
prevailed in India during the colonial period which contributed to the worsening profile of India’s population of the time.
Though suffering from certain limitations, it revealed the unevenness in India’s population growth.
Subsequently, every ten years such census operations were carried out.
Before 1921, India was in the first stage of demographic transition.
The second stage of transition began after 1921. However, neither the total population of India nor the rate of population growth at this stage was very high.
The various social development indicators were also not quite encouraging.
The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a negligible low of about seven percent.
Public health facilities were either unavailable to large chunks of population or, when available, were highly inadequate.
Consequently, water and air-borne diseases were rampant and took a huge toll on life.
No wonder, the overall mortality rate was very high and in that, particularly, the infant mortality
rate was quite alarming—about 218 per thousand in contrast to the present infant mortality rate of 40 per thousand.
Life expectancy was also very low—44 years in contrast to the present 68 years.
In the absence of reliable data, it is difficult to specify the extent of poverty at that time but there is no doubt that extensive poverty
prevailed in India during the colonial period which contributed to the worsening profile of India’s population of the time.
OCCUPATIONAL STRUCTURE
During the colonial period, the occupational structure of India, i.e., distribution of working persons
across different industries and sectors, showed little sign of change.
The agricultural sector accounted for the largest share of workforce, which usually remained at a high of 70-75 per cent while the manufacturing
and the services sectors accounted for only 10 and 15-20 per cent respectively.
Another striking aspect was the growing regional variation.
Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Bombay and Bengal
witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the services sectors.
However, there had been an increase in the share of workforce in agriculture during the same time in states such as Orissa, Rajasthan and Punjab.
across different industries and sectors, showed little sign of change.
The agricultural sector accounted for the largest share of workforce, which usually remained at a high of 70-75 per cent while the manufacturing
and the services sectors accounted for only 10 and 15-20 per cent respectively.
Another striking aspect was the growing regional variation.
Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Bombay and Bengal
witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and the services sectors.
However, there had been an increase in the share of workforce in agriculture during the same time in states such as Orissa, Rajasthan and Punjab.
INFRASTRUCTURE
Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs did develop.
However, the real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
Roads constructed in India prior to the advent of the British rule were not fit for modern transport.
The roads that were built primarily served the purposes of mobilising the army within India and drawing out raw materials from the
countryside to the nearest railway station or the port to send these to far away England or other lucrative foreign destinations.
There always remained an acute shortage of allweather roads to reach out to the rural areas during the rainy season.
Naturally, therefore, people mostly living in these areas suffered grievously during natural calamities and famines.
The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
The railways affected the structure of the Indian economy in two important ways.
On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while,
on the other hand, it fostered commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.
The volume of India’s exports undoubtedly expanded but its benefits rarely accrued to the Indian people.
The social benefits, which the Indian people gained owing to the introduction of the railways, were thus outweighed by the country’s huge economic loss.
Along with the development of roads and railways, the colonial dispensation also took measures for developing the inland trade and sea lanes.
However, these measures were far from satisfactory. The inland waterways, at times, also proved uneconomical as in the case of the Coast Canal
on the Orissa coast. Though the canal was built at a huge cost to the government exchequer, yet, it failed to compete with the railways, which soon traversed the region
running parallel to the canal, and had to be ultimately abandoned.
The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order.
The postal services, on the other hand, despite serving a useful public purpose, remained all through inadequate.
However, the real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
Roads constructed in India prior to the advent of the British rule were not fit for modern transport.
The roads that were built primarily served the purposes of mobilising the army within India and drawing out raw materials from the
countryside to the nearest railway station or the port to send these to far away England or other lucrative foreign destinations.
There always remained an acute shortage of allweather roads to reach out to the rural areas during the rainy season.
Naturally, therefore, people mostly living in these areas suffered grievously during natural calamities and famines.
The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
The railways affected the structure of the Indian economy in two important ways.
On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while,
on the other hand, it fostered commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.
The volume of India’s exports undoubtedly expanded but its benefits rarely accrued to the Indian people.
The social benefits, which the Indian people gained owing to the introduction of the railways, were thus outweighed by the country’s huge economic loss.
Along with the development of roads and railways, the colonial dispensation also took measures for developing the inland trade and sea lanes.
However, these measures were far from satisfactory. The inland waterways, at times, also proved uneconomical as in the case of the Coast Canal
on the Orissa coast. Though the canal was built at a huge cost to the government exchequer, yet, it failed to compete with the railways, which soon traversed the region
running parallel to the canal, and had to be ultimately abandoned.
The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order.
The postal services, on the other hand, despite serving a useful public purpose, remained all through inadequate.
REMARKS
By the time India won its independence, the impact of the two-century long British colonial rule was already showing on all
aspects of the Indian economy. The agricultural sector was already saddled with surplus labour and extremely low productivity.
The industrial sector was crying for modernisation, diversification, capacity building and increased public investment.
Foreign trade was oriented to feed the Industrial Revolution in Britain.
Infrastructure facilities, including the famed railway network, needed up gradation, expansion and public orientation.
Prevalence of rampant poverty and unemployment required welfare orientation of public economic policy.
In a nutshell, the social and economic challenges before the country were enormous.
aspects of the Indian economy. The agricultural sector was already saddled with surplus labour and extremely low productivity.
The industrial sector was crying for modernisation, diversification, capacity building and increased public investment.
Foreign trade was oriented to feed the Industrial Revolution in Britain.
Infrastructure facilities, including the famed railway network, needed up gradation, expansion and public orientation.
Prevalence of rampant poverty and unemployment required welfare orientation of public economic policy.
In a nutshell, the social and economic challenges before the country were enormous.
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