Indian Economy 1947-1990

• Unit I covers the state of the Indian economy at independence and four decades after planned development (1947-90).
• The Government of India took steps like establishing the Planning Commission and announcing five-year plans.
• This unit includes an overview of the goals of these plans and a critical review of planned development's benefits and drawbacks.

Indian Economy on the Eve of Independence

• Learners will become familiar with the state of the Indian economy in 1947.
• Learners will understand the factors leading to underdevelopment and stagnation of the economy.
• The book focuses on the features of the Indian economy post-independence.
• Understanding the economic past is important for understanding the present and future of India.
• The structure of India's economy has roots in its history, especially during British rule.
• British colonial rule aimed to make India a raw material supplier for Great Britain.
• Understanding the exploitative nature of this relationship is key to assessing India's development level.

Low Level of Economic Development Under The Colonial Rule

• India had an independent economy before the British.
• Agriculture was the livelihood for most, the economy had manufacturing activities.
• India was known for its handicraft industries, including cotton and silk textiles, metalwork, and precious stones.
• These products had a worldwide market because of their high quality and craftsmanship.
• In Bengal, "Daccai Muslin" was world-renowned.
• The finest muslin was called malmal, referred to as "malmal shahi" or "malmal khas" for royalty.
• Colonial economic policies favored the home country over India.
• These policies transformed India into a raw material supplier and a consumer of British industrial products.
• The colonial government did not sincerely try to estimate India's national and per capita income.
• Individual income estimates varied.
• Notable estimators were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai.
• Rao's estimates during the colonial period were considered significant.
• Real output growth during the first half of the 20th century was less than 2%, with a roughly 0.5% per capita output growth per year.

Agricultural Sector

• India's economy was largely agrarian under British rule; 85% of the population lived in villages and depended on agriculture.
• Despite the large population, the agricultural sector stagnated and deteriorated.
• Agricultural productivity declined, despite some growth in cultivated land.
• Land settlement systems introduced by the British colonial government caused agricultural stagnation.
• The zamindari system, implemented in the Bengal Presidency, transferred profits to zamindars rather than cultivators.
• Many zamindars did not improve agriculture.
• Zamindars were only interested in collecting rent, regardless of conditions, leading to misery for cultivators.
• This attitude was due to revenue settlement terms, fixing dates for revenue deposits; failure meant losing rights.
• Low technology, lack of irrigation, and minimal fertilizer use worsened farmers' conditions.
• Higher yields were noted in some areas for cash crops due to commercialisation of agriculture.
• Farmers struggled to improve economically, producing cash crops for British industries.
• Despite irrigation progress, agriculture lacked investment in terracing, flood control, drainage, and soil desalinisation.
• A small number of farmers switched from food crops to commercial crops; tenants and sharecroppers lacked resources and incentive to invest.

Industrial Sector

• India could not develop an industrial base under colonial rule.
• Handicraft industries declined, and no modern industrial base was allowed to replace them.
• Colonial government systematically de-industrialised India for two reasons:
  • To make India an exporter of raw materials for British industries
  • To transform India into a market for finished British products
• The decline in local industries increased unemployment and created demand.
• This was satisfied by importing manufactured goods from Britain.
• Modern industry began in India in the second half of the nineteenth century, but it was slow.
• Initial development was in the cotton and jute textile mills.
  • Cotton textile mills were mainly owned by Indians and located in western parts of the country.
  • Jute mills were mainly owned by foreigners and mainly located in Bengal.
• The iron and steel industries emerged in the early twentieth century, and TISCO was incorporated in 1907.
• Other industries like sugar, cement and paper appeared after World War II.
• There was a lack of capital goods industry and this hindered further industrialisation.
• Growth in the sector remained small.
• Limited operation of the public sector, confined to railways, power, communications, ports, and departmental, was a drawback.

Foreign Trade

• India was trading nation from ancient times.
• Restrictive colonial government policies on production, trade, and tariffs.
• Altered the structure, composition, and volume of India's foreign trade.
• India became an exporter of:
  • Raw silk
  • Cotton
  • Wool
  • Sugar
  • Indigo
  • Jute
• India became an importer of:
  • Finished consumer goods, like cotton, silk, and woolen clothes
  • Capital goods like light machinery
• More than half of India's foreign trade was with Britain.
• Trade was allowed with China, Ceylon (Sri Lanka), and Persia (Iran).
• The opening of the Suez Canal intensified British control.
• An export surplus characterized during the colonial period.
• Essential commodities were scarce in the domestic market.
• The export surplus was used to pay for:
  • Expenses of the colonial government in Britain
  • Expenses on war
  • The import of invisible items
• Wealth drained from India.

Demographic Condition

• Details about British India's population were first collected via a census in 1881.
• The census revealed unevenness in India's population growth.
• India was in the first stage of demographic transition before 1921, and the second stage began after 1921.
• The total population and growth rate were not very high during this period.
• Overall literacy was under 16%, and female literacy was around 7%.
• Public health facilities were either unavailable or inadequate.
• Water and air-borne diseases were rampant causing death.
• The Infant Mortality Rate was 218 per thousand.
• Life expectancy was 32 years.
• Extensive poverty prevailed.

Occupational Structure

• India's occupational structure showed little change during the colonial period.
• The agricultural sector employed 70-75% of the workforce.
• The manufacturing and services sectors employed 10% and 15-20% respectively.
• Some parts of the Madras Presidency, Bombay and Bengal saw a decline of the workforce in the agricultural sector.
• There was an increase of workforce in agriculture in Orissa, Rajasthan and Punjab.

Infrastructure

• Basic infrastructure such as railways, ports, water transport, posts, and telegraphs developed.
• Motives for infrastructure development were for colonial interests.
• Roads served to mobilise the army and draw out raw materials.
• British introduced railways in India in 1850.
• Railways enabled people to travel and break geographical and cultural barriers.
• Railways commercialised Indian which affected the self-sufficiency of village economies in India.
• India's exports expanded, but its benefits rarely accrued to Indians.
• Inland waterways were unsatisfactory and uneconomical.
• Electric telegraph helped maintain law and order.
• Postal services remained inadequate.

Conclusion

• By independence, the impact of British colonial rule showed.
• The agricultural sector had surplus labour and low productivity.
• The industrial sector needed modernisation, capacity building, and investment.
• Foreign trade was oriented to feed the Industrial Revolution in Britain.
• Infrastructure needed upgradation, expansion, and public orientation.
• Poverty and unemployment required welfare orientation of public economic policy.
• The social and economic challenges for the country were enormous.