Vidyarthi Academy

Home NCERT Solutions Chapter Notes Test Papers Contact Us

Indian Economy On The Eve Of Independence

Chapter Notes

Economic Policies of Colonial Government and Their Impact

Notable Economists Who Estimated India’s Per Capita Income During Colonial Period

Agricultural Stagnation during the Colonial Period

Land Settlement Policies

Revenue Settlement

Commercialisation of agriculture

Low level of investment productivity

Motive Behind the Systematic De-Industrialisation Affected by the British in Pre-Independent India

Traditional Handicrafts Industries Were Ruined Under the British Rule

Infrastructure Development in India during Colonial Period

Shortfalls of the Industrial Policy by Colonial Administration

De-Industiralisation of India

Lack of Capital Goods Industires

Limited Role of Public Sector

Drain of Indian Wealth during the Colonial Period

Demographic Profile during the Colonial Period

High Birth Rate and Death Rate

High Infant Mortality Rate

Poor Health Facilities and Low Life Expectancy

Extremely Low Literacy Rate

Widespread Poverty

Demographic Transition from First to the Second Decisive Stage

India's First Official Census

Pre-Independence Occupational Structure

Predominantly Agricultural

Regional Variations

Economic Challenges at the Time of Independence

Low Level of Agricultural Productivity

Underdeveloped Industrial Sector

Lack of Infrastructure

Poverty and Inequalities

Some Modern Industries In Operation at the Time of Independence

Trade at the Time of Independence

Exproter of Primary Products and Importer of Finished Goods

Monopoly Control of British Rule

Positive Contributions Made by the British in India

Better Means of Transportation

Commercialisation of Agriculture and Self Sufficiency in Food Grain Production

Introduction of Market Economy and Free Trade

Check on Occurrence of Famines

Uniform Education System and Language

Effective Administration

Indian Economy On The Eve Of Independence

Chapter Notes

Economic Policies of Colonial Government and Their Impact

The economic policies pursued by the colonial government in India were concerned more with the protection of the economic interests of their own country (Britain), rather than with the development of the Indian economy. These policies changed the fundamental structure of the Indian economy and transformed the country into a supplier of raw materials and consumer of finished industrial products from Britain. 

We can summarize the impacts of these policies as follows,

Low level of economic development: British government systematically destroyed local industries and handicrafts. India became the net supplier of raw materials and consumer of finished goods from Britain.

Poor State of Agriculture: in India remained an agricultural country and the agriculture practices remained backward and stagnant.

● For helping the British industries and trading companies, the government developed infrastructure, like roads, railway, ports and shipyards.

● There was no growth in GDP and the national and per capita income remained very low.

● As a result of all the above factors, economic condition of the country and there was widespread poverty.

● People mainly remained illiterate.

Health condition of people was also very bad and the life expectancy was very low. Both birth rate and death rates were very high.

Notable Economists Who Estimated India’s Per Capita Income during Colonial Period

Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R. C Desai.

Agricultural Stagnation during the Colonial Period

The main causes of India’s agricultural stagnation during the colonial period were:

(i) Land Settlement Policies: Colonial government introduced various land settlement policies such as Zamindari system in which maximum profit coming from agriculture sector went to the Zamindars, in the form of lagaan, instead of the cultivators. Their main interest was to collect the lagan. Neither Colonial government nor Zamindars did anything to improve the condition of agriculture.

(ii) Revenue Settlement: The Zamindars were given rights to own land in return for some specified sum of revenue. The dates of depositing the lagan were also fixed. Zamindars would lose the rights to land, if they failed to deposit in time. Therefore, the zamindars adopt a harsh and inhuman methods

(iii) Commercialisation of agriculture: The government forced the farmers to grow commercial crops such as tea, coffee, indigo etc. to proved British industries with cheap raw materials. This led to shifting of crops from food crops to cash crops. This commercialisation of Indian agriculture not only increased the burden of high revenues on the poor farmers but also led India to face shortage of food grains.

(iv) Low level of investment productivity: Due to lack of investment in technology and modern techniques (use of good seeds and fertilizers), lack of irrigation facilities, frequent famines and other natural calamities lead to very poor yield in the agricultural sector. On the one hand cultivators had no money to invest, on the other neither the zamindars nor the government did anything to improve this situation.

Motive Behind the Systematic De-Industrialisation Affected by the British in Pre-Independent India

The two-fold motive behind the systematic de-industrialisation affected by the British in pre-independent India was:

(i) To get cheap raw material from India for the upcoming modern industries in Britain.

(ii) To sell finished goods from British industries in Indian market.

Traditional Handicrafts Industries Were Ruined Under the British Rule

The traditional handicrafts industries were ruined under British rule. Till the middle of the eighteenth century, Indian handicraft products were in great demand in the markets all over the world but the policies followed by colonial government gradually led to their complete destruction. In doing so, the colonial government had two fold motive,

(i) To get cheap raw material from India for the upcoming modern industries in Britain.

(ii) To sell finished goods from British industries in Indian market.

The colonial government imposed discriminatory tariffs. They imposed heavy export duties on India's export of handicraft products, while allowed free export of India's raw material to Britain and free import of British products into India.

Infrastructure Development in India during Colonial Period

Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs did develop. However, the real motive behind this infrastructure development was not to provide facilities to Indian people or Indian industries but to serve various colonial interests.

For example, the roads that were built primarily to mobilize the army within India and drawing out raw materials from the countryside to the nearest railway station or the port to send these to England or other lucrative foreign destinations.

Similarly, railways helped them to have effective control and administration of large country like India and to help them in foreign trade by movement of goods to and from the ports.

The introduction of electric telegraph in India, served the purpose of maintaining law and order by fast communication.

The Shortfalls of the Industrial Policy by Colonial Administration

The major shortfalls of the industrial policy pursued by British colonial administration, were,

De-Industiralisation of India:

The colonial government systematically destroyed the Indian handicraft industries and no new modern industries were allowed to come up. They did this to facilitate the upcoming modern industries in Britain. The primary motive of this de-industrialisation was to reduce India to mere supplier of raw material and consumer of British machine made finished goods.

During the second half of the nineteenth century, a few modern industries started in India but its progress remained very slow. Initially, this development was confined to the setting up of cotton and jute textile mills. 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.

Lack of Capital Goods Industires:

There was hardly any capital goods industry to help promote further industrialisation in India. All the machinery was imported from Britain at high costs. The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.

Limited Role of Public Sector:

Another significant drawback of the new industrial sector was the very limited role played by the government and public sector. This sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.

Drain of Indian Wealth during the Colonial Period

India has been an important trading nation since ancient times. But the discriminatory tariff policies pursued by the colonial government adversely affected the structure, composition and volume of India’s foreign trade. India became supplier of raw material to Britain and net importer of finished consumer goods from Britain.

By exporting raw material India generated a large export surplus. But this surplus did not benefit the country in any way, but was used for development of their own country. This surplus was used,

● To make payments for the expenses incurred by an office set up by the colonial government in Britain

● To meet expenses on war, again fought by the British government

● To import of invisible items

All of the above led to the drain of Indian wealth into Britain.

Demographic Profile during the Colonial Period

India's Demographic conditions during the British rule depict the stagnant and backward state of India’s economy. Following points lead to this conclusion,

High Birth Rate and Death Rate:

Both the birth rate and death rate were very high at 48 per thousand and 40 per thousand respectively. Due to high birth rate and high death rate the population growth was stagnant.

High Infant Mortality Rate:

The Infant Mortality Rate at about 218 per thousand, was also very high.

Poor Health Facilities and Low Life Expectancy:

The Life Expectancy Rate was as low as 32 years while it is 68.35 years at present. This was due to unavailability of proper health facilities. The communicable diseases like malaria, kala azaar etc., were wide spread.

Extremely Low Literacy Rate:

The literacy rate was less than 16 percent which denotes social backwardness and gender bias in the economy. 

Widespread Poverty:

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.

Demographic Transition from First to the Second Decisive Stage

The year 1921 is regarded as the defining year to mark the demographic transition from its first to the second decisive stage. Before 1921, the population of Inida was not stable. Sometimes it increased and sometimes it decreased. Since 1921, the population of India has been rising rapidly.

India's First Official Census

India’s first official census was undertaken in the year 1881.

Pre-Independence Occupational Structure.

The salient features of India’s pre-independence occupational structure were:

Predominantly Agricultural:

The agricultural sector accounted for the largest share of work force, which usually remained at a high of 75% while the manufacturing and the services sectors together accounted for only around 25%. 

Regional Variations:

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), Maharashtra and West Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with an increase in the manufacturing and the services sectors. However, in states such as Orissa, Rajasthan and Punjab, the share of population engaged in agricultural activities, increased during the same time

Economic Challenges at the Time of Independence

The Indian economy was a backward economy at the time of Independence:

Low Level of Agricultural Productivity:

Over 70 percent of total population of India was engaged in agriculture but the total output was very low.

Underdeveloped Industrial Sector:

There were not many industries and capital was mostly invested by foreigners. The share of capital goods industries was very low. The productivity of industrial sector was very low. Need to increase the share of the industrial sector to India's GDP was one of the important economic challenges for India.

Lack of Infrastructure:

The condition of road and rail network was very bad. The railway network needed up gradation, expansion and public orientation. There was a complete absence of infrastructure for imparting knowledge or technical skills to the labourers. The health facilities needed to be expanded.

Poverty and Inequalities:

India was trapped in the vicious circle of poverty and inequality. The colonial rule drained out a significant portion of India's wealth to Britain. Consequently, the majority of India's population was poverty trodden. This further exaggerated economic inequalities across the country.

Some Modern Industries In Operation at the Time of Independence

The modern industries which were in operation in our country at the time of independence are as follows:

● Cotton Textile Industries.

● Jute Textile Industries. 

● Iron and Steel Industries. 

● Sugar Industries. 

● Cement Industries. 

● Paper Industries.

● Chemical Industries.

Trade at the Time of Independence

We can discuss the volume and direction of trade at the time of independence as under,

(i) Exproter of Primary Products and Importer of Finished Goods

Due to restrictive policies of the colonial government 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 woolen clothes and capital goods like light machinery produced in the factories of Britain,

(ii) Monopoly Control of British Rule:

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).

Positive Contributions Made by the British in India

There were some positive contributions that were made by the British in India. The contributions were not to help the Indian people but to help colonial exploitation of India by the British.

The following are the positive contributions made by the British:

Better Means of Transportation:

The development of roads and introduction of railways by the British was a breakthrough in the development process of Indian economy. It lead to cheap and rapid transport systems and opened up new opportunities of economic and social growth.

Commercialisation of Agriculture and Self Sufficiency in Food Grain Production:

The introduction of commercial agriculture is an important breakthrough in the history of Indian agriculture. Prior to this, Indian agriculture was of subsistence nature. But with the commercialisation of agriculture, the agricultural production was carried out as per the market requirements. This has made India self-sufficient in food grains production, today.

Introduction of Market Economy and Free Trade:

British forced India to follow free trade pattern during the colonial rule. This is the key concept of globalisation today. The free trade provided the domestic industry with a platform to compete with the British industries. The introduction of free trade led to an increase in the volume of India's export rapidly.

Check on Occurrence of Famines:

The infrastructure developed in by British in India proved as a useful tool to check the spread of famines. The food and medical supplies could be transported easily and fast. The telegram and postal services also helped in faster communication and served Indian public.

Uniform Education System and Language:

English as a language promoted uniform education. The English language acted as a window to the outside world. This has integrated India with the rest of the world.

Effective Administration:

The way and the technique of British administration with uniform rules and regulations throughout the length and breadth of India, acts as a role model for the Indian politicians and planners. It helped Indian politicians to govern the country in an efficient and effective manner.