Indian Economy on the Eve of Independence

Introduction (Indian Economy on the Eve of Independence):

The advent of colonial rule of the British over India can be traced back to the establishment of the East India Company, after the Battle of Plassey, in the year 1757. With this slowly and gradually the British spread their dominance over India and by 1858, entire India was under the spell of colonial rule.

The British rule left a deep impact on the Indian economy. A point worth noting is that the colonial rule in India coincided with the process of industrialization in Britain. Thus, the policies framed and followed by the British Government were mainly to compliment or to serve the industrialization process in Britain.

In this regard, the sole aim of the Colonial government was to reduce India to a mere supplier of raw material for their own thriving industrial base. The policies were concerned mainly with the fortification and advancement of their home country. They followed highly exploitative policies and were only concerned with their self-economic interest, while the interest of the Indian economy was completely ignored. Such policies left a deep impact on the Indian economy. Thereby, the structure of the Indian economy changed completely.

Policies followed by the Colonial government

Transforming agriculture sector as a mere supplier of raw material: The British forced the production of only those agricultural items that could serve as raw material for the products of the British industries. For example, they enforced the production of jute and indigo instead of food grains. Such a policy adversely affected the Indian agriculture sector. Indians who earlier were self-sustained in the production of food grains, now suffered on account of their shortage.

Land settlement system: In the agriculture sector, the system of land settlement, in the form of the Zamindari System was introduced. This system was introduced by Lord Cornwallis in Bengal in 1793. Under this system, the Zamindars (or, the landlords) were under an obligation to pay a fixed sum of revenue to the British Government. However, the Zamindars fulfilled their obligation to pay the rent to the British Government by collecting huge rent from the peasants.

Commercialization of agriculture: Besides the Zamindari system, the British introduced the system of commercialization in agriculture. Indian farmers were forced to produce cash crops such as cotton, indigo, jute, etc. instead of food grains. These cash crops served as raw material to Britain’s industrial base.

Systematic deindustrialization: Similar to the agriculture sector, in the industrial sector as well the British Government followed such policies that suited their own interest. The Colonial government followed the policy of systematic deindustrialization. Under this policy, it allowed free export of Indian raw materials to Britain and free imports of British products to India. On the other hand, exports of Indian handicrafts were subject to heavy tariffs.

Monopoly control over trade: In the foreign trade sector, Britain maintained monopoly control over India’s export and import. More than half of India’s foreign trade was restricted to Britain. To further broaden the exploitative control, the British modified the trade policies in accordance with the interests of their home country. In addition to the direction of foreign trade, they also affected the composition of the trade from India.

Major Features of Indian Economy on the Eve of Independence

As a consequence of British rule, the Indian economy experienced drastic changes in its structure. Their exploitative rule hampered almost every sphere of the Indian economy. As a result of which on the Eve of Independence, the Indian economy was in a state of complete deterioration.

Features of Indian Economy on the Eve of Independence #1

The backwardness of Indian agriculture: The Indian economy on the Eve of Independence was mainly an agrarian economy, employing nearly 85% of the population. However, despite employing such a large section of the population, the agriculture sector suffered from low productivity. Even while the area under cultivation was large, the level of output remained dismally low. The production was sufficient only for the self-consumption of the farmers and hardly anything was left to be sold in the market. The low level of production can be sensed from the reports of economic survey 2008-09.

According to the survey, the production of rice in 1947 was 20 times lower than its level in 2008. Similarly, the productivity of wheat was 4 times lower in 1947 than its level in 2008. Moreover, the agriculture sector was deprived of any of the modern techniques. The use of chemical fertilizers, irrigation facilities, etc. was very limited. Thus, the production in this sector was mainly dependent on the monsoon. In times of good monsoon, the production was high and in times of poor monsoon, the production was low. In addition to this, under the land revenue system as introduced by the British, there was large-scale exploitation of poor peasants at the hands of Zamindars (landlords).

Peasants and cultivators were forced to pay huge rent to the landlords. However, on the other hand, the landlords did nothing to improve the condition of agriculture. In other words, it can be said that there existed a gap between the owners of land and the actual cultivators of land. That is, the owners of land neither participated in the work of actual cultivation in the fields nor did anything to improve the condition of the cultivators.

This resulted in backwardness and stagnation in agriculture. In addition, this sector also suffered from a lack of organized markets. This implied that the farmers could sell their output only through the channel of middleman. The middlemen purchased the crops from the farmers at a low price and sold the same crops in the market at a very high price. This meant that the farmers could not get the actual worth for their crops.

Thus, such a system resulted in the exploitation of poor farmers. To sum up, the agricultural sector suffered from various setbacks, immediately on the Eve of Independence. Thus, India required reforms in the form of abolition of the Zamindari system, land reforms, reduction in inequality of land ownership, and upliftment of peasants.

Features of Indian Economy on the Eve of Independence #2

Infant industrial sector: Under colonial rule, India could not develop a sound industrial base. British followed the deliberate policy of systematic deindustrialization. Under this policy, it allowed free export of Indian raw material to Britain and free imports of British products to India. On the other hand, exports of Indian handicrafts faced heavy tariff rates. Such a policy had a dual impact on handicrafts.

While in the domestic market they faced stiff competition from the machine-made products from Britain, on the other hand, in the foreign market their demand fell due to increased prices as a result of the high tariff rates. Thus, India’s traditional handicrafts sector suffered a huge setback.

Furthermore, no attempt was ever made to improve the investment in modern industries. India faced a lack of modern industries. Although a few industries such as the textile mill, Tata Iron and Steel (in 1907), and a few papers and sugar mills were established in the country, their progress remained marginal. Moreover, the industrial sector suffered from a lack of capital goods industry. This meant that there was little scope for further industrialization in the country.

Thus, while on one hand, the handicrafts sector was on the verge of depletion, on the other hand, nothing could be done to revive the modern industries. The growth of the industrial sector can be rightly termed sluggish. Besides, another setback suffered by the industrial sector was the limited role of the public sector. The public sector operated only in some of the key areas such as railways, power generation, development of ports, and mass communication.

Thus, on the Eve of Independence, India faced a meager industrial sector employing only nearly 10% of the total workforce and a negligible contribution to the Gross Domestic Product. Thus, on the Eve of Independence, there was a need to revive the industrial sector by augmenting the capital goods industries and increasing the role of the public sector so as to provide a boost to the growth of this sector.

Features of Indian Economy on the Eve of Independence #3

Regressed state of foreign trade: India enjoyed great importance in world trade during ancient times. Indian cotton silk textile, gems, and precious stones, ivory work, etc. were world-famous. However, with the colonial rule, the structure, composition, and volume of India’s foreign trade were adversely affected. The British followed restrictive trade and tariff policies and maintained monopoly control over India’s foreign trade. India was converted into an exporter of primary products, which served as cheap raw material to Britain’s industrial base. In turn, India was made to import finished machine-made products from Britain. It was accounted that more than fifty percent of India’s foreign trade was
restricted to Britain.

An interesting aspect of India’s foreign trade during colonial rule was that India enjoyed a huge export surplus. However, this export surplus was generated from the export of primary products. This was an indication of a low level of development in the country.

Due to exports, India faced a shortage of these goods in the domestic market, while Britain’s industries flourished. Also, the revenue generated from this export surplus was never used to develop the domestic economy, rather, was only used to finance Britain’s administrative and war expenditure.

Thus, it can be said that although on the Eve of independence, India faced a flourishing trade sector, but was not a beneficiary of this.

Features of Indian Economy on the Eve of Independence #4

Sound infrastructure: One cannot deny the fact that under colonial rule, India benefited in terms of the development of infrastructure, even if it was mainly to serve the colonial interests. British developed basic infrastructure such as railways, ports, water transport, posts, and telegraphs. Among these, the development of railways was their most important contribution.

At the time of Independence, the total railway length in India was 50,100 km. Railways positively affected the Indian economy. It facilitated long-distance travel and broke social and cultural barriers. Moreover, easy transportation encouraged the commercialization of agriculture. This was because the agricultural products could now be easily transported to the ports which were then exported to Britain.

Thus, owing to increased transportation the volume of exports expanded. Apart from roads and railways, the British initiated the development of other infrastructure as well such as power, irrigation, and telegraph facilities. In 1950-57, the total power generation in India was 6.6 billion kWh. As regarding irrigation, 17.7% of the total net sown area came under irrigation. However, the state of health facilities and education remained critical and were inadequate.

Features of Indian Economy on the Eve of Independence #5

Unbalanced occupation structure: The occupational structure in India, on the Eve of Independence, can be rightly termed as unbalanced. Agriculture was the main source of occupation in India and employed nearly 75% of the population. As against this, the manufacturing and service sectors employed only 10% and 15% of the total workforce respectively.

Thus, while on one hand, the agricultural sector was relatively developed, the industrial sector was at an infant stage. Besides the variation in the employment in different sectors, there was regional variation in the occupational structure as well. While on one hand, states such as Tamil Nadu, Andhra Pradesh, Bombay, and West Bengal experienced a fall in agricultural workforce, on the other hand, states such as Orissa, Rajasthan, and Punjab experienced a rise in the agricultural workforce.

Features of Indian Economy on the Eve of Independence #6

Poor demographic profile: On the demographic front, the condition of India was very poor. India was experiencing a very high birth rate as well as a high death rate. The birth rate stood at 48 per thousand while the death rate stood at 40 per thousand. Such a high birth rate and high death rate at the time of Independence indicate that the population growth was stagnant. Moreover, India performed badly in terms of social indicators of infant mortality rate and life expectancy. The infant mortality rate was as high as 218 per thousand. Life expectancy was only 32 years. Another indicator of the poor demographic profile was the low level of literacy rate. The literacy rate was at a low level of 16%. The female literacy rate was still lower at 7%. Thus, on the Eve of Independence, due attention was required to improve the demographic profile of the country.

Features of Indian Economy on the Eve of Independence #7

Poverty and inequality: The colonial rule left the population of India in a poor and impoverished state. The policies followed by the British in the agriculture sector in the form of the Zamindari system and commercialization of agriculture highly exploited the cultivators and peasants and led them to indebtedness. As a result, the farmers that formed the mass of the population of India were in a state of extreme poverty. On the other hand, there were the Zamindars that prospered under colonial rule and accumulated huge wealth. As a result, there existed high-income inequality in the country.


Thus, it can be said that the Indian economy on the Eve of Independence, was in a deteriorated and depressed state. Hence, India faced the acute challenge of pulling up the economy from its dismal state and reviving its growth.

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Main sectors of Indian economy

The main sectors of the Indian economy are the Services. In the last few decades, the development of the primary and secondary sectors has resulted in the rise of several services which are required for the smooth functioning of these sectors such as banking, transport, and insurance.

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