Indian Economy Before Independence PDF

UNIT UNIT I III DEVELOPMENT POLICIES AND EXPERIENCE (1947-90) 2024-25 The two chapters in this unit give us an overview of the state of the Indian economy as it was at the eve of independence till after four decades of planned...

UNIT UNIT I III DEVELOPMENT POLICIES AND EXPERIENCE (1947-90) 2024-25 The two chapters in this unit give us an overview of the state of the Indian economy as it was at the eve of independence till after four decades of planned development, which was a path that India chose. This meant that the Government of India had to take a series of steps such as the establishment of the Planning Commission and announcement of five year plans. An overview of the goals of five year plans and a critical appraisal of the merits and limitations of planned development has been covered in this unit. 2024-25  1 INDIAN ECONOMY ON THE EVE OF INDEPENDENCE After studying this chapter, the learners will become familiar with the state of the Indian economy in 1947, the year of India’s Independence understand the factors that led to the underdevelopment and stagnation of the Indian economy. 2024-25  “India is the pivot of our Empire... If the Empire loses any other part of its Dominion we can survive, but if we lose India, the sun of our Empire will have set.” Victor Alexander Vruce, the Viceroy of British India in 1894 1.1 INTRODUCTION own rapidly expanding modern industrial base. An understanding of The primary objective of this book, the exploitative nature of this Indian Economic Development, is to relationship is essential for any familiarise you with the basic features assessment of the kind and level of of the Indian economy, and its development which the Indian development, as it is today, in the economy has been able to attain over aftermath of Independence. However, it the last seven and half decades. 1.2 is equally important to know something about the country’s economic past even 1.2 LOW LEVEL OF ECONOMIC as you learn about its present state and DEVELOPMENT UNDER THE future prospects. So, let us first look at COLONIAL RULE the state of India’s economy prior to the India had an independent economy country’s independence and form an before the advent of the British rule. idea of the various considerations that Though agriculture was the main shaped India’s post-independence source of livelihood for most people, development strategy. yet, the country’s economy was The structure of India’s present- characterised by various kinds of day economy is not just of current manufacturing activities. India was making; it has its roots steeped in particularly well known for its history, particularly in the period when handicraft industries in the fields of India was under British rule which cotton and silk textiles, metal and lasted for almost two centuries before precious stone works etc. These India finally won its independence on products enjoyed a worldwide market 15 August 1947. The sole purpose of based on the reputation of the fine the British colonial rule in India was quality of material used and the high to reduce the country to being a raw standards of craftsmanship seen in all material supplier for Great Britain’s imports from India (See Box 1.1). Box 1.1: Textile Industry in Bengal Muslin is a type of cotton textile which had its origin in Bengal, particularly, places in and around Dhaka (spelled during the pre-independence period as Dacca), now the capital city of Bangladesh. ‘Daccai Muslin’ had gained worldwide fame as an exquisite type of cotton textile. The finest variety of muslin was called malmal. Sometimes, foreign travellers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty. 4 INDIAN ECONOMIC DEVELOPMENT 2024-25  The economic policies pursued by R.C. Desai — it was Rao, whose the colonial government in India were estimates during the colonial period concerned more with the protection was considered very significant. and promotion of the economic However, most studies did find that interests of their home country than the country’s growth of aggregate real with the development of the Indian output during the first half of the economy. Such policies brought about twentieth century was less than two a fundamental change in the structure per cent coupled with a meagre half of the Indian economy — transforming per cent growth in per capita output the country into supplier of raw per year. materials and consumer of finished industrial products from Britain. 1.3 AGRICULTURAL SECTOR Obviously, the colonial govern- ment never made any sincere India’s economy under the British attempt to estimate India’s national colonial rule remained fundamentally and p e r c a p i t a i n c o m e. Some agrarian — about 85 per cent individual attempts which were of the country’s population lived made to measure such incomes mostly in villages and derived yielded conflicting and inconsistent livelihood directly or indirectly from results. Among the notable estimators agriculture (See Box 1.2). However, — Dadabhai Naoroji, William Digby, despite being the occupation of such Findlay Shirras, V.K.R.V. Rao and a large population, the agricultural Box 1.2: Agriculture During Pre-British India The French traveller, Bernier, described seventeenth century Bengal in the following way: “The knowledge I have acquired of Bengal in two visits inclines me to believe that it is richer than Egypt. It exports, in abundance, cottons and silks, rice, sugar and butter. It produces amply — for its own consumption — wheat, vegetables, grains, fowls, ducks and geese. It has immense herds of pigs and flocks of sheep and goats. Fish of every kind it has in profusion. From rajmahal to the sea is an endless number of canals, cut in bygone ages Fig. 1.1 India’s agricultural stagnation from the Ganges by immense labour for under the British colonial rule navigation and irrigation.” Ø Take note of the agricultural prosperity in our country in the seventeenth century. Contrast it with agricultural stagnation around the time when the British left India, around 200 years later. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 5 2024-25 sector continued to experience interest of the zamindars was only to stagnation and, not infrequently, collect rent regardless of the unusual deterioration. Agricultural economic condition of the cultivators; pro-ductivity became low though, in this caused immense misery and absolute terms, the sector experienced social tension among the latter. To a some growth due to the expansion of very great extent, the terms of the the aggregate area under cultivation. revenue settlement were also This stagnation in the agricultural responsible for the zamindars sector was caused mainly because of adopting such an attitude; dates for the various systems of land depositing specified sums of revenue settlement that were introduced by were fixed, failing which the the colonial government. Particularly, zamindars were to lose their rights. under the zamindari system which Besides this, low levels of technology, was implemented in the then Bengal lack of irrigation facilities and Presidency comprising parts of negligible use of fertilisers, all added India’s present-day eastern states, up to aggravate the plight of the the profit accruing out of the farmers and contributed to the agriculture sector went to the d i s m a l level of agricultural zamindars instead of the cultivators. productivity. There was, of course, However, a considerable number of some evidence of a relatively higher zamindars, and not just the colonial yield of cash crops in certain government, did nothing to improve areas of the country due to the condition of agriculture. The main commercialisation of agriculture. Work These Out Ø Compare the map of British India with that of independent India and find out the areas that became parts of Pakistan. Why were those parts so important to India from the economic point of view? (Refer, to your advantage, Dr Rajendra Prasad’s book, India Divided). Ø What were the various forms of revenue settlement adopted by the British in India? Where did they implement them and to what effect? How far do you think those settlements have a bearing on the current agricultural scenario in India? (In your attempt to find answers to these questions, you may refer to Ramesh Chandra Dutt’s Economic History of India, which comes in three volumes, and B.H. Baden-Powell’s The Land Systems of British India, also in two volumes. For better comprehension of the subject, you can also try and develop an illustrated agrarian map of British India either by hand or with the help of your school computer. Remember, nothing helps better than an illustrated map to understand the subject at hand). 6 INDIAN ECONOMIC DEVELOPMENT 2024-25 But this could hardly help farmers in their home country — Britain. In the improving their economic condition unfolding economic scenario, the as, instead of producing food crops, decline of the indigenous handicraft now they were producing cash crops industries created not only massive which were to be ultimately used by unemployment in India but also a new British industries back home. Despite demand in the Indian consumer some progress made in irrigation, market, which was now deprived of the India’s agriculture was starved of supply of locally made goods. This investment in terracing, flood-control, demand was profitably met by the drainage and desalinisation of soil. increasing imports of cheap While a small section of farmers manufactured goods from Britain. changed their cropping pattern from During the second half of the food crops to commercial crops, a large nineteenth century, modern industry section of tenants, small farmers and began to take root in India but its sharecroppers neither had resources progress remained very slow. and technology nor had incentive to Initially, this development was invest in agriculure. confined to the setting up of cotton and jute textile mills. The cotton 1.4 INDUSTRIAL SECTOR textile mills, mainly dominated by Indians, were located in the western As in the case of agriculture, so also parts of the country, namely, in manufacturing, India could not Maharashtra and Gujarat, while develop a sound industrial base under the jute mills dominated by the the colonial rule. Even as the country’s foreigners were mainly concentrated world famous handicraft industries in Bengal. Subsequently, the iron declined, no corresponding modern and steel industries began coming up industrial base was allowed to come in the beginning of the twentieth up to take pride of place so long century. The Tata Iron and Steel enjoyed by the former. The primary Company (TISCO) was incorporated motive of the colonial government in 1907. A few other industries in the behind this policy of systematically de- fields of sugar, cement, paper etc. industrialising India was two-fold. The came up after the Second World War. intention was, first, to reduce India to However, there was hardly any the status of a mere exporter of capital goods industry to help important raw materials for the promote further industrialisation in upcoming modern industries in India. Capital goods industry means Britain and, second, to turn India into industries which can produce machine a sprawling market for the finished tools which are, in turn, used for products of those industries so that producing articles for current their continued expansion could be consumption. The establishment of a ensured to the maximum advantage of few manufacturing units here and INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 7 2024-25  Work These Out Ø Prepare a list showing where and when other modern industries of India were first set up. Can you also find out what the basic requirements are for setting up any modern industry? What, for example, might have been the reasons for the setting up of the Tata Iron and Steel Company at Jamshedpur, which is now in the state of Jharkhand? Ø How many iron and steel factories are there in India at present? Are these iron and steel factories among the best in the world or do you think that these factories need restructuring and upgradation? If yes, how can this be done? There is an argument that industries which are not strategic in nature should not continue to be in the public sector. What is your view? Ø On a map of India, mark the cotton textiles, jute mills and textile mills that existed at the time of independence. there was no substitute to the near exporter of primary products such as wholesale displacement of the raw silk, cotton, wool, sugar, indigo, country’s traditional handicraft jute etc. and an importer of finished industries. Furthermore, the growth consumer goods like cotton, silk and rate of the new industrial sector and woollen clothes and capital goods like its contribution to the Gross Domestic light machinery produced in the Product (GDP) or Gross Value Added factories of Britain. For all practical remained very small. Another purposes, Britain maintained a significant drawback of the new monopoly control over India’s exports industrial sector was the very limited area of operation of the public sector. and imports. As a result, more than This sector remained confined only to half of India’s foreign trade was the railways, power generation, restricted to Britain while the rest was communications, ports and some allowed with a few other countries like other departmental undertakings. China, Ceylon (Sri Lanka) and Persia (Iran). The opening of the Suez Canal 1.5 FOREIGN TRADE further intensified British control over India’s foreign trade (see Box 1.3). India has been an important trading The most important characteristic nation since ancient times. But the of India’s foreign trade throughout the restrictive policies of commodity production, trade and tariff pursued colonial period was the generation of by the colonial government adversely a large export surplus. But this affected the structure, composition and surplus came at a huge cost to the volume of India’s foreign trade. country’s economy. Several essential Consequently, India became an commodities —food grains, clothes, 8 INDIAN ECONOMIC DEVELOPMENT 2024-25  Work These Out Ø Prepare a list of items that were exported from and imported into India during the British rule. Ø Collect information from the Economic Survey for various years published by the Ministry of Finance, Government of India, on various items of export from India and its imports. Compare these with imports and exports from the pre-independence era. Also find out the names of prominent ports which now handle the bulk of India’s foreign trade. kerosene etc. — were scarcely available items, all of which led to the drain of in the domestic market. Furthermore, Indian wealth. this export surplus did not result in any flow of gold or silver into India. 1.6 DEMOGRAPHIC CONDITION Rather, this was used to make Various details about the population payments for the expenses incurred by of British India were first collected an office set up by the colonial through a census in 1881. Though government in Britain, expenses on suffering from certain limitations, it war, again fought by the British revealed the unevenness in India’s government, and the import of invisible population growth. Subsequently, Box 1.3: Trade Through the Suez Not to to scale scale Canal Not Suez Canal is an artificial waterway running from north to south across the Isthmus of Suez in north-eastern Egypt. It connects Port Said on the Mediterranean Sea with the Gulf of Suez, an arm of the Red Sea. The canal provides a direct trade route for ships operating between European or American ports and ports located in South Asia, East Africa and Oceania by doing away with the need to sail around Africa. Strategically and economically, it is one of the most important waterways in the world. Its opening in 1869 reduced the cost of transportation Fig.1.2 Suez Canal: Used as highway and made access to the Indian market between India and Britain easier. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 9 2024-25 every ten years such census operations particularly, the infant mortality were carried out. Before 1921, India rate was quite alarming —about 218 was in the first stage of demographic per thousand in contrast to the transition. The second stage of present infant mortality rate of 33 per transition began after 1921. However, thousand. Life expectancy was also neither the total population of India nor very low — 32 years in contrast to the the rate of population growth at this present 69 years. In the absence of stage was very high. reliable data, it is difficult to specify the The various social development extent of poverty at that time but there indicators were also not quite is no doubt that extensive poverty encouraging. The overall literacy level prevailed in India during the colonial was less than 16 per cent. Out of this, period which contributed to the the female literacy level was at a worsening profile of India’s population negligible low of about seven per of the time. cent. Public health facilities were either unavailable to large chunks of 1.7 OCCUPATIONAL STRUCTURE population or, when available, were During the colonial period, the highly inadequate. Consequently, occupational structure of India, i.e., water and air-borne diseases were distribution of working persons rampant and took a huge toll on across different industries and life. No wonder, the overall mortality sectors, showed little sign of change. rate was very high and in that, The agricultural sector accounted for Fig. 1.3 A large section of India’s population did not have basic needs such as housing 10 INDIAN ECONOMIC DEVELOPMENT 2024-25  telegraphs did develop. However, the Work These Out real motive behind this development was not to provide basic amenities to Ø Can you find out the the people but to subserve various reasons behind frequent colonial interests. Roads constructed occurrence of famines in in India prior to the advent of the India before independence? British rule were not fit for modern You may read from Nobel transport. The roads that were built Laureate Amartya Sen’s book, Poverty and Famines. primarily served the purposes of mobilising the army within India and Ø Prepare a pie chart for the occupational structure drawing out raw materials from the in India at the time of countryside to the nearest railway independence. station or the port to send these to far away England or other lucrative foreign destinations. There always the largest share of workforce, which remained an acute shortage of all- usually remained at a high of 70-75 weather roads to reach out to the per cent while the manufacturing and rural areas during the rainy season. the services sectors accounted for only Naturally, therefore, people mostly 10 and 15-20 per cent respectively. living in these areas suffered Another striking aspect was the grievously during natural calamities growing regional variation. Parts and famines. of the then Madras Presidency The British introduced the (comprising areas of the present-day railways in India in 1850 and it is states of Tamil Nadu, Andhra considered as one of their most Pradesh, Kerala and Karnataka), important contributions. The Bombay and Bengal witnessed a railways affected the structure of the decline in the dependence of the Indian economy in two important workforce on the agricultural sector ways. On the one hand it enabled with a commensurate increase in the people to undertake long distance manufacturing and the services travel and thereby break sectors. However, there had been an geographical and cultural barriers increase in the share of workforce in while, on the other hand, it fostered agriculture during the same time in commercialisation of Indian states such as Orissa, Rajasthan and agriculture which adversely affected Punjab. the self-sufficiency of the village economies in India. The volume of 1.8 INFRASTRUCTURE India’s exports undoubtedly Under the colonial regime, basic expanded but its benefits rarely infrastructure such as railways, accrued to the Indian people. ports, water transport, posts and The social benefits, which the INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 11 2024-25  Fig. 1.4 First Railway Bridge linking Bombay with Thane, 1854 Indian people gained owing to the introduction of the railways, were Work This Out thus outweighed by the country’s huge economic loss. Ø There is a perception still Along with the development of going around that in roads and railways, the colonial m a n y ways the British dispensation also took measures for administration in India was quite beneficial. This developing the inland trade and sea perception needs an lanes. However, these measures were informed debate. How far from satisfactory. The inland would you look at this waterways, at times, also proved perception? Argue this uneconomical as in the case of the out in your class — ‘Was Coast Canal on the Orissa coast. the British Raj good for Though the canal was built at a huge India’? cost to the government exchequer, yet, it failed to compete with the railways, which soon traversed the region running parallel to the canal, and had to be ultimately abandoned. The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order. The postal services, on the Fig.1.5 Tata Airlines, a division of Tata and other hand, despite serving a useful Sons, was established in 1932 inaugurating the aviation sector in India public purpose, remained all through inadequate. 12 INDIAN ECONOMIC DEVELOPMENT 2024-25 1.9 CONCLUSION investment. Foreign trade was oriented to feed the Industrial Revolution in By the time India won its independence, Britain. Infrastructure facilities, the impact of the two-century long including the famed railway network, British colonial rule was already needed upgradation, expansion and showing on all aspects of the Indian economy. The agricultural sector was public orientation. Prevalence of already saddled with surplus labour rampant poverty and unemployment and extremely low productivity. The required welfare orientation of public industrial sector was crying for economic policy. In a nutshell, the modernisation, diversification, capacity social and economic challenges before building and increased public the country were enormous. Recap Ø An understanding of the economy before independence is necessary to know and appreciate the level of development achieved during the post- independence period. Ø Under the colonial dispensation, the economic policies of the government were concerned more with the protection and promotion of British economic interests than with the need to develop the economic condition of the colonised country and its people. Ø The agricultural sector continued to experience stagnation and deterioration despite the fact that the largest section of Indian population depended on it for sustenance. Ø The rule of the British-India government led to the collapse of India’s world famous handicraft industries without contributing, in any significant manner, to its replacement by a modern industrial base. Ø Lack of adequate public health facilities, occurrence of frequent natural calamities and famines pauperised the hapless Indian people and resulted in engendering high mortality rates. Ø Some efforts were made by the colonial regime to improve infrastructure facilities but these efforts were spiced with selfish motives. However, the independent Indian government had to built on this base through planning. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 13 2024-25  EXERCISES 1. What was the focus of the economic policies pursued by the colonial government in India? What were the impacts of these policies? 2. Name some notable economists who estimated India’s per capita income during the colonial period. 3. What were the main causes of India’s agricultural stagnation during the colonial period? 4. Name some modern industries which were in operation in our country at the time of independence. 5. What was the two-fold motive behind the systematic de- industrialisation effected by the British in pre-independent India? 6. The traditional handicrafts industries were ruined under the British rule. Do you agree with this view? Give reasons in support of your answer. 7. What objectives did the British intend to achieve through their policies of infrastructure development in India? 8. Critically appraise some of the shortfalls of the industrial policy pursued by the British colonial administration. 9. What do you understand by the drain of Indian wealth during the colonial period? 10. Which is regarded as the defining year to mark the demographic transition from its first to the second decisive stage? 11. Give a quantitative appraisal of India’s demographic profile during the colonial period. 12. Highlight the salient features of India’s pre-independence occupational structure. 13. Underscore some of India’s most crucial economic challenges at the time of independence. 14. When was India’s first official census operation undertaken? 15. Indicate the volume and direction of trade at the time of independence. 16. Were there any positive contributions made by the British in India? Discuss. 14 INDIAN ECONOMIC DEVELOPMENT 2024-25  SUGGESTED ADDITIONAL ACTIVITIES 1. Prepare a list of goods and services that were available to people in pre-independence India in rural and urban areas. Compare it with the consumption pattern of such goods and services by the people today. Highlight the perceptible difference in the people’s standard of living. 2. Find pictures of towns/villages, in your vicinity, of the pre- independence period and compare these with their present scenario. What changes can you mark? Are such changes for better or for worse? Discuss. 3. Rally around your teacher and organise a group discussion on ‘Has the zamindari system really been abolished in India’? If the consensus is negative, then what measures would you think should be taken to banish it and why? 4. Identify the major occupations followed by the people of our country at the time of independence. What major occupations do the people follow today? In the light of reform policies, how would you visualise the occupational scenario in India 15 years from now — say, 2035? REFERENCES BADEN-POWELL, B.H. 1892. The Land Systems of British India, Vols I, II and III. Oxford Clarendon Press, Oxford. BUCHANAN, D.H. 1966. Development of Capitalist Enterprise in India. Frank Cass and Co, London. CHANDRA, BIPAN. 1993. ‘The Colonial Legacy’ in Bimal Jalan (Ed.), The Indian Economy: Problems and Prospects. Penguin Books, New Delhi. D UTT, R.C. 1963. Economic History of India, Vols I and II. Ministry of Information and Broadcasting, Government of India, New Delhi. KUMAR, D. AND MEGHNAD DESAI (Eds.). 1983. Cambridge Economic History of India. Cambridge University Press, Cambridge. M ILL, JAMES.1972. History of British India. Associated Publishing House, New Delhi. PRASAD, RAJENDRA. 1946. India Divided. Hind Kitabs, Bombay. SEN, AMARTYA. 1999. Poverty and Famines. Oxford University Press, New Delhi. Government Reports Economic Survey (for various years). Ministry of Finance, Government of India. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE 15 2024-25