1.1 INTRODUCTION
The primary objective of this book, Indian Economic Development, is to familiarise you with the basic features of the Indian economy, and its development, as it is today, in the aftermath of Independence. However, it is equally important to know something about the country’s economic past even as you learn about its present state and future prospects. So, let us first look at the state of India’s economy prior to the country’s independence and form an idea of the various considerations that shaped India’s post-independence development strategy. The structure of India’s present-day economy is not just of current making; it has its roots steeped in history, particularly in the period whenI ndia was under British rule which lasted for almost two centuries before India finally won its independence on 15 August 1947. 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. An understanding of the exploitative nature of this relationship is essential for any assessment of the kind and level of development which the Indian economy has been able to attain over the last six and half decades.
1.2 LOW LEVEL OF ECONOMIC
DEVELOPMENT UNDER THE
COLONIAL RULE
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. These
products enjoyed a worldwide market based on the reputation of the fine quality of material used and the high standards of craftsmanship seen in all imports from India 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.
1.3 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 qgriculture. However, despite being the occupation of such a large population, the agricultural sector continued to experience stagnation and, not infrequently, unusual deterioration. Agricultural pro-ductivity 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 repositing 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.
1.4 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 modern
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 de-
industrialising 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 modern 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. In the
unfolding economic scenario, the
decline of the indigenous handicraft
industries created not only massive
unemployment in India but also a new
demand in the Indian consumer
market, which was now deprived of the
supply of locally made goods. This
demand was profitably met by the
increasing imports of cheap
manufactured goods from Britain.
During the second half of the
nineteenth century, modern 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 industrialisation in
India. Capital goods industry means
industries which can produce machine
tools which are, in turn, used for
producing articles for current
consumption. The establishment of a
few manufacturing units here and there was no substitute to the near
wholesale displacement of the
country’s traditional handicraft
industries. Furthermore, the growth
rate of the new industrial sector and
its contribution to the Gross Domestic
Product (GDP) or Gross Value Added
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.
1.5 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 (see Box 1.3).
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.
1.6 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 ten 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. However,
neither the total population of India nor
the rate of population growth at this
stage was very high.
The various social development
indicators were also not quite
encouraging. The overall literacy level
was less than 16 per cent. Out of this,
the female literacy level was at a
negligible low of about seven per
cent. Public health facilities were
either unavailable to large chunks of
population or, when available, were
highly inadequate. Consequently, water and air-borne diseases were rampant and took a huge toll on life. No wonder, 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 33 per thousand. Life expectancy was also very low—44 years in contrast to the present 69 years. In the absence of reliable data, it is difficult to specify the extent of poverty at that time but there is no doubt that extensive poverty prevailed in India during the colonial period which contributed to the worsening profile of India’s population of the time.
