INDIAN ECONOMY ON THE

EVE OF INDEPENDENCE
In this chapter we would learn the state of Indian economy prior to
country’s independence.
As we all know that india was under British rule which lasted for almost
two centuries before india finally won its independence on 15th august
1947.
 • Low level of Economic Development under the
Colonial Rule.
• Agricultural Sector

• Industrial Sector

TOPICS TO • Foreign Trade

BE
COVERED • Demographic Condition

• Occupational Structure

• Infrastructure
 HOW BRITISHERS CAME INDIA
AND RULED OVER INDIA
• The British east india company came to india as
traders of spices, a very important commodity in
Europe as it was used to preserve meat.
• After that east india company started trading silk,
cotton,indigo tea opium etc.
• Then there occurred a battle between Indians and
britishers.
• The battle of Plassey was a decisive victory of
British east india company over nawab of Bengal.
 COLONIALISM
•Colonialism refers to a system of political and
social relation between two countries, of which one
is the ruler and the other is its colony.
 BRITISH RULE OVER INDIA
• 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 modern industrial base.
• The economic policies pursued by the colonial government in india were concerned more
with the protection and promotion of British economy and not Indian economy.
• The colonial government never estimated india’s national and per capita income.
• Some estimaters made efforts to measure india’s national income. These were-Dadabhai
naoroji, William digby, Findlay shirras, VKRV Rao and RC desai.
 INDIAN ECONOMY BEFORE
BRITISH RULE

• India had an independent economy before the advent of 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. These goods were imported to other countries
because of their reputation of fine quality material used.
AGRICULTURE SECTOR
India’s economy under the British colonial rule
remained fundamentally agrarian. About 85% of
the country’s population lived in villages and
lived on agriculture. However, the agricultural
sector continued to experience stagnation and
deterioration
 REASONS FOR STAGNATION
1.Land settlement system: In the zamindari system, which was introduced by the colonial
government, the profits occurring out of the agricultural sector went to the zamindars instead
of the cultivators. The main interest of the zamindars was only to collect rent regardless of the
economic condition of the cultivator.
2.Commercialisation of Agriculture
3.Low level of technology due to lack of knowledge, means and incentives for
modernization.
4.Lack of irrigation facilities.
5.Negligible use of fertilizers.
 COMMERCIALISATION OF
AGRICULTURE –
The British industrialists were always in the need of raw materials like cotton, indigo, jute,
groundnut, sugarcane, etc. to keep their factories running
By offering higher prices, the Indian peasants were attracted to production of commercial
crops instead of food crops
The extent of commercial agriculture went so far as to make many peasants purchase their
food requirements from shops in towns
This fall in production of food crops was responsible for frequent famines in India during the
British days.
Growing of cash crops instead of food crops is called Commercialisation of Agriculture.
 INDUSTRIAL SECTOR

• India could not develop a sound industrial base under the Colonial Rule. 
• Even the country’s world famous handicraft industries declined. 
• No commercial modern industrial base was allowed to come up. 
• This sector needed modernisation, diversification and increased investment.
 THE PRIMARY MOTIVE BEHIND THIS
POLICY OF DEINDUSTRIALIZATION WAS:

• To reduce India to the status of mere exporter of important raw

materials for the upcoming modem industries in Britain.
• To turn India into a market for the finished products manufactured by
industries in Britain.
 HOW BRITISHERS MANAGED
DEINDUSTRIALISATION

• The rate of growth of the industrial sector was low as no help was being
provided to these industries by the colonial government.
• Colonial Government enforced discriminatory tariff policy, which
allowed free export of raw materials from India and free import of final
goods from British industry to India.
 BENEFITS OF DEINDUSTRIATION
TO BRITISHERS

• The decline of the traditional handicraft industries created

massive unemployment in India.
• The fall in supply of locally made goods created a demand for
the import of British goods much to their advantage.
• India has been an important trading nation since
ancient time. But the restrictive policies pursued by
the Colonial Government adversely affected the
FOREIGN
structure, composition and volume of India’s foreign
trade.
TRADE
 COMPOSITION OF INDIA'S TRADE
• Composition of India's Trade 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.
•   Volume India's exports were more than its imports so there was a large export surplus
Direction. This refers to the countries we are trading with Britain maintained a monopoly
over India's exports and imports 
• More than half of India's foreign trade was restricted to Britain while the rest was allowed
with a few countries like China, Ceylon (Sri Lanka) and Persia (Iran)
•  Suez Canal was opened in 1869. It reduced the cost and time of transportation and made
access to the Indian market easier. In other words, exploitation of Indian market was now
easier.
 DRAIN OF INDIAN WEALTH
 India’s foreign trade generated huge export surplus but this surplus came at a huge cost to the
country’s economy as it led to the drain of India wealth. The export surplus was used for:
• Making payments for the expenses incurred by an office set up by the colonial government
in Britain. 
• Expenses on war fought by the British government 
• Import of invisible items
 DEMOGRAPHIC PROFILE 
The demographic conditions during the British rule suggested all the features of a backward economy. Various details about the
population was first collected through a census in 1881.Before, 1921, India was in first stage of demographic transition. The
second stage of transition started after 1921. However, neither the total population of India nor the rate of Population growth at
this stage was very high. The year 1921 is described as the “Year of Great Divide”. It is because after 1921 population grew
continuously and rapidly. The demographic conditions were as under:-
 – The overall literacy level was less than 16%.
 – Female literacy was 7%.
 – Overall mortality rate was high 
– Infant mortality rate was 218 per thousand (Present rate is 44/1000)
 – Life expectancy was also very low-32 years (Present 68 years) 
– Extensive poverty was present
 – Public health facilities were either unavailable to large chunks of population or were highly inadequate when available.
 – Water and air borne diseases were rampant.
 OCCUPATIONAL STRUCTURE

OCCUPATIONAL STRUCTUR
E

Primary Secondary  Tertiary

 OCCUPATIONAL STRUCTURE 
By occupational structure we mean the distribution of working persons across different
industries and sectors. During the colonial period the occupational structure of India showed
little sign of change. – The largest share of work force, i.e. 70-75% was in the agricultural
sector. – The manufacturing sector accounted for 10% and the services sector 15-20%
respectively. – Regional disparities were also an important feature – There was a decline in
the dependence of the work force on the Agricultural sector in parts of the then Madras
Presidency (i.e. Present-day Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Maharashtra
and West Bengal and increase in the manufacturing and the services sector – There was an
increase in the share of the work force in agriculture in the states such as Orissa, Rajasthan
and Punjab
 INFRASTRUCTURE
Under the Colonial rule, basic infrastructure such as Roads, Railways, Ports, Water Transport,
Post and Telegraph etc. were developed. But this development was not to provide basic
amenities to the people of the country, but to subserve the colonial interests. – 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 the port to send these to England or other foreign
lands. – The Railways helped in commercialization of Indian agriculture which adversely
affected the comparative self-sufficiency of the village economies in India. – The introduction
of the expensive system of electric telegraph in India, similarly served the purpose of
maintaining law and order.
  EFFECTS OF RAILWAYS 
The British introduced the railways in India in 1850. It is considered one of the most important
contributions. It affected the structure of the Indian railways in many ways, – It enabled people
to undertake long distance travel and thereby break geographical and cultural barriers. –
It helped in integrating the nation. – It fostered commercialisation of Indian agriculture which
adversely affected the self-sufficiency of the village economies in India. – The volume of
India's export trade undoubtedly expanded. – It provided employment opportunities to the
people.
DIFFERENCE
 CONCLUSION
After finishing the chapter students will come to know that the social and economic challenges
before the country were enormous