Indian Economy on the Eve of Independence

Indian Economic Development on the Eve of Independence

Overall Features of Indian Economy

  • Indian Economy Prior to British Rule:

    • Vibrant and prosperous.
    • Self-contained rural economy with cultivators as landowners.
    • Industrial sector famous for handicraft products; exports enjoyed global reputation.
    • Silk and cotton textiles, metal & precious stonework known for fine quality and craftsmanship.
    • India excelled in the export of handicrafts, leading to an influx of gold.

  • Exploitation and Transformation of Indian Economy during British Rule:

    • British exploited the Indian economy to maximize economic gains, known as colonial exploitation.
    • Colonial exploitation had two aspects:
      • Supply aspect: Using Indian natural resources as raw material for British industrial production.
      • Demand aspect: Using Indian markets as a demand destination for British goods.
    • Indian handicraft industry was completely destroyed, along with its global reputation.
    • Agricultural sector systematically exploited through high land revenue demands from farmers.
    • Cultivators ejected as owners when unable to meet escalating land revenue demands.
    • Agriculture ceased producing surplus for reinvestment.
    • A vibrant and prosperous economy was converted into a backward and stagnant economy.

Features of Indian Economy on the Eve of Independence

  • Stagnant Economy:

    • Showed little or no growth in income.
    • British government made no attempts to estimate India's national and per capita income.
    • Individuals like Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai attempted to estimate, yielding conflicting results.
    • Most estimates reveal aggregate real output growth was less than 2% during the first half of the 20th century, with per capita output growth at a meager 0.5%.
    • Low standard of living, recurring epidemics and famines.

  • Backward Economy:

    • Very low per capita income; in 1947-48, it was just 230.
    • Bulk of the population was very poor, lacking sufficient food, clothing, and shelter.
    • Widespread unemployment (caused by the destruction of handicraft industries) contributed to poverty.

  • Dominance of Agriculture:

    • Agricultural sector was the principal source of livelihood.
    • Nearly 80% of India's population was directly or indirectly dependent on agriculture.
    • Nearly 70% of the working population was engaged in agriculture.
    • Despite dominance, famines were recurring, with food shortage and starvation-deaths as serious challenges.
    • Low productivity (output per acre) kept agriculture in a state of backwardness.

  • Bleak Industrialisation:

    • Prior to British rule, the industrial sector in India was well-known for handicrafts but it was systematically destroyed by discriminatory British policies.
    • Small-scale and cottage industries were almost ruined.
    • Heavy industry showed a bleak growth, and for the bulk of capital goods requirements, we were dependent upon imports from Britain.

  • Heavy Dependence on Imports:

    • The country was heavily dependent upon imports, particularly for machinery and related equipment of production.
    • Armed forces also depended heavily on foreign imports for most defense equipment.
    • Several consumer goods like sewing machines, medicines, kerosene oil, bicycles, etc., used to be imported from abroad.

  • Limited Urbanisation:

    • At the time of independence, bulk of the population of India lived in villages. In 1948, only 15% of the population lived in urban areas while 85% lived in rural areas.
    • Rural population lacked opportunities outside agriculture, compounding their poverty.

  • Semi-feudal Economy:

    • Indian economy was neither wholly feudal nor a capitalist economy but a mixed or semi-feudal economy.
    • Feudalistic mode of production leads to low productivity which leads to backwardness.

Agricultural Sector on the Eve of Independence

  • Indian economy was primarily an agrarian economy, with around 80% of the population deriving livelihood from agriculture.

  • The sector suffered from deep stagnation and chronic backwardness.

  • Low Production and Productivity:

    • Both production (total output) and productivity (output per hectare of land) were extremely low.
    • Resulted from lack of means with the farmers and lack of incentive to the tillers of the soil.
    • Productivity of wheat was nearly 5.3 times lower in 1947 compared with 2022-23.
    • Productivity of rice was nearly 4.2 times lower in 1947 compared with 2022-23.
    • Likewise, level of output of wheat was nearly 17.2 times lower, and that of rice was nearly 6.1 times lower in 1947 compared with their levels in 2022-23.

  • Exploitative Land Settlement System:

    • Zamindari system was implemented particularly in the then Bengal Presidency.
    • Set up a triangular relationship among the British government, the owner of the soil, and the tiller of the soil.
      • Zamindars recognised as permanent owners of the soil, implying profits accrued to zamindars, not cultivators.
      • Zamindars paid a fixed sum to the government as land revenue.
      • Zamindars were free to extract as much as they could from the tillers, maximizing revenue collection and ignoring the tillers' plight.. The zamindars did nothing to improve the condition of agriculture.
    • Led to unlimited exploitation of the tillers, frequent raising of land revenue rates, and eviction of tillers.
    • Tillers were reduced to landless laborers, driving farming to deep backwardness and long-term stagnation.

  • Forced Commercialisation of Agriculture:

    • Shift from subsistence cultivation to cultivation of cash crops for the market to cope with needs of the British industry.
    • Farmers were forced to grow commercial crops to cope with the needs of the British industry.
    • Farmers were forced to shift to produce indigo, as it was required by the textile industry in Britain for dyeing/bleaching of the textile.
    • Farmers were either lured or forced to accept advance payments for the cultivation of indigo.
    • Exposed subsistence farmers to uncertainties of the market.
    • Raised credit needs of the farmers leading to perpetual indebtedness.

  • Lack of Investment in Agriculture Infrastructure:

    • Colonial government and zamindars took no interest in promoting investment in agricultural infrastructure.
    • Permanent means of irrigation were lacking.
    • Agriculture was heavily dependent on rainfall and therefore continued to be uncertain.
    • Flood-control, drainage, and de-salination of the soil were neglected.

  • Gulf between Owners of the Soil and Tillers of the Soil:

    • Agriculture was characterized by a huge gulf between 'owners of the soil' and 'tillers of the soil'.
    • While the owners shared the output, they seldom shared the cost of production.
    • Tillers of the soil were merely given enough for subsistence.
    • Tillers did not have resources to invest, while owners had no interest, leading to stagnation and backwardness.

  • Small and Fragmented Holdings:

    • Landholdings were both small and fragmented.
    • Most landholdings were uneconomic, yielding low output at high cost.

  • Subsistence Outlook:

    • Farming was mostly taken as a means of subsistence to provide for basic family needs.
    • Little surplus was left for sale in the market, implying a lack of commercial outlook.

Systematic De-industrialisation

  • India suffered systematic de-industrialisation during the early years of British rule with a complete decay of Indian handicrafts that were the backbone of economy prior to the British rule.

  • Decay wasn't accidental but due to the colonial policy of the British government focusing on exploitation of Indian economy.

  • Expansion of industry in Britain needed expansion of the Indian colonial market for British goods, and de-industrialisation in India was systematically planned.

  • De-industrialisation was the principal motive of the British government to cause a shift in domestic demand from Indian goods to goods produced in Britain.

  • Discriminatory Tariff Policy:

    • The British government pursued a discriminatory tariff policy.
      • Tariff-free import of British goods in India, so British goods gained price-competitiveness in Indian markets.
      • Heavy export-duty on export of Indian handicraft goods to rest of the world, so Indian goods lost price-competitiveness in the international market.
      • Duty-free export of industrial raw material from India to Britain, so British goods gained cost competitiveness in the Indian market.

  • Expansion of Railways:

    • Railway network was expanded in India so that British goods could reach Indian markets across all parts of the country.

  • Low Cost of British Goods:

    • Because of large-scale production, British goods were produced at low cost, cheaper compared to handmade Indian goods.
    • Indian goods lost market to British goods.

  • Disintegration/Disappearance of Indian Kingdoms:

    • Kings and Nawabs, who used to provide patronage to the Indian handicrafts, gradually lost their foothold, leading to the decline of Indian handicrafts.

  • Loss of Skilled Artisans and Lack of Capital for Investment:

    • Due to its low profitability, the number of skilled artisans was reduced, and surplus (capital) for investment started shrinking. This accelerated the pace of decay of Indian handicrafts.

Bleak Growth of Modern Industry (1850-1947)

  • Modern industry saw only a bleak growth under the British Raj.
    • Initially, cotton and jute textile mills were set up.
      • Cotton textile mills located in western India (Maharashtra and Gujarat) controlled by Indians.
      • Jute textile industries concentrated in Bengal, primarily controlled by foreigners.
    • In the beginning of the 20th century, the iron and steel industry came up; Tata Iron and Steel Company (TISCO) was incorporated in 1907.
    • After World War II, cement, paper, and sugar industries also started coming up.
    • There were hardly any capital goods industries in India. Capital goods industry produces goods like machines and industrial plants which are used for further industrialization.
    • Contribution of the new industrial sector in GVA or GDP remained extremely low.
    • State participation in the process of modern industrialisation was limited, confined only to strategic areas (like railways and means of communication) which helped the expansion of the Indian market for the British products.

Foreign Trade on the Eve of Independence

  • India had acquired eminence in the area of foreign trade, since ancient times.

  • But the British rule in India brought an end to it.

  • Prior to the British rule, India was a well-known exporter of finished goods but the British converted India into a net exporter of raw material and importer of finished goods due to discriminatory policy.

  • Net Exporter of Raw Material and Importer of Finished Goods:

    • India became net exporter of raw materials and primary products (like raw silk, cotton, wool, jute, indigo, sugar, etc.) due to exploitative colonial policies of trade and tariff.
    • India became net importer of finished goods produced by the British industry.
    • Composition of exports and imports reflected utter backwardness of the Indian economy.

  • Monopoly Control of India's Foreign Trade:

    • Exports and imports of the country came under monopoly control of the British government.
    • More than 50% of India's foreign trade was directed towards Great Britain.
    • The rest of the trade was directed towards China, Ceylon (Sri Lanka) and Persia (Iran).

  • Surplus Trade but only to Benefit the British:

    • Exports exceeded imports which implied a surplus of balance of trade.
    • Surplus was largely owing to the export of primary goods (not the industrial goods) which is a sign of economic backwardness.
    • Supplies of several essential commodities like food grains and clothes remained deficient in the domestic market.
    • Trade surplus was not used for growth and development but to meet administrative expenses of the British government in India and expenses of wars fought by them, leading to drain of India's wealth.

Demographic Profile

  • Demographic conditions during the British rule exhibited all features of a stagnant and backward economy.

  • 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.

  • Infant Mortality Rate:

    • Infant mortality rate was very high, about 218 per thousand (presently, it is 33 per thousand).
    • High infant mortality rate is a sign of poor healthcare connected with extreme poverty.

  • Life Expectancy:

    • Life expectancy was as low as 32 years (presently, it is 69 years).
    • Low life expectancy reflects lack of healthcare facilities, lack of awareness, and lack of means to avail them.

  • 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%, indicating gender bias in the society.

  • Demographic Transition:

    • In the history of demographic transition, 1921 is regarded as the 'Year of Great Divide'.
    • Till 1921, population growth in India was never consistent. Size of population kept fluctuating, increasing in one census and decreasing in the other (first stage).
    • After 1921, India entered the second stage of demographic transition when population recorded a consistent rise.

Occupational Structure

  • Occupational structure refers to the distribution of the working population across primary, secondary, and tertiary sectors.

  • Agriculture - The Principal Source of Occupation:

    • About 72.7% of the working population was engaged in the primary sector with agriculture as its principal component.
    • Percentage of population dependent on agriculture is much less in advanced countries.
    • This establishes the backwardness of the Indian economy at the time of independence.

  • Industry - An Insignificant Source of Occupation:

    • Barely 9.0% of the working population in India was engaged in manufacturing industries, mining, etc.
    • This proves how backward the Indian economy was at the time of independence.

  • Insignificant Transition from Agriculture to Industry:

    • Transition of workforce from agriculture to industry marks the economic 'take-off', which was largely absent in the Indian economy.
    • Occupational structure of India pointed to backwardness and lopsidedness of the Indian economy.

Infrastructure

  • Infrastructure refers to the elements of economic change (transport, communication, banking, power) and social change (education, health, housing) that serve as a foundation for growth and development.

  • Elements of infrastructural change during British rule:

    • Railways were introduced in India in 1850 to transport finished goods from Britain to the interiors of colonial India to widen the market.
    • Ports were developed to handle the export of raw material to Britain and import of finished goods from Britain.
    • Post and telegraphs were developed to enhance administrative efficiency.
    • Roads were developed to facilitate transportation of raw material from different parts of the country to the ports.

Positive Impact of the British Rule in India?

  • The motive was colonial exploitation, but the means to achieve the end yielded some positive side-effects.

  • Commercial Outlook of the Farmers:

    • Forced commercialisation of agriculture exposed subsistence farmers to uncertainties of the market but led to a gradual change in their outlook.

  • New Opportunities of Employment:

    • Spread of railways and roadways opened up new opportunities of economic and social growth.

  • Control of Famines:

    • Rapid means of transport facilitated rapid movement of food grain to the famine-affected areas.

  • Monetary System of Exchange:

    • There was a transition from barter system of exchange to monetary system of exchange, facilitating division of labour, specialisation, and large-scale production.

  • Efficient System of Administration:

    • The British government in India left a legacy of an efficient system of administration, serving as a ready-reference for politicians and planners.