Chapter 1- ''Indian Economy On The Eve Of Independence''
Introduction: The structure of India’s present day economy has its roots steeped in history, particularly in the period of the British colonial rule. The sole purpose of the British rule was to convert India into a raw material supply source for the rapidly expanding British industries and, then, sell finished products to the Indians, thereby making India further dependent on the British.
Low level of economic development under the colonial rule : Before the British rule, India had an independent economy with agri. being the main source of livelihood for most people. India was well-known worldwide for its handicrafts, silk & cotton textiles, metals, precious stone works, etc., on account of (a) reputation for fine quality of materials used and (b) high standards of craftsmanship. But, economic policies pursued by the British were aimed at helping the British economy. Such policies transformed India into a supplier of raw materials and consumer of British finished products. The British rule never made any sincere effort to estimate/increase India’s National Income/Per Capita Income. Some efforts in this direction were made at individual levels by Dadabhai Naoroji, William Digby, Findlay Shirras, V K R V Rao, R C Desai, etc, with Rao’s estimate considered as very significant. Most studies found little growth of aggregate real output (<2%) and negligible (0.50%) growth in per capita output per year during first half of the 20th century.
Agricultural sector : Indian economy, under British rule, remained predominantly agrarian-with about 85% population living in villages and deriving direct/indirect livelihood from agri. Despite this significance of agri. sector, it continued to stagnate and even deteriorate mainly due to (i) low productivity, (ii) faulty system of land settlement (introduced by the British), (iii) Zamindari System where Zamindars had all their loyalty to the British and they collected rent from the cultivators irrespective of success/failure of crops, (iv) under the terms of revenue settlement, Zamindars had to deposit specified sums of revenue with the British on due date, failing which Zamindars were to lose their rights. These factors combined with low level of technology, lack of irrigation and negligible use of fertilisers aggravated the plight of poor farmers and resulted in dismal level of agri. productivity. Very few farmers were engaged in cash crops (which was limited to certain area) due to commercialisation of agri. But, cash crops also were to be used by British industries in Britain and, therefore, didn’t improve Indian farmers’ condition. Some improvement was made in irrigation. But, Indian agri. was starved of investment in terracing, flood control, drainage, desalinisation of soil, etc. A very small section of farmers changed from food crops to cash crops but majority (tenants, small farmers, sharecroppers) had no resources, technology, incentive to invest in agriculture as it wasn’t a profitable/rewarding occupation for them.
Industrial sector : In mfg. also, India could not develop a sound industrial base under the British rule. World famous industries (like handicrafts, silk & cotton textiles, metals, precious stone works, etc.) declined. The main aim of the British rule was to exploit India and protect/improve their own interest and, therefore, no modern industry was allowed to come up as the British focussed on India as a provider of raw materials (for industries in Britain) and consumer of finished products (manufactured in Britain). These policies resulted in massive unemployment & poverty in India, depletion of resources, huge shortage of locally made goods, increased requirements of imports from Britain. It was only during the 2nd half of 20th century that modern industry started in a very small way in India. It began with cotton textile mills (dominated by Indians) in Maharashtra & Gujarat, jute textile mills(dominated by foreigners) in West Bengal, TISCO in 1907 and a few others after 2nd World War in sugar, cement, paper, etc., came up. But, there was hardly any capital goods industry (industry which produces machines for production of other goods). The growth rate of industrial sector remained very slow and its contribution to GDP remained very small. Industrial sector had very low participation of the public sector. Public sector remained confined to the railways, power generation, communications, ports, etc.
Foreign trade : The restrictive policies (commodity production, trade & tariff) pursued by the colonial govt. adversely affected the structure, composition and volume of India’s foreign trade. Colonial govt. policies made India become an exporter of primary products like raw silk, cotton, wool, sugar, indigo, jute, etc., and an importer of finished consumer goods like cotton, silk & woollen clothes, capital goods which were produced in factories in Britain. Britain maintained complete control/monopoly over India’s exports & imports and, as a result, half of India’s trade was with Britain and the remaining half was allowed with China, Sri Lanka, Iran, etc. During colonial rule, India had a large export surplus (excess of exports over imports). But, it came at a huge cost to the Indian economy and Indians. Even essential commodities were scarce in the domestic market. Huge export surplus was not used to improve Indian economy or the condition of Indians. It was used to meet expenses of the offices of the British colony, expenses on continuing wars, etc., and all of this further drained the wealth of India.
Demographic condition : Census, carried out first in 1881, suffered from certain limitations but also revealed the unevenness in India’s population growth. Thereafter, it was carried out every 10 years. Before 1921, India was in the 1st stage of demographic transition (where population is stable with both high birth rate and high death rate). 2nd stage of demographic transition (where birth rate declined, though marginally) began after 1921. At this stage, neither the total population nor the rate of growth of population was very high. Various social indicators were not encouraging : Overall literacy rate <16% (out of this, female literacy at negligible 7%). Public health facilities were poor and inadequate. Water-borne/air-borne diseases were very high. Overall mortality rate was very high and in that, infant mortality rate was alarming at 218. Life expectancy was very low at 44 yrs. For want of reliable data, it is difficult to specify the level of poverty at that time but there is no doubt extensive poverty prevailed across India.
Occupational structure : Distribution of working persons across different sectors showed little signs of change with agri. being the mainstay for 70%-75% of population. Madras Presidency, Bombay and Bengal witnessed decline in dependence of people on agri. with some increase in industry and services sectors. The opposite was the case in Orissa, Rajasthan, Punjab which witnessed slightly more dependence on agri.
Infrastructure : Under the colonial rule, basic infra. (like roads, railways, ports, water transport, P&T, etc) developed in keeping with the British policy of protecting & improving their economy back in Britain and not for improving the Indian economy/Indians. Very large parts of India remained far away/aloof/deprived/untouched from these targeted (towards achieving British objectives) developments. However, t he introduction of railways helped the Indians in two ways : (i) it enabled them to undertake long journeys and break geographical & cultural barriers and (ii) commercialisation of Indian agri.
Conclusion : The main aim of the colonial rule was : Exploitation of Indian resources/Indians, helping their modern industries grow in Britain, increasing their trade & commerce as reflected in imports of primary commodities from India to Britain and exports of finished goods from Britain to India, infrastructure developed, if any, was aimed at achievement of their own objectives, they introduced various systems like Zamindari system and revenue settlement system to exploit Indians and further the British interests.