Indian Economy prior to British Rule

Features of Indian Economy before British rule:

India economy was a vibrant and prosperous economy.

Agriculture sector was self contained.

Cultivators were owners of land.

Industrial sector was famous throughout the world for Handicraft.

export enjoyed global reputation.

Silk, cotton textile (‘Daccai Muslin1 had gained fame as an exquisite type of cotton textile and was exported to
Europe, Middle East, and other markets, in the 17th and 18th centuries) and metal and precious stonework were
famous for their fine quality and excellent craftsmanship.

Features of Indian Economy on the eve of Independence

Stagnant Economy: A stagnant economy is one which is growing at a very low rate. On the eve of
independence, Indian economy was a stagnant economy as country's growth of aggregate real output during the
first half of 20th century was less than 2% and growth in per capita output was only 0.5%.
No sincere attempt was made by the British Government to estimate India's national and per capita income.
Some individual attempts were made by experts like Dadabhai Naoroji, William Digby, Findlay Shirras,
V.K.R.V. Rao and R.C. Desai. But, all these estimates produced conflicting and inconsistent results.
However, estimates of Dr. Rao on national and per capita incomes were considered very significant.
Backward Economy: Bulk of population was poor, without sufficient food, clothing and shelter. Presence
of widespread unemployment.
The main reasons for the backwardness of Indian economy were:
• Low level of productivity;
• Low per capita income;
• Traditional methods of agriculture;
• High birth and death rate;
• Mass illiteracy.
Dominance of Agriculture: Nearly 72% of country's working population was engaged in agriculture.
Contribution o f agriculture sector in GDP was only 50 %. This sector suffered from low productivity.

Bleak Industrialization: Well known Handicraft industry was systematically destroyed by Discriminatory
British policies. Small scale cottage industries were almost ruined. Bulk of capital goods requirement were
dependent upon imports from Britain.

Heavy dependence on Imports: The country was heavily dependent upon imports, particularly for machinery ,
defense equipment, medicines, bicycles etc.

Limited Urbanization: Only 15 % of population of in India lived in urban areas , which lacked opportunities
outside agriculture.
Semi feudal economy : In feudal economy means of production are under political domination. On the eve of
independence it was a mixed economy which lead to low productivity.

Famines: From 1760 till 1943 India was hit by terrible famines on a regular basis.

Agriculture sector on the Eve of Independence: Despite being the main occupation for the majority of the
country's population during British rule, the agriculture sector continued to experience stagnation and
deterioration.

Low productivity: though agriculture productivity became low however in absolute terms, the agriculture
sector experienced some growth due to expansion of the aggregate area under cultivation.

Reasons for the Agriculture stagnation:

Land Settlement System:

The most important reason for stagnation in agricultural sector was the introduction of ‘Zamindari System' by
the colonial government.
• Under this system, profits accruing out of agricultural sector went to the zamindars in the form of 'lagaan'.
• The main interest of the zamindars was only to collect lagaan regardless of the economic condition of the
cultivator.
• The dates for depositing specified sums of lagaan to British Government were also fixed, failing which the
zamindars were to lose their rights.
• The zamindars and the colonial government did nothing to improve the condition of agriculture.
Tillers were reduced to he status of landless laborers.

Commercialisation of Agriculture: Commercialization of agriculture means production of crops for sale in the
market rather than for self consumption.
•farmers were given higher price for producing cash crops, like cotton or jute. However, this could hardly help
farmers in improving their economic condition because instead of producing food crops, they were producing
cash crops, which were to be ultimately used as raw material by the British Industries.
• Commercialisation of Indian agriculture adversely affected the self-sufficiency of village economies in India.
• This fall in production of food crops was responsible for frequent famines in India during the British days.
Low level of Productivity: Low levels of technology, lack of irrigation facilities** and negligible use of
fertilizers resulted in low level of productivity.
• The cultivator had neither the means nor any incentive to invest in agriculture.
• while the British rule spent little on agricultural, technical or mass education.
• All this made it difficult to introduce modern technology, which caused low level of productivity.
Lack of Resources and incentives: India's agriculture was facing scarcity of investment in terracing, flood-
control and drainage. Although some farmers changed their cropping pattern from food crops to commercial
crops, a large section of tenants, small farmers and sharecroppers* neither had resources and technology nor had
incentive to invest in agriculture.
Adverse Effect of Partition: Highly irrigated and fertile land went to Pakistan. The whole jute producing area
became the part of east Pakistan. Rich food producing areas of Punjab and Sindh went to Pakistan. This
aggravated the food crisis in the country.
Gulf between owner of the soil and tiller of the soil: The owners shared the output, they hardly shared the
cost of production. they were merely interested in maximizing their rental income. the tillers of the soil were
merely given enough for subsistence.
Small and Fragmented land holding: there were small and scattered pieces of land holdings,
accordingly ,most land holdings were uneconomic. Farming was taken mostly as a mean of subsistence.
Industrial sector on the Eve of Independence:
De-industrialization: Systematic deindustrialization term describes the status if industrial sector during British
rule
Two fold Motive: (i) To get raw materials from India at cheap rates to be used by upcoming modern industries
in Britain;
(ii) To sell finished products of British industries in Indian market at higher prices.
1. De-industrialisation — Decline of Handicraft Industry: British Government systematically destroyed Indian
handicraft industries and no modern industrial base was allowed to come up.
Reasons for Decline of Handicraft Industry
'Discriminatory Tariff Policy' by the colonial government, according to which:
• There was Duty-free export of raw materials from India; and
• There was Duty-free import of final goods of British industry to India;
• But, heavy duty was imposed on the export of Indian handicrafts.
As a result, Indian markets were full of finished goods from Britain.
Adverse effects of decline of Handicraft Industry: Decline of handicraft industries adversely affected the
Indian economy in the following ways:
(i) High Level of Unemployment: : The decline of Indian handicrafts resulted in unemployment on a mass scale.
The displaced artisans were forced to take up agriculture for their livelihood. This increased the burden of
population on villages and over-crowding in agriculture.
(ii) Import of Finished Goods: The Indian made goods could not withstand the foreign competition of machine
made cheap goods. It resulted in the new demand in Indian consumer market, which was not fulfilled through
locally made goods. Rather, this demand was profitably met by increasing imports of manufactured goods from
Britain.
Lack of Capital Goods Industries: During the British rule, there was hardly any capital goods industry to
promote further industrialisation in India.
-British rulers did not pay any attention for their promotion as they always wanted Indians to be dependent on
Britain, for the supply of capital goods and heavy equipments.
-Five observation need to be noted:
-Cotton and Jute textile mills were setup. Cotton mills were located in Maharashtra and Gujrat and controlled by
Indians. Jute industries concentrated in Bengal and controlled by foreigners.
-Iron and Steel industry came up. TISCO was incorporated in 1907.
-Tata Airlines was established inaugurating the aviation sector in 1932.
-After II World war Cement, paper and sugar industries started.
4. Low contribution to Gross Domestic Product (GDP): The growth rate of the new industrial sector and its
contribution to the GDP or Gross Value Added (GVA) remained very small.
5. Limited role of Public Sector: The limited area of operation of the public sector was also a significant reason
for drawback of the industrial sector. The Public sector remained confined only to the railways, power
generation, communications, ports and some other departmental undertakings.
Foreign Trade on the Eve of Independence:
the restrictive policies adopted by the colonial government adversely affected the structure, composition and
volume of India's foreign trade.
In 1869, the Suez Canal was opened, greatly reducing the distance between Britain and India which reduced the
cost of transportation and made access to the Indian market easier.
The state of India's foreign trade during British rule is discussed as under:
1. Exporter of Primary Products and Importer of Finished Goods: India became an exporter of primary products
such as raw’ silk, cotton, wool, sugar, indigo, jute, etc.. this limited India's ability to earn foreign exchange and
hindered the development of a self reliant industrial base. and an importer of finished consumer goods like
cotton, silk and woolen clothes and capital goods like light machinery, produced in the British Industries.
2. Monopoly Control of British Rule: British Government maintained a monopoly control over India's exports
and imports.
• More than 50% of India's foreign trade was restricted to Britain while the rest was allowed with few other
countries like China, Ceylon (Sri Lanka) and Persia (Iran).
• The opening of the Suez Canal in 1869 served as a direct route for the ships operating between India and
Britain which intensified the control on foreign trade of India.
India's imports provided a huge market for British Industry.
3. Drain of Indian wealth during British rule: Under the British rule, India became an exporter of primary
products (raw material) and an importer of finished goods.
Export of primary goods is a sign of economic backwardness.
Despite surplus trade , supplies of several essential commodities like food grains, clothes remained deficient in
the domestic market.
There was huge export surplus due to excess exports. However, export surplus was used:
(i) To make payments for expenses incurred by an office set up by the colonial government in Britain.
(ii) To meet expenses on war fought by the British government.
(iii) To import invisible items.
DEMOGRAPHIC CONDITION
Official Census: The first official census was conducted in the year 1881.
1921: Year of the Great Divide: Before 1921, India was in the first stage of demographic transition with very
high birth and high death rates. Withs the beginning of decline in death rates The second stage of transition
began after 1921. So, the year 1921 is described as the 'Year of the Great Divide'.
High Birth Rate and Death Rate:
birth rate and death rate were very high at nearly 48 and 40 per thousand respectively which suggest a state of
massive poverty in the country.
High Infant Mortality Rate: Infant mortality rate refers to number of infants dying before reaching one year of
age per 1,000 live births in a year. The infant mortality rate was quite alarming - about 218 per thousand, in
contrast to the infant mortality rate of 33 per thousand in 2017, 32 per thousand in 2018 and 27 (approx.) per
thousand in 2022.
Low Life Expectancy: Life Expectancy refers to the average number of years for which people are expected to
live. Life expectancy was also very low - 32 years, in contrast to the present 69 years.
Extremely Low Literacy rate: The overall literacy level was less than 16%. Out of this, the female literacy
level was at a negligible low of about 7%.
Poor Health facilities: Public health facilities were either unavailable to large mass of population or, when
available, were highly inadequate. As a result, water and air-borne diseases were widespread and took a huge
toll on life.
Widespread Poverty: There was no reliable data about the extent of poverty. But, there is no doubt that
extensive poverty prevailed in India during the colonial period. The overall standard of living of common
people in India was very low and there was widespread poverty in the country.
OCCUPATIONAL STRUCTURE:
Occupational structure refers to distribution of working persons across primary, secondary and tertiary (service)
sectors of the economy.
Agriculture - The principal source of Occupation: About 72.7 per cent of working population was engaged in
primary sector with agriculture as its principal component.
Industry- An insignificant source of occupation: Barely 9.0 per cent of working population in India was
engaged in manufacturing industries, mining etc.
Growing regional variation- The states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra and
West Bengal witnessed a decline in dependence of workforce on the agricultural sector with a commensurate
increase in the manufacturing and service sector.
• However, during the same time, there had been an increase in the share of workforce in agriculture in states
such as Orissa, Rajasthan and Punjab.
INFRASTRUCTURE:
The infrastructure facilities during British rule were very poor. Some efforts were made to develop basic
infrastructure like roads, railways, ports, water transport, posts and telegraphs. But, the main motive behind
such infrastructural development was to serve various colonial interests.
1. Roads: The colonial administration could not accomplish much on construction of roads due to scarcity of
funds.
• The roads that were built, primarily served the interests of mobilizing the army within India and
Drawing out raw material from the countryside to the nearest railway station or the port to send these to far
away England or other foreign countries.
• There always remained an acute shortage of all weather roads to reach out to rural ' areas during the rainy
season. As a result, people living in these areas suffered badly during natural calamities and famines.
Railways: The most important contribution of the British rule was to introduce railways in India in 1850. The
railways affected the structure of the Indian economy in two important ways:
(i) Railways enabled people to undertake long distance travel. It broke geographical and cultural barriers and
promoted national integration.
(ii) It enhanced commercialization of Indian agriculture, which adversely affected the comparative self-
sufficiency of the village economies in India.
Railways also promoted the foreign trade but it benefited the Britishers more than the Indians. The construction
of railways led to huge economic losses to the Indian economy. India's First Passenger Train ran from
Bombay to Thane, a distance of 34 km on 16th April, 1853
Communication: Posts and telegraphs were the most popular means of communication.
• The introduction of the expensive system of electric telegraph in India served the purpose of maintaining law
and order.
• The postal services, despite serving a useful public purpose, remained all through inadequate.
Reasons for Infrastructural Development
The basic objective of British Government to develop infrastructure was not to provide basic amenities to the
people, but to serve their own colonial interest.
1. The Roads were built for mobilizing the army within India and for drawing out raw materials from the
countryside to the nearest railway station or port and to send these to England or other lucrative foreign
destinations.
2. Railways were developed by the Britishers mainly for three reasons:
(i) To have effective control and administration over the vast Indian territory;
(ii) To earn profits through foreign trade by linking railways with major ports;
(iii) To make profitable investment of British funds in India.
3. The system of Electric Telegraph was introduced at a high cost to serve the purpose of maintaining law and
order.
Conclusion
By the time India won its independence in 1947, the impact of 200 years of British colonial rule was already
showing on all aspects of the Indian economy. Following points are the clear proofs of economic
underdevelopment during the British period.
• The constant per capita income over a long period.
• Increasing dependence of population on agriculture.
• The Zamindari System.
• Traditional methods of cultivation.
• High-frequency of Famines.
• Destruction of Indian Handicrafts.
• Inadequate industrialisation.
British Rule - Systematic Exploitation of India
The various forms of exploitation by the Britishers on the Indian economy can be broadly analysed with the
following points:
(i) India remained an agricultural country throughout the British period and its agricultural sector remained
totally backward. There was commercialisation of agriculture, to serve the interests of Great Britain.
(ii) British rulers never tried to modernise the prevailing industrial structure of India.There was large-scale
destruction of world famous handicrafts and cottage industries of the country.
(iii) By following the policy of discriminating protection, Britishers gained complete control over the entire
Indian markets.
(iv) British rulers gradually transformed the Indian economy into a primary producing country, exporting only
agricultural products and raw materials necessary for industries in Britain and importing finished goods from
Britain.
(v) To promote foreign trade and to exploit natural resources of India to their advantage, British rulers built up
economic infrastructure, which includes roads and railway network, ports and shipping, irrigation and
electricity, etc.
(vi) The British rulers thoroughly exploited the Indian economy through economic drain.
The aforesaid nature of exploitative policies of the British rulers resulted in large-scale poverty, stagnation and
backwardness of the Indian economy, along with a huge drain of economic resources of the country to Great
Britain.
POSITIVE CONTRIBUTIONS OF BRITISH RULE
British Rule also had some positive effects on the Indian economy. They are discussed as under:
1. Growth in Agricultural Sector: Although agricultural productivity was very low during the British Rule,
but in absolute terms, there was growth in agricultural sector due to expansion of aggregate area under
cultivation. Forced commercialization of agriculture led to a gradual change in outlook of the farmers. the
farmers started considering market price of the produce as an important determinant of their production
decisions.
2. Better means of transportation: Development of roads and railways provided cheap and rapid transport
system and opened up new opportunities of economic and social growth.
3. Check on Famines: Roads and railways worked as a great check on the occurrence and impact of famines as
food supplies could be transported to the affected areas in case of droughts.
4. Shift to Monetary Economy: British rule helped Indian economy to shift from barter system of exchange
(exchange of goods for goods) to monetary system of exchange.
5. Effective administrative setup: The British Government had an efficient administration system, which
served as a ready reference for Indian politicians.