UPSC Economics Indian Economy NCERT Extracts - Indian Economy on the Eve of Independence

NCERT Extracts - Indian Economy on the Eve of Independence

Category : UPSC


Low Level of Economic Development Under the Colonial Rule


  • The sole purpose of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain's own rapidly expanding modem industrial base.
  • India had an independent economy before the advent of the British rule. Though agriculture was the main source of livelihood for most people, yet, the country's economy was characterised by various kinds of manufacturing activities.
  • India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works etc.
  • The economic policies pursued by the colonial government in India were concerned more with the protection and promotion of the economic interests of their home country than with the development of the Indian economy.
  • Such policies brought about a fundamental change in the structure of the Indian economy - transforming the country into supplier of raw materials and consumer of finished industrial products from Britain.
  • Obviously, the colonial government never made any sincere attempt to estimate India's national and per capita income. Some individual attempts which were made to measure such incomes yielded conflicting and inconsistent results.
  • Among the notable estimators - Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai - it was Rao, whose estimates during the colonial period was considered very significant.
  • However, most studies did find that the country's growth of aggregate real output during the first half of the twentieth century was less than two per cent coupled with a meagre half per cent growth in per capita output per year.
  • 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 travelers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty.


Agricultural Sector


  • India's economy under the British colonial rule remained fundamentally agrarian - about 85 per cent of the country's population lived mostly in villages and derived livelihood directly or indirectly from agriculture.                                         
  • However, despite being the occupation of such a large population, the agricultural sector continued to experience stagnation and, not infrequently, unusual deterioration,
  • Agricultural productivity became low though, in absolute terms, the sector experienced some growth due to the expansion of the aggregate area under cultivation,
  • This stagnation in the agricultural sector was caused mainly because of the various systems of land settlement that were introduced by the colonial government.
  • Particularly, under the zamindari system which was implemented in the then Bengal Presidency comprising parts of India's present-day eastern states, the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.
  • However, a considerable number of zamindars, and not just the colonial government, did nothing to improve the condition of agriculture.
  • The main interest of the zamindars was only to collect rent regardless of the economic condition of the cultivators; this caused immense misery and social tension among the latter.
  • To a very great extent, the terms of the revenue settlement were also responsible for the zamindars adopting such an attitude; dates for depositing specified sums of revenue were fixed, failing which the zamindars were to lose their rights.
  • Besides this, low levels of technology, lack of irrigation facilities and negligible use of fertilisers, all added up to aggravate the plight of the farmers and contributed to the dismal level of agricultural productivity.
  • There was, of course, some evidence of a relatively higher yield of cash crops in certain areas of the country due to commercialisation of agriculture.
  • But this could hardly help farmers in improving their economic condition as, instead of producing food crops, now they were producing cash crops which were to be ultimately used by British industries back home.
  • Despite some progress made in irrigation, India's agriculture was starved of investment in terracing, flood-control, drainage and desalinisation of soil.
  • While a small section of 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 agriculure.


Industrial Sector


  • As in the case of agriculture, so also in manufacturing, India could not develop a sound industrial base under the colonial rule.
  • Even as the country's world famous handicraft industries declined, no corresponding modem industrial base was allowed to come up to take pride of place so long enjoyed by the former.
  • The primary motive of the colonial government behind this policy of systematically deindustrialising India was two-fold.
  • The intention was, first, to reduce India to the status of a mere exporter of important raw materials for the upcoming modem industries in Britain and, second, to turn India into a sprawling market for the finished products of those industries so that their continued expansion could be ensured to the maximum advantage of their home country - Britain.
  • During the second half of the nineteenth century, modem industry began to take root in India but its progress remained very slow. Initially, this development was confined to the setting up of cotton and jute textile mills.
  • The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while the jute mills dominated by the foreigners were mainly concentrated in Bengal.
  • Subsequently, the iron and steel industries began coming up in the beginning of the twentieth century. The Tata Iron and Steel Company (TISCO) was incorporated in 1907. A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
  • However, there was hardly any capital goods industry to help promote further in dustrialisation in India. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
  • The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
  • Another significant drawback of the new industrial sector was the very limited area of operation of the public sector.
  • This sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.


Foreign Trade


  • India has been an important trading nation since ancient times. But the restrictive policies of commodity production, trade and tariff pursued by the colonial government adversely affected the structure, composition and volume of India's foreign trade.
  • Consequently, India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of finished consumer goods like cotton, silk and woollen clothes and capital goods like light machinery produced in the factories of Britain.
  • For all practical purposes, Britain maintained a monopoly control over India's exports and imports.
  • As a result, more than half of India's foreign trade was restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran). The opening of the Suez Canal further intensified British control over India's foreign trade.
  • The most important characteristic of India's foreign trade throughout the colonial period was the generation of a large export surplus. But this surplus came at a huge cost to the country's economy.
  • Several essential commodities - food grains, clothes, kerosene etc. - were scarcely available in the domestic market. Furthermore, this export surplus did not result in any flow of gold or silver into India.
  • Rather, this was used to make payments for the expenses incurred by an office set up by the colonial government in Britain, expenses on war, again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.


Demographic Condition


  • Various details about the population of British India were first collected through a census in 1881. Though suffering from certain limitations, it revealed the unevenness in India's population growth.
  • Subsequently, every 10 years such census operations were carried out. Before 1921, India was in the first stage of demographic transition. The second stage of transition began after 1921.
  • The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a negligible low of about 7 per cent.
  • The overall mortality rate was very high and in that, particularly, the infant mortality rate was quite alarming-about 218 per thousand in contrast to the present infant mortality rate of 63 per thousand.
  • Life expectancy was also very low-32 years in contrast to the present 63 years.
  • The agricultural sector accounted for the largest share of workforce, which usually remained at a high of 70-75 per cent while the manufacturing and the services sectors accounted for only 10 and 15-20 per cent respectively.




  • Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs did develop. However, the real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
  • The roads that were built primarily served the purposes of mobilising the army within India and drawing out raw materials from the countryside to the nearest railway station or the port to send these to far away England or other lucrative foreign destinations.
  • The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
  • The railways affected the structure of the Indian economy in two important ways. On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while, on the other hand, it fostered commercialization of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.
  • The volume of India's exports undoubtedly expanded but its benefits rarely accrued to the Indian people.
  • The social benefits, which the Indian people gained owing to the introduction of the railways, were thus outweighed by the country's huge economic loss.
  • Along with the development of roads and railways, the colonial dispensation also took measures for developing the inland trade and sea lanes.
  • The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order.




  • Foreign trade was oriented to feed the Industrial Revolution in Britain.
  • The social and economic challenges before the country were enormous.


Important Facts


  • Rajendra Prasad's book, India Divided,                                
  • Ramesh Chandra Dutt's Economic History of India,                                
  • 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. Its opening in 1869 reduced the cost of transportation and made access to the Indian market easier.    
  • Agriculture During Pre-British India
  • The French traveller, Bemier, 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. From rajmahal to the sea is an endless number of canals, cut in bygone ages from the Ganges by immense labour for navigation and irrigation."                                


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