Indian Economy: Independence to Planned Development

• Two chapters offer an overview of India's economy from independence to four decades of planned development.
• The Indian government took steps like establishing the Planning Commission and announcing five-year plans
• Goals of five-year plans and a critical look at planned development are covered.

Indian Economy on the Eve of Independence

• This aims to familiarize one with the state of the Indian economy in 1947.
• Understanding the factors that led to underdevelopment and stagnation

Introduction

• Indian Economic Development aims to familiarize with the basic features of the Indian economy and its development after independence.
• Understanding the country's economic past is vital for learning about its present and future.
• India's economy shifted due to considerations that shaped India's post-independence development strategy.
• India was under British rule for about two centuries before independence on August 15, 1947.
• The British aimed to make India a raw material supplier for their industrial base
• Understanding this exploitative relationship is key to assessing India's development in the last seven decades.

Low Level of Economic Development Under The Colonial Rule

• India had an independent economy before British rule with manufacturing alongside agriculture.
• India was known for its handicraft industries like cotton, silk textiles, metal, and precious stone work.
• These products had a global market due to their quality and craftsmanship.
• Muslin is a cotton textile originating from Bengal known as 'Daccai Muslin' gained global fame
• The finest muslin were called malmal also referred to as malmal shahi or malmal khas worn by royalty.

Economic Policies

• Economic policies by the colonial government in India prioritized the economic interests of their home, not India.
• Policies transformed India into a raw material supplier and a consumer of finished British products.
• The colonial government didn't sincerely calculate India's national and per capita income.
• Individual income estimates gave conflicting results.
• Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai estimated incomes
• Rao's colonial period estimates were highly regarded
• Studies found the country's aggregate real output grew less than 2% in the first half of the 20th century
• Studies found meagre 0.5% growth in per capita output per year.

Agricultural Sector

• India's economy was primarily agrarian under British rule, with about 85% living in villages and depending on agriculture
• Bengal in the 17th century was rich and exported cottons and silks, rice, sugar, and butter
• Bengal produced wheat, vegetables, grains, fowls, ducks, and geese for consumption
• Bengal had herds of pigs, sheep, and goats with an abundance of fish
• There were canals from rajmahal to the sea cut by labour for navigation and irrigation
• The agricultural sector stagnated and deteriorated with unusual decline
• Low agricultural productivity occurred despite some growth in cultivated area
• The stagnation in agriculture was due to land settlement systems by the colonial government
• The zamindari system in Bengal gave profits to zamindars, not cultivators
• Zamindars did little to improve agriculture with rent collection of primary importance over economics
• Revenue settlement terms made zamindars collect revenue with fixed dates and at the expense of their rights
• Low technology, lack of irrigation, and negligible fertilizer use worsened farmers' plight
• There was higher yield rates in areas of the country due to commercialisation of agriculture with cash crops

Industrial Sector

• The Tata Iron and Steel Company (TISCO) was incorporated in 1907.
• India couldn't develop a strong industrial base under colonial rule.
• As India's handicraft industries declined, no modern industrial base replaced them.
• The colonial government de-industrialised India to make it an exporter of raw materials for Britain
• Colonial rule turned country into a market for finished products from those industries
• Decline of the indigenous handicraft industries created unemployment and new demand in the Indian consumer market
• The new demand was profitably met by increasing imports of cheap manufactured goods from Britain.
• Modern industry began slowly in India during the second half of the 19th century
• Initial development was confined to cotton and jute textile mills
• Cotton textile mills, run by Indians, were in western India like Maharashtra and Gujarat
• Jute mills, run by foreigners, were mainly in Bengal
• Iron and steel industries came up in the early 20th century
• Some industries like sugar, cement, and paper came up after World War II.
• There little to no capital goods industry to promote more industrialisation in India.
• Capital goods industry produces machine tools for producing other articles.

Foreign Trade

• India has been a trading nation since ancient times.
• Restrictive policies by the colonial government affected India's foreign trade structure, composition, and volume.
• Eventually the country became an exporter of raw materials and and importer of finished consumer and capital goods from Britain.
• Britain monopolized India's exports and imports.
• Over half of India's foreign trade was with Britain which the remainder with China, Ceylon, and Persia.
• The opening of the Suez Canal intensified British control over India's foreign trade
• Suez Canal runs north to south across the Isthmus of Suez in north-eastern Egypt
• Canal connects Port Said on the Mediterranean Sea with the Gulf of Suez.
• Canal gives a direct trade route for ships going between European and American ports and ports in South Asia, East Africa and Oceania.
• The most important feature of India's foreign trade was its large export surplus.
• The surplus was at a huge cost to the country's economy leading to commodities becoming scarcely available
• This export surplus was used for expenses incurred by the colonial government in Britain which led to drain of Indian wealth.

Demographic Condition

• Population details of British India were first collected through a census in 1881
• The data revealed uneven population growth.
• Before 1921, India was in the first stage of demographic transition, and transition began after 1921 after the second stage
• Neither India's total population nor its growth rate was very high in the first stage
• Social development indicators were not very encouraging with literacy less than 16% and female literacy about 7%
• Public health facilities were unavailable or inadequate.
• Water and air-borne diseases were common with a high mortality rate
• Infant mortality rate was about 218 per thousand
• Life expectancy was very low was at 32 years.
• Extensive poverty prevailed contributing to the worsening profile of India's population.

Occupational Structure

• India's occupational structure showed little change during the colonial period
• Agriculture accounted for 70-75% of the workforce
• Manufacturing and services accounted for 10% and 15-20% respectively.
• Regional variation occurred in the Madras Presidency, Bombay and Bengal with declines in agricultural workforce
• During the same time there has been an increase in share of workforce in agriculture in Orissa, Rajasthan and Punjab

Infrastructure

• Basic infrastructure developed under the colonial regime including railways, ports, water transport, posts and telegraphs
• Development was to serve colonial interests of providing basic amenties to the population
• Roads served to mobilize the army and extract raw materials.
• There shortages of all-weather roads hindered access to rural areas.
• Railways were introduced by the British in 1850
• Railways helped in long distance travel and break geographical and cultural barriers
• Adoption of railways fostered commercialisation with a decline in the self-sufficiency of the village economies in India
• India's exports increased but without benefits for the Indian people.
• Inland waterways were unsatisfactory and uneconomical
• The electric system was installed for purposes of maintaining law and order
• The postal services remained inadequate.

Conclusion

• By independence, the British had a strong impact on all aspects of the Indian economy
• The agricultural sector faced surplus labor and low productivity.
• The industrial sector needed modernisation, diversification, capacity building, and more public investment
• Foreign trade was oriented to feeding the Industrial Revolution in Britain.
• Infrastructure needed improvements, expansion, and public control
• Rampant poverty and unemployment necessitated public economic policy focused on welfare.
• The social and economic challenges were enormous.