Acquaint with Economics: Indian Economic Development - Chapter 1 - Indian Economy on the Eve of Independence

CHAPTER – 1

INDIAN ECONOMY ON THE EVE OF INDEPENDANCE

India had an independent economy before the advent of British rule. Though agriculture was the main source of livelihood for most of people, yet, the economy of the country was characterized by various kinds of manufacturing activities.

Origin of British Rule – Battle of Plassey, fought in 1757.

Basic Purpose of British Rule – To use Indian economy as feeder economy for the development of British Economy. They exploited India’s natural as well as human resources for the glory of their own country.

Features of Indian economy before British rule –

(1) Prosperous Economy

(2) Agrarian Economy

(3) Well known Handicraft Industries

Meaning of Colonialism – It is a system of political and social relationship between two countries, of which one is ruler and other is its colony. The ruling country not only has political control but also determine economic policy of the dominated country.

Low National Income and Per Capita Income -

o The colonial government never made any sincere attempt to estimate India’s national income and per capita income.

o Some individual attempts made by experts like Dada Bhai Naoroji, William Digby, Findlay Shirras, VKRV Rao and R C Desai.

o First scientific estimate was made by V.K.R.V. Rao in 1931-32 during colonial rule.

o Most of studies shows that country’s growth of real output during first half of the twentieth century was less than 2% and Per Capita output growth per year was only 0.5%.

1. Agriculture sector on the Eve of Independence - Indian economy under the British colonial rule remained fundamentally agrarian.

1.1 Features of Indian Agriculture on the Eve of Independence –

(i) Low Productivity,

(ii) Loss due to huge cost involved,

(iii) Lack of means of irrigation,

(iv) Subdivision of landholdings.

1.2 Causes of stagnation of agricultural sector -

1. Change in System and Tenure

(i) Permanent settlement or Zamindari system,

(ii) Ryotwari system and

(iii) Mahalwari system

Under this zamindaree system, profits accruing out of agriculture sector went to the zamindars in the form of LAGAAN. Zamindar’s interest was only to collect lagan as they have to deposit lagan to the British govt on a fixed date. If they fails to do so, they may lost their rights. Both British govt. and zamindars did nothing for the betterment of farmers.

2. Commercialisation of Agriculture – It means production of crops foe sale in market rather than for self consumption.

Main causes were :

(i) Industrial revolution

(ii) Commercial policy of British Government,

(iii) Increase in foreign trade,

(iv) Payment of Land Revenue in cash,

(v) Use of money,

(vi) Development of the means of transportation and communication,

(vii) Expansion of the agricultural market,

(viii) High price of cash Crops.

Farmers were given higher price for producing cash crops like cotton or jute, to feed raw material to the British base industries. This resulted in shortage of food grains, which cause to frequent famines in India. Although farmers are getting higher price for their crops but their economic condition did not improve.

3. Low level of productivity – Low level of technology, lack of irrigation facilities and negligible use of fertilizers resulted in low level of productivity.

4. Scarcity of Investment – Scarcity of investment in terracing, flood control and drainage. A large section of tenants, small farmers and sharecroppers neither had resources nor have incentive to invest in agriculture.

REFERENCE VIDEO LINK

1. Indian Economy on the Eve of Independence - PART 1

(Basic concept, Agriculture Sector)

https://youtu.be/a9Fb4BdGuGk

2. Industrial Sector on the Eve of Independence – Like agriculture, industrial sector of India could not develop. The primary motive of the British government behind the de-industrialization of Indian handicraft industry was two-fold.

(i) Mere exporter of raw material – To get raw material from India at cheap rates to be used by upcoming modern industries in Britain.

(ii) Importer of finished goods – To sell finished products of British industries in Indian market at high price.

2.1 State of industrial sector was as follows:

(A) Decay of indigenous handicraft industries -

(i) Introduction of discriminatory tariff policy,

(ii) Low priced machine made goods,

(iii) Changes in taste and preference,

(iv) Fall in encouragement to Indian handicraft.

Discriminatory Tariff Policy – This policy allowed (a) Free export of raw material from India and free import of finished goods from Britain; (b) Heavy duty was imposed on the export of Indian handicrafts. As a result Indian market was full of cheap finished goods from Britain and domestic goods couldn’t compete with foreign cheap goods.

(v) Adverse effect of decline of handicraft industry – Due to decline of handicraft industry there was a high level of unemployment in country and resulted in over crowd of agriculture sector. Many people engaged in agriculture sector due to this unemployment and to find livelihood in agriculture sector. Second, Indian people depend on import of finished goods from Britain.

(B) Slow Growth of Modern Industry –

(i) Lopsided growth;

(ii) Lack of capital goods industries;

(iii) Lower contribution to GDP – It refers to those industries which can produce machine tools, which are in turn used for producing article for current consumption. British govt. never paid any attention in this regards as they wanted Indian people to be dependent on Britain, for the supply of capital goods and heavy equipments.

(iv) Limited area of operation / Limited role of the public sector – The public sector were remained confined only to the railways, power generation, communication, ports and some other departmental undertakings.

2.2 Main characteristics of Industrial Development during British rule -

(i) Development of consumer product industries,

(ii) Rising share of Indian capital,

(iii) Concentration of enterprises in few hands,

(iv) Dominance of foreign capital,

(v) Investment of own capital of capitalists,

(vi) Industrial policy,

(vii) Regional imbalance in industrial development.

3. Foreign Trade on the Eve of Independence - India was a trading nation before the advent of colonial rule. But due to restrictive policies adopted by the colonial government, India’s foreign trade was affected adversely. Foreign Trade conditions on the eve of independence were as follows:

(i) Export of primary products and import of finished goods – Exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and importer of finished consumer goods like cotton, silk, woolen clothes and capital goods like light machinery produced in Britain.

(ii) Monopoly control of Britain on foreign trade – More than half (>50%) foreign trade was restricted to Britain. Opening of Suez Canal in 1869 gives speed to foreign trade with Britain.

(iii) Drain of Indian wealth – Due to excess exports of raw material from India to Britain, India has a huge export surplus. However export surplus was used to:

(a) Expenditure on office setup by British Govt. in India;

(b) Meet expenses of war fought by British government;

(iv) Misuse of export surplus.

REFERENCE VIDEO LINK

2. Indian Economy on the Eve of Independence - PART 2

(Foreign Trade, Industrial Sector)

https://youtu.be/BUOxMUkVS3A

4. Demographic conditions on the eve of Independence - First Census of population of British India was made in 1881. 1921 is the year of great divide. Before 1921 India was in the first stage of demographic transition. The second stage of transition began after 1921. The population of India also decreases 1n 1921 as compared to 1911. At the time of independence, the features of demographic conditions were as follows:

(i) High birth and death rate- Birth rate refers to number of children born per thousand in a year. Death rate refers to number of people dying per thousand persons in a year. Both birth rate and death rate were very high as 48 and 40 per thousand respectively.

(ii) High infant mortality rate – It refers to infants dying before reaching one year of age per thousand live births in a year. It was 218/1000.

(iii) Low life expectancy ratio – It refers to the average number of years for which people are expected to live. It is based on the birth year, demographic factors, its age and gender. The life expectance was 44 years at the eve of independence.

(iv) Low literacy rate – Total literacy was less than 16 percent. Female literacy was about 7 %.

(v) Low standard of living and widespread poverty – There is no doubt extensive poverty prevailed in India. The standard of living of common people was very low and widespread poverty in the country.

(vi) Poor state of health facilities – Public health care facilities either unavailable to the mass or inadequate. As a result air and water born diseases were widespread.

5. Occupational structure on the eve of independence - Occupational structure refers to distribution of working population across different industries and sectors. During colonial rule, occupational structure did not change much. The state of occupational structure during the British rule was as follows :

(i) Pre-dominance of agricultural sector – This sector accounted nearly 75% share of workforce. Service and manufacturing sector accounted for remaining 25%.

(ii) Growing regional variation – The states of Tamil Nadu, Andhra Pradesh, Maharashtra, Kerala, Karnataka and west Bengal witnessed a decline in dependency of workforce on agriculture sector. However at the same time states such as Orissa, Rajasthan and Punjab reported increase in the share of workforce in agriculture.

REFERENCE VIDEO LINK

3. Indian Economy on the Eve of Independence - PART 3

(Demographic Condition, Occupational Structure)

https://youtu.be/SWpXgw458iI

6. Infrastructure on the eve of independence - Under infrastructure, we include all those industries and services which are used to develop other industries. Development of infrastructure during colonial rule was not to provide better facilities to general public but serve the British interest only. We include the following under infrastructure:

(i) Railway – Railways introduce in 1850. First passenger train (Sahib, Sindh, Sultan) with 400 passengers run between Mumbai to thane in 1853. It enabled:

(a) People to travel long distance; and

(b) Fostered commercialization of Indian agriculture.

(ii) Roads – Built primarily for the purpose of mobilizing the army within the country and send raw material to the nearest port.

(iii) Water and Air Transport – This is developed but proved uneconomical and failed to compete with railways.

(iv) Communication System – Post and telegraph were developed to maintain law and order in country. First stamp was released in 1952 and first telegraph line was started in 1953.

Reasons for Infrastructural Development –

1. Roads – The roads were built for:

(a) Mobilizing the army within India and

(b) Drawing out raw materials from countryside to the nearest ports.

2. Railways – The railways were developed for:

(a) To have effective check on the vast Indian economic territory,

(b) To make huge profit by linking railways with Indian ports.

3. Electric Telegraph – The electric telegraph was introduced at a high cost to serve the purpose of maintaining law and order.

Real motive was to serve various selfish interests of the British Government.

7. Indian Economy on the Eve of Independence –

(i) Colonial economy – They exploited Indian economy in many ways like:

(a) Facilitate growing British industries with the supply of raw materials from India;

(b) They encouraged commercialization of agriculture which has adverse impact on Indian economy.

(ii) Semi-feudal economy –

(a) The land settlement system gave birth to feudal relations between landlord and tenants. Landlords are very cruel to the cultivators and used to charge very high lagan.

(b) Establishment of modern industries led to creation of two classes – capitalist and labourers.

(iii) Backward Economy – The main reasons of backwardness are:

(a) Low level of productivity;

(b) Low per capita income;

(d) High birth rate and death rate;

(e) Mass illiteracy.

(iv) Stagnant Economy – An economy wish have very low growth rate is termed as stagnant economy. India’s growth of aggregate real output was (first half of 20^th century) was less than 2% and Per Capita Output was only 0.5%.

(v) Depleted (Depreciated) Economy – It refers to an economy, where no arrangements have been made to replace the physical assets, depreciated due to excessive use. During the second world war Indian industries had to work beyond their capacities to meet the increase demand of plant. Machinery, equipments etc for the war.

(vi) Amputated Economy – The Britishers believe in ‘divide and rule’. They always promoted discrimination between various groups on the basis of religion, race, cast, language and culture. As a result, on the eve of independence, country was geographically divided into two parts: India and Pakistan. Partition resulted shortage of raw material for jute and cotton mills as most of the cotton and jute producing areas went to East Pakistan and industries are in west Indian states.

8. Positive contribution of British rule –

(i) Self-sufficiency in food grain production,

(ii) Better means of transportation,

(iii) Check on famines,

(iv) Shift to monetary economy, and

(v) Effective administration set up.

After independence, India envisaged an economic system which combines the best features of socialism and capitalism - this culminated in the mixed economic model.

REFERENCE VIDEO LINK

1. Indian Economy on the Eve of Independence - PART 1

(Basic concept, Agriculture Sector)

https://youtu.be/a9Fb4BdGuGk

2. Indian Economy on the Eve of Independence - PART 2

(Foreign Trade, Industrial Sector)

https://youtu.be/BUOxMUkVS3A

3. Indian Economy on the Eve of Independence - PART 3

(Demographic Condition, Occupational Structure)

https://youtu.be/SWpXgw458iI

4. Indian Economy on the Eve of Independence - PART 4

(Infrastructure, Positive Contribution, Condition of Indian Economy)

https://youtu.be/3p25C0FIWIQ