Indian Economy On The Eve of Independence

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
The sole purpose of the British colonial rule in India was to

reduce the country to being a raw material supplier for Great
Britain’s own rapidly expanding modern industrial base. 1.2
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
characterised 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 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 supplier of raw materials and
consumer of finished industrial products from Britain.
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 fertilisers, 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 commercialisation of agriculture.
India’s agriculture was starved of investment in terracing, flood-

control, drainage and desalinisation of soil.
The primary motive of the colonial government behind this policy

of systematically deindustrialising India was two-fold. The
intention was, first, to reduce India to the status of a mere
exporter of important raw materials for the upcoming modern
industries in Britain and, second, to turn India into a sprawling
market for the finished products of those industries so that their
continued expansion could be ensured to the maximum
advantage of 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.
There was hardly any capital goods industry to help promote

further industrialisation in India. Capital goods industry means
industries which can produce machine tools which are, in turn,
used for producing articles for current consumption. The
establishment of a few manufacturing units here and there was
no substitute to 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) remained very small.
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. 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 items, all of which
led to the drain of Indian wealth.
The British introduced the railways in India in 1850 and it is

considered as 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 commercialisation 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. The social benefits, which the Indian people gained
owing to the introduction of the railways, were thus outweighed
by the country’s huge economic loss.
By the time India won its independence, the impact of the two-
century long British colonial rule was already showing on all
aspects of the Indian economy. The agricultural sector was
already saddled with surplus labour and extremely low
productivity. The industrial sector was crying for modernisation,
diversification, capacity building and increased public
investment. Foreign trade was oriented to feed the Industrial
Revolution in Britain. Infrastructure facilities, including the
famed railway network, needed upgradation, expansion and
public orientation. Prevalence of rampant poverty and
unemployment required welfare orientation of public economic
policy. In a nutshell, the social and economic challenges before
the country were enormous.
INDIAN ECONOMY
1950-1990
India would be a socialist society with a strong public sector but also with
private property and democracy; the government would plan for the economy
with the private sector being encouraged to be part of the plan effort. The
‘Industrial Policy Resolution’ of 1948 and the Directive Principles of the Indian
Constitution reflected this outlook. In 1950, the Planning Commission was set
up with the Prime Minister as its Chairperson. The era of five year plans had
begun.
A plan should have some clearly specified goals. The goals of the five year
plans are: growth, modernisation, self-reliance and equity.
Growth: It refers to increase in the country’s capacity to produce the output of

goods and services within
the country.
The GDP of a country is derived from the different sectors of the economy,
namely the agricultural sector, the industrial sector and the service sector. The
contribution made by each of these sectors makes up the structural composition
of the economy.
Modernisation: To increase the production of goods and services the producers

have to adopt new technology. Adoption of new technology is called
modernisation.
Self-reliance: A nation can promote economic growth and modernisation by

using its own resources or by
using resources imported from other nations. The first seven five year plans
gave importance to self-reliance which means avoiding imports of those goods
which could be produced in India itself. This policy was considered a necessity
in order to reduce our dependence on foreign countries, especially for food.
Equity: Now growth, modernisation and self-reliance, by themselves, may not

improve the kind of life which people are living. It is important to ensure that
the benefits of economic prosperity reach the poor sections as well instead of
being enjoyed only by the rich. So, in addition to growth, modernisation and
self-reliance, equity is also important.
Land Reforms: At the time of independence, the land tenure system was
characterised by intermediaries(variously called zamindars, jagirdars etc.) who
merely collected rent from the actual tillers of the soil without contributing
towards improvements on the farm. The low productivity of the agricultural
sector forced India to import food from the United States of America (U.S.A.).
Equity in agriculture called for land reforms which primarily refer to change in
the ownership of landholdings.
Land ceiling was another policy to promote equity in the agricultural sector.
This means fixing the maximum size of land which could be owned by an
individual. The purpose of land ceiling was to reduce the concentration of land
ownership in a few hands.
The Green Revolution: The stagnation in agriculture during the colonial rule
was permanently broken by the green revolution. This refers to the large
increase in production of food grains resulting from the use of high yielding
variety (HYV) seeds especially for wheat and rice. The use of these seeds
required the use of fertiliser and pesticide in the correct quantities as well as
regular supply of water; the application of these inputs in correct proportions is
vital. The farmers who could benefit from HYV seeds required reliable
irrigation facilities as well as the financial resources to purchase fertiliser and
pesticide.
The portion of agricultural produce which is sold in the market by the farmers is
called marketed surplus. A good proportion of the rice and wheat produced
during the green revolution period (available as marketed surplus) was sold by
the farmers in the market.

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INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

The sole purpose of the British colonial rule in India was to

India was particularly well known for its handicraft industries in

The economic policies pursued by the colonial government in

This stagnation in the agricultural sector was caused mainly

However, a considerable number of zamindars, and not just the

India’s agriculture was starved of investment in terracing, flood-

The primary motive of the colonial government behind this policy

There was hardly any capital goods industry to help promote

For all practical purposes, Britain maintained a monopoly control

The British introduced the railways in India in 1850 and it is

Growth: It refers to increase in the country’s capacity to produce the output of

Modernisation: To increase the production of goods and services the producers

Self-reliance: A nation can promote economic growth and modernisation by

Equity: Now growth, modernisation and self-reliance, by themselves, may not

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