Indian Economic on the Eve of Independence chapter 1

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Indian Economic on the Eve of Independence Introduction

Indian Economic Development, is to familiarize you with the basic features of the Indian economy and its development as it stands today in the aftermath of Independence. However, it is equally important to understand something about the country’s economic past as you learn about its present state and future prospects.

Indian Economic on the Eve of Independence So, let us first examine the state of India’s economy prior to the country’s independence and form an idea of the various considerations that shaped India’s post-independence development strategy.

The structure of India’s present-day economy is not solely of recent origin; it has its roots steeped in history, particularly in the period when India was under British rule, which endured for almost two centuries before India ultimately won its independence on 15 August 1947. The primary objective of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain’s needs.

Indian Economic on the Eve of Independence Notes

  1. Greater poverty in the industrial sector: Before independence, India’s economy was not able to grow in the industrial sector. A large part of the people were in poverty and the condition of the farmers was also bad.
  2. Shortage in Production: India’s production capacity was low and a huge increase in production was required.
  3. Trade Problems: There were divisions and barriers to trade, which prevented cooperation with foreign traders.
  4. Foreign rule in the economy: Due to British rule, the Indian economy was highly dependent on.
  5. Weakness of the private sector: There was a lack of investment in the private sector and the position of the companies was also mostly insecure.
  6. Indian Education and Health Services: The condition of education and health services was also dire, and this was further aggravated by the economic insecurity of the people.
  7. High Unemployment: Due to high unemployment and a disorganized economy, many people did not have employment opportunities.

Indian Economic on the Eve of Independence Explanation

Low level of Economic Development under the colonial rule

India had an independent economy before the advent of the British rule. Though agriculture was the main source of livelihood for most people, yet, the country’s economy was characterized 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.

These products enjoyed a worldwide market based on the reputation of the fine quality of material used and the high standards of craftsmanship seen in all imports from India

The economic policies pursued by the colonial government in India were 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 brought about a fundamental change in the structure of the Indian economy — transforming the country into a supplier of raw materials and consumer of finished industrial products from Britain.

Obviously, the colonial government never made any sincere attempt to estimate India’s national and per capita income. Some individual attempts which were made to measure such incomes yielded conflicting and inconsistent results.

Among the notable estimators — Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and

R.C. Desai — it was Rao, whose estimates during the colonial period was considered very significant. However, most studies did find that the country’s growth of aggregate real output during the first half of the twentieth century was less than two percent coupled with a meager half percent growth in per capita output per year

1.3 Agriculture sector

India’s economy under British colonial rule remained fundamentally agrarian — about 85 percent of the country’s population lived mostly in villages and derived livelihood directly or indirectly from agriculture (See Box 1.2). However, despite being the occupation of such a large population, the agricultural

Indian Economic on the Eve of Independence

sector continued to experience stagnation and, not infrequently, unusual deterioration. Agricultural productivity became low though, in absolute terms, the sector experienced some growth due to the expansion of the aggregate area under cultivation.

This stagnation in the agricultural sector was caused mainly because of the various systems of land settlement that were introduced by the colonial government. Particularly, under the zamindari system which was implemented in the then Bengal Presidency comprising parts of India’s present-day eastern states,

the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.

However, a considerable number of zamindars, and not just the colonial government, did nothing to improve the condition of agriculture. The main

interest of the zamindars was only to collect rent regardless of the economic condition of the cultivators; this caused immense misery and social tension among the latter. To a very great extent, the terms of the revenue settlement were also responsible for the zamindars

adopting such an attitude; dates for depositing specified sums of revenue were fixed, failing which the zamindars were to lose their rights.

Besides this, low levels of technology, lack of irrigation facilities, and negligible use of fertilizers, all added up to aggravate the plight of the farmers and contributed to the dismal level of agricultural productivity. There was, of course, some evidence of a relatively higher yield of cash crops in certain areas of the country due to the commercialization of agriculture.

But this could hardly help 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 home.

Despite some progress made in irrigation, India’s agriculture was starved of investment in terracing, flood control, drainage, and desalinization of soil.

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 the incentive to invest in agriculture.

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 foreigners were mainly concentrated in Bengal.

Subsequently, the iron and steel industries began coming up at 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 industrialization in India. The capital goods industry means industries that can produce machine tools that are, in turn, used for producing articles for current consumption. The establishment of a few manufacturing units here and

There was no substitute for 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) or Gross Value Added 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.

1.5 Foreign trade

India has been an important trading nation since ancient times. However, the restrictive policies of commodity production, trade, and tariffs 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 woolen 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 opening of the Suez Canal further intensified British control over India’s foreign trade (see Box 1.3). 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

1.6 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 percent.

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 the 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

particular, the infant mortality rate was quite alarming—about 218 per thousand in contrast to the present infant mortality rate of 33 per thousand. Life expectancy was also very low—32 years in contrast to the present 69 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 at the time.

1.7 Occupational structure

During the colonial period, the occupational structure of India, i.e., the distribution of working persons across different industries and sectors, showed little sign of change. The agricultural sector accounted for

the largest share of the workforce, which usually remained at a high of 70-75 percent while the manufacturing and the services sectors accounted for only 10 and 15-20 percent 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 services sectors. However, there had been an increase in the share of the workforce in agriculture during the same time in states such as Orissa, Rajasthan, and Punjab.

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 British rule were not fit for modern transport.

The roads that were built primarily served the purposes of mobilizing the army within India and drawing out raw materials from the countryside to the nearest railway station or port to send these to far away England or other lucrative foreign destinations.

There always remained an acute shortage of all-weather 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.

Indian Economic on the Eve of Independence

The British introduced the railways in India in 1850, and it is considered 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 the commercialization 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.

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