The structure of India’s present economy is not just of current making; it has its foundations saturated with history, especially in the period when India was ruled by Britishers, which lasted for almost two centuries before India finally got independent on 15 August 1947. The only purpose of the British colonial rule in India was to limit India from being a raw material provider for Great Britain’s own rapidly growing modern industrial base.
India had an independent economy prior to the approach of British rule. However, agriculture was the major source of income for the public, and the country’s economy was identified by different types of manufacturing industries. India was popularly known for its handicraft industries or business in the fields of cotton and silk materials, metal and precious stone works, and many more. These items enjoyed a global market based on recognition of the marvelous quality of materials used and the high standards of craftsmanship found in all imports from India.
“An economy is the large set of inter-related production, consumption, and exchange activities that aid in determining how scarce resources are allocated. The production, consumption, and distribution of goods and services are used to fulfill the needs of those living and operating within the economy, which is also referred to as an economic system.” – Will Kenton
Lower Level of Economic Development under Colonial Rule
The economic policies adopted by the colonial government in India were more concentrated on security and promotion of the economic interest of the nation rather than the development of the economy. Such policies brought about a major change in the construction of the Indian economy — transforming the country into providers of raw materials and customers of finished industrial products from Britain. Obviously, the colonial government never made an honest attempt to estimate India’s national and per capita income. A few individual attempts were made to measure such incomes yielded clashing and conflicting results. Amongst the notable individual 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 were considered very important. However, most research did find that the country’s growth of aggregate real output during the beginning of the twentieth century was less than 2 percent, coupled with a mere half percent growth in per capita output per year.
Indian economy is Agrobased, or we can say that India is an agrarian economy. This is clear from the fact that the national income of India comprises 70% of the income generated from agriculture. Before independence, 95% of the economy was based on agriculture, and the income was generated from agriculture. Besides, around 85% of the population was living in small-town or villages, and the only means of subsistence was agriculture. On the eve of independence, the condition of the Indian economy in terms of agriculture was demoralizing. Agriculture, even after being the most important sector, was facing economic degradation and stagnation in the economy.
The following were observed with the changes in agriculture:
• High Vulnerability
• Low Productivity
High vulnerability means a response to any situation regarding a change in the agricultural elements. If the country faces low rainfall in a month, then the resulting impact will be lower levels of output and high rates of crop failure. Low productivity levels were noticed, and the levels of output declined regardless of the large area for cultivation.
Some variables that led to the stagnation of the agriculture sector are:
• The Indian economy was confronting the adverse effects of the zamindari system, which is the act of making farmers work and collect rent as tax, irrespective of the circumstances.
• The shortage of agricultural resources led to the stagnation of agriculture.
• The commercialization of agriculture implied moving from developing goods for their consumption to developing for the market. The presence of middlemen prevented the development of the economic condition of the farmers, which caused stagnation in the agricultural area.
As in the case of agriculture, in manufacturing, India was not able to develop a suitable industrial base under colonial rule. Even though the country was widely known for handicrafts, industries declined, and no related modern industrial base was permitted to come up to take pride in the place enjoyed by the formers for so long. The main purpose of the colonial government regarding this policy of deindustrializing India was two-fold. The main aim was to limit India to an exporter of important raw materials for the coming modern industries of Britain, and to transform India into a sprawling market for the finished products of those industries so that their continued growth could be assured to the maximum advantage of their home country — Britain. In the present economic scenario, the fall of the native handicraft industries resulted in huge unemployment in India and new demand in the Indian consumer market, which was currently denied the supply of locally made goods. This demand was profitably met by the expanding imports of cheaply manufactured products from Britain.
Foreign trade refers to the exchange of goods and services between two or more nations/boundaries or territories of the world. Since the time of independence, India has been one of the major trading nations, exporting essential items like cotton, raw silk, sugar, wool, jute, indigo, etc. Additionally, it is an importer of finished consumer goods, such as woolen clothes, cotton, silk, and capital goods, like light machinery made in Britain. During this interval, Britain held a monopoly over India’s imports and exports. Therefore, the majority of foreign trade was limited only to Britain, while the rest half was permitted to trade with other nations, like Ceylon (Sri Lanka), China, and Persia (Iran).
India was a huge exporter in the colonial period. However, it did not influence the country’s economy. Items like food grains, clothes, kerosene, etc., hit the country hard with its shortage.
The details of the Demographic Condition in regards to the public of British India were primarily acquired through a census in 1881. However, suffering from several circumstances, it unveiled the unevenness in the development of the Indian population. Subsequently, in every ten years, such census procedures were conducted. Before 1921, India was in the initial step of demographic change. The second step of transformation began after 1921. Neither the total population of India nor the increase in the rate of the population at this point was high. Also, many social development signs were not really encouraging. The comprehensive literacy level was under 16%, out of which the female literacy level was low, at around 7%. Public health facilities were either inaccessible to extensive parts of the population or when obtainable were highly lacking.
The overall death rate was high, and the life expectancy was very low, about 32 years in comparison to the present 69 years. In the absence of reliable statistics, it is difficult to define the intensity of poverty at that time. In such a poor demographic condition, water and air-borne diseases were widespread and badly affected the lives of people.
The occupational structure of a country means the percentage of its workforce employed in various economic ventures. In other words, articulating the number of total people engaged in agriculture and related activities and the number of them involved in the manufacturing and service areas can be recognized from the occupational structure of the country.
During the colonial phase, the occupational structure of India, i.e., the allocation of working individuals across different industries and sectors, explained small hints of progress. The agricultural sector is esteemed for the highest share of the workforce, which generally prevailed at a high percentage of 70–75%, while the manufacturing and service areas are estimated for only 10 and 15-20%, consecutively. Another extraordinary point of view was the growing geographical variation. Portions of the then Madras Presidency (including areas of the present-day states of Tamil Nadu, Kerala, Andhra Pradesh and Karnataka), Bombay, and Bengal noticed a drop in the dependence of the workforce on the agricultural areas with a corresponding increase in the production and the services areas. However, there was an increase in the share of the workforce in agriculture during a similar time in the states like Rajasthan, Odisha and Punjab.
Infrastructure is referred to as the basic physical operations of a country/nation or a business-like communication, transportation, water, sewage, and so on. This operation can be a highly expensive investment and an important aspect of the economic development of a country. During the colonial time period, in India, basic infrastructure such as water transport, railways, posts and telegraphs, and ports were developed, but it served the colonial interest instead of serving the general public. Roads constructed were not good for modern India as it could not connect rural areas, and the lack of well-constructed roads, especially in the rainy season, was the biggest drawback.
However, in the year 1850, the introduction of railways was one of the major contributions of the British. This proposal transformed the Indian economy in two ways. One, it led people to travel long routes and break the geographical barrier, and second, it commercialized Indian agriculture unfavourably and influenced the self-sufficiency of the economies of the small towns in India. With the advancement of railways and roads, the colonial regulation also took steps for the development of sea lanes and inland exchanges. However, the postal services, though it was useful assistance for the public, remained insufficient.
State of Indian Economy on the Eve of Independence
At the time of British rule, Indian economy was transformed into a colonial, backward, semi-feudal, stagnant, depleted, and amputated economy by the Britishers.
1. Colonial Economy: India has faced colonial exploitation for over 200 years. By supplying raw materials from India to facilitate the growth of British industry, British rulers drained a huge wealth of India. The Britishers also encouraged commercialisation of Indian agriculture in order to transform the Indian economy into a British colony. Besides, even at the time of independence, the British colonial policy had a deep impact on India.
2. Semi-feudal Economy: By the end of British rule, there were two aspects of the Indian economy; i.e., the Introduction of the Feudal System and the Introduction of the Capitalist System. Introduction to Feudal System or land settlement system initiated feudal relations; i.e., landlord-tenant relations. The landlords were cruel to the cultivators and used to charge high Lagaan rates to them. Also, the introduction of the Capitalist System increases modern industries resulting in the creation of two classes, which are labourers and capitalists.
3. Stagnant Economy: An economy that is growing at a very low rate is known as a stagnant economy. On the eve of independence during the first half of the 20th century, India’s growth of aggregate real output was less than 2% and its growth per capita output was only 0.5%.
4. Depleted Economy or Depreciated Economy: A depleted economy is one where there are no arrangements to replace the physical assets which are depreciated because of excessive use. The Indian economy at the time of independence was a depreciated economy. Besides, at the time of the 2nd World War, the Indian industries had to work beyond their capacities in order to fulfill the increased demand for machinery, plant, etc., for the war. However, the Britishers did not make any arrangements for replacing the depleted assets, because of which the British rulers left a seriously depleted economy.
5. Backward Economy: At the end of British rule, India was an underdeveloped and backward economy. The main reasons behind the Indian economy’s backwardness were Low Productivity Level, Low per Capita Income, Mass Illiteracy, Traditional Methods of Agriculture, High Birth rate, and High Death Rate.
6. Amputated Economy: Britishers had a policy of divide and rule, which quickly gave rise to discrimination between different groups based on caste, culture, language, and religion. Because of this policy, at the time of independence, India was geographically divided into two different parts; India and Pakistan. This partition of the country into two parts virtually disrupted the Indian economy because of two main reasons. Firstly, there was a shortage of raw materials for cotton and jute mills because most of the areas where cotton and jute used to grow went to Pakistan. Secondly, the partition gave rise to the problem of rehabilitation of a large number of refugees from Pakistan.
Not only the industrial and agricultural sectors of the country were affected, but foreign trade was also affected. Foreign trade plays an essential role in the development and earnings of a country. In fact, it is great to be a self-maintaining and independent country, foreign trade, and globalization are crucial to a country’s success. Indian economy on the eve of independence in relation to foreign trade was extremely poor. Due to the rules forced by the British, none of India’s products or skills had any acknowledgment, and hence, it badly affected the structure, composition, and volume of the country’s foreign trade and income.