11th economi NCERT1

 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.