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UNIT
UNIT
I
III

DEVELOPMENT POLICIES AND EXPERIENCE

(1947-90)

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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.

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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.

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“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 six 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.

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.

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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 per capita income. 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. However, despite being
— Dadabhai Naoroji, William Digby, the occupation of such a large
Findlay Shirras, V.K.R.V. Rao and population, the agricultural sector
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.

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continued to experience stagnation interest of the zamindars was only to

and, not infrequently, unusual collect rent regardless of the
deterioration. Agricultural pro- economic condition of the cultivators;
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 r e s p o n s i b l e f o r t h e 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).

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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

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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) remained very small. factories of Britain. For all practical
Another significant drawback of the purposes, Britain maintained a
new industrial sector was the very monopoly control over India’s exports
limited area of operation of the public and imports. As a result, more than
sector. This sector remained confined half of India’s foreign trade was
only to 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 has been an important trading India’s foreign trade (see Box 1.3).
nation since ancient times. But the The most important characteristic
restrictive policies of commodity of India’s foreign trade throughout the
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,

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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 war, suffering from certain limitations, it
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 Canal
Not scale
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.

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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 40 per
transition began after 1921. However, thousand. Life expectancy was also
neither the total population of India nor very low— 44 years in contrast to the
the rate of population growth at this present 68 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

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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

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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
Sons, was established in 1932 other hand, despite serving a useful
inaugurating the aviation sector in India public purpose, remained all through

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inadequate. You will learn more about modernisation, diversification, capacity

the present status of various building and increased public
infrastructure in Chapter 8. investment. Foreign trade was oriented
to feed the Industrial Revolution in
1.9 CONCLUSION Britain. Infrastructure facilities,
By the time India won its independence, including the famed railway network,
the impact of the two-century long needed upgradation, expansion and
British colonial rule was already public orientation. Prevalence of
showing on all aspects of the Indian rampant poverty and unemployment
economy. The agricultural sector was required welfare orientation of public
already saddled with surplus labour economic policy. In a nutshell, the
and extremely low productivity. The social and economic challenges before
industrial sector was crying for 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.

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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.

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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, 2020?

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.

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