Ch 1 Indian Economy on The Eve of Independence

Chapter 1, “Indian Economy on the Eve of Independence,” provides a foundational understanding of the state of India’s economy before British colonial rule ended in 1947. The chapter begins by emphasizing that the structure of India’s present-day economy has its roots in the two centuries of British rule, which had the sole purpose of reducing India to a raw material supplier for Britain’s rapidly expanding industrial base.

Before British rule, India had an independent economy with agriculture as the main livelihood, but it was also well-known for its handicraft industries, particularly cotton and silk textiles, metal works, and precious stone works, which enjoyed a worldwide market.

However, the economic policies pursued by the colonial government were concerned more with protecting British economic interests than with developing India. The chapter notes that while some individual attempts were made to estimate national income (by Dadabhai Naoroji, William Digby, V.K.R.V. Rao, and R.C. Desai), most studies found that India’s growth of aggregate real output during the first half of the twentieth century was less than two per cent, with a meagre half per cent growth in per capita output per year.

The chapter then examines the agricultural sector, which remained fundamentally agrarian with about 85 per cent of the population living in villages. Despite this, agriculture experienced stagnation and deterioration. The main cause was the various systems of land settlement introduced by the colonial government, particularly the zamindari system implemented in the Bengal Presidency.

Under this system, profit from agriculture went to zamindars instead of cultivators, and zamindars did nothing to improve agricultural conditions:their main interest was only to collect rent regardless of the economic condition of cultivators. Low levels of technology, lack of irrigation facilities, and negligible use of fertilisers aggravated the plight of farmers.

While there was some commercialisation of agriculture (farmers shifted from food crops to cash crops), this did not improve their economic condition as these cash crops were ultimately used by British industries. The industrial sector also suffered as India could not develop a sound industrial base. The British systematically deindustrialised India: first, to reduce India to an exporter of raw materials for British industries; second, to turn India into a market for finished British goods.

The decline of handicrafts created massive unemployment while a new demand was profitably met by imports from Britain. Modern industry began during the second half of the nineteenth century with cotton and jute textile mills, and TISCO was incorporated in 1907, but there was hardly any capital goods industry to promote further industrialisation.

The chapter concludes with discussions on foreign trade, demographic conditions, occupational structure, and infrastructure. India’s foreign trade generated a large export surplus, but this surplus came at a huge cost:essential commodities were scarcely available domestically, and the surplus was used to make payments for British expenses, leading to the drain of Indian wealth.

Demographically, the first census was conducted in 1881, and before 1921 India was in the first stage of demographic transition. Overall literacy was less than 16 per cent (female literacy at only seven per cent), infant mortality was about 218 per thousand, and life expectancy was only 32 years. Occupationally, the agricultural sector accounted for 70-75 per cent of the workforce, with manufacturing and services sectors accounting for only 10 per cent and 15-20 per cent respectively.

Infrastructure such as railways (introduced in 1850), roads, ports, and telegraphs did develop, but the real motive was to subserve colonial interests:mobilising the army and drawing out raw materials:not to provide basic amenities to the people. By the time India won independence, the agricultural sector was saddled with surplus labour and low productivity, the industrial sector needed modernisation and diversification, foreign trade was oriented to feed British industry, infrastructure needed upgradation, and rampant poverty and unemployment required welfare orientation of public economic policy. The chapter thus sets the stage for understanding why India adopted planned development after independence.