Indian Economy on the Eve of Independence (1947-90)

Overview

This unit provides an overview of the Indian economy from the eve of independence to four decades of planned development.
India adopted a path of planned development, leading to the establishment of the Planning Commission and five-year plans.
The unit covers the goals of the five-year plans and a critical appraisal of planned development's merits and limitations.

Objectives

Familiarize learners with the state of the Indian economy in 1947.
Understand the factors that led to the underdevelopment and stagnation of the Indian economy.

Introduction

The book aims to familiarize readers with the basic features of the Indian economy and its development post-independence.
Understanding the country's economic past is crucial for grasping its present state and future prospects.
India's present-day economy is rooted in its history, particularly during the British rule that lasted almost two centuries before 1947.
The British colonial rule aimed to reduce India to a raw material supplier for Britain's industrial base.
Understanding this exploitative relationship is essential to assess India's development over the past seven decades.

Low Level of Economic Development under the Colonial Rule

India had an independent economy before British rule, characterized by manufacturing activities alongside agriculture.
India was renowned for its handicraft industries, including cotton and silk textiles, metal, and precious stone works.
These products had a worldwide market due to their fine quality and craftsmanship.
The economic policies of the colonial government prioritized the economic interests of Britain over the development of India.
These policies transformed India into a supplier of raw materials and a consumer of finished goods from Britain.
The colonial government did not sincerely attempt to estimate India's national and per capita income, and individual attempts yielded inconsistent results.
Estimators included Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai; Rao's estimates were considered significant.
Studies indicated that the country's aggregate real output growth during the first half of the twentieth century was less than 2%, with a meager 0.5% growth in per capita output per year.

Agriculture Sector

India's economy under British rule remained agrarian, with about 85% of the population living in villages and depending on agriculture.
The agricultural sector experienced stagnation and deterioration despite being the primary occupation.
Agricultural productivity was low, although there was some growth due to the expansion of cultivated land.
The stagnation was mainly due to the land settlement systems introduced by the colonial government, particularly the zamindari system in the Bengal Presidency.
Under the zamindari system, profits went to the zamindars, who often did not improve agriculture, focusing instead on rent collection.
The terms of revenue settlement also contributed to the zamindars' attitude, with fixed dates for depositing revenue, failing which they would lose their rights.
Low levels of technology, lack of irrigation, and minimal use of fertilizers aggravated the plight of farmers and reduced agricultural productivity.
There was some evidence of higher yield of cash crops due to the commercialization of agriculture.
Despite irrigation progress, India's agriculture lacked investment in terracing, flood-control, drainage, and desalinization.
While some farmers shifted to commercial crops, most tenants, small farmers, and sharecroppers lacked resources, technology, or incentive to invest in agriculture.

Industrial Sector

India could not develop a sound industrial base under colonial rule.
The country's handicraft industries declined, and no modern industrial base emerged to replace them.
The colonial government's policy of de-industrializing India aimed to turn the country into a raw material exporter and a market for British finished products.
The decline of indigenous handicraft industries led to unemployment and a new demand in the Indian consumer market, which was met by cheap imports from Britain.
Modern industry began to emerge in India in the second half of the nineteenth century, but its progress was slow.
Initially, development was confined to cotton and jute textile mills. Cotton mills were mainly Indian-dominated and located in western India, while jute mills were foreign-dominated and concentrated in Bengal.
The iron and steel industries began to emerge in the early twentieth century; the Tata Iron and Steel Company (TISCO) was incorporated in 1907.
A few other industries like sugar, cement, and paper came up after the Second World War.
There was hardly any capital goods industry to promote further industrialization. Capital goods industries produce machine tools used for producing articles for current consumption.
The establishment of a few manufacturing units did not compensate for the displacement of traditional handicraft industries.
The growth rate of the new industrial sector and its contribution to GDP remained small.
The public sector's operation was limited to railways, power generation, communications, ports, and some departmental undertakings.

Foreign Trade

India has been an important trading nation since ancient times, but colonial policies affected the structure, composition, and volume of its foreign trade.
India became an exporter of primary products (raw silk, cotton, wool, sugar, indigo, jute, etc.) and an importer of finished consumer goods and capital goods from Britain.
Britain maintained a monopoly control over India's exports and imports.
More than half of India's foreign trade was restricted to Britain, with the remainder conducted with countries like China, Ceylon (Sri Lanka), and Persia (Iran).
The opening of the Suez Canal intensified British control over India's foreign trade.
The most important characteristic of India's foreign trade during the colonial period was the generation of a large export surplus, but at a huge cost to the country's economy.
Essential commodities (food grains, clothes, kerosene, etc.) were scarce in the domestic market.
The export surplus did not result in a flow of gold or silver into India but was used to cover expenses incurred by the colonial government in Britain, war expenses, and the import of invisible items, leading to a drain of Indian wealth.

Demographic Condition

Details about the population of British India were first collected through a census in 1881.
Before 1921, India was in the first stage of demographic transition, and the second stage began after 1921.
Neither the total population nor the rate of population growth was very high at this stage.
Social development indicators were not encouraging; the overall literacy level was less than 16%, with female literacy at about 7%.
Public health facilities were either unavailable or inadequate, leading to rampant water and air-borne diseases.
The overall mortality rate was very high, with an infant mortality rate of about 218 per thousand (compared to the present rate of 28 per thousand).
Life expectancy was very low—32 years (compared to the present 69 years).
Extensive poverty prevailed in India during the colonial period, worsening the profile of India's population.

Occupational Structure

During the colonial period, the occupational structure of India showed little sign of change.
The agricultural sector accounted for the largest share of the workforce (70-75%), while manufacturing and services sectors accounted for only 10% and 15-20%, respectively.
There was growing regional variation; Madras Presidency, Bombay, and Bengal saw a decline in the dependence on agriculture, with an increase in manufacturing and services.
States such as Orissa, Rajasthan, and Punjab saw an increase in the share of the workforce in agriculture.

Infrastructure

Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts, and telegraphs did develop.
The real motive behind this development was to serve colonial interests rather than provide basic amenities.
Roads were primarily built for mobilizing the army and drawing raw materials to railway stations or ports for export.
There was an acute shortage of all-weather roads to reach rural areas during the rainy season, causing suffering during natural calamities and famines.
The British introduced the railways in India in 1850, which is considered one of their most important contributions.
The railways affected the structure of the Indian economy in two important ways: enabling long-distance travel and fostering commercialization of Indian agriculture.
The volume of India's exports expanded, but the benefits rarely accrued to the Indian people.
The social benefits of the railways were outweighed by the country's huge economic loss.
Along with roads and railways, the colonial administration also took measures to develop inland trade and sea lanes, but these were unsatisfactory.
The introduction of the expensive system of electric telegraph in India served the purpose of maintaining law and order.
The postal services, despite serving a useful public purpose, remained inadequate.

Conclusion

By the time India won its independence, the impact of the two-century-long British colonial rule was evident on all aspects of the Indian economy.
The agricultural sector was burdened with surplus labor and extremely low productivity.
The industrial sector required modernization, diversification, capacity building, and increased public investment.
Foreign trade was geared towards feeding the Industrial Revolution in Britain.
Infrastructure facilities, including the railway network, needed upgradation, expansion, and public orientation.
Rampant poverty and unemployment necessitated a welfare orientation of public economic policy.
The social and economic challenges facing the country were enormous.