Indian Economy on the Eve of Independence — Notes

Colonial economic policy aimed to make India a supplier of raw materials to British industry and a market for British finished goods. Development of the Indian economy was not its concern.

National income: the colonial government made no serious estimate. Private estimates were made by Dadabhai Naoroji, William Digby, Findlay Shirras, V. K. R. V. Rao and R. C. Desai; Rao's are generally regarded as the most significant.

Growth (first half of the twentieth century, approximate): aggregate real output under 2 per cent a year; output per person about 0.5 per cent a year.

About 85 per cent of people lived in villages and depended on agriculture. Output grew slowly and productivity was low.

Causes of stagnation:

1. Land settlement — under zamindari (permanent settlement in Bengal), zamindars collected rent and paid fixed revenue; the surplus went to them, and few invested in the land.
2. Revenue terms — fixed sums by fixed dates, even when crops failed; tenants were squeezed.
3. Low technology — old tools, little fertiliser.
4. Poor irrigation and flood control.
5. Commercialisation — a shift to cash crops (indigo, jute, cotton) for British industry, which raised output in a few areas but enriched traders and exporters more than cultivators.

De-industrialisation: traditional handicrafts declined and modern industry did not replace them. Cheap machine-made British goods, imported at low duty, took the craftsmen's market; artisans were pushed into farming or unemployment.

Two-fold motive: cheap raw materials for Britain, and a large market for British manufactures.

Modern industry: cotton mills in western India (mainly Indian-owned) and jute mills in Bengal (mainly foreign-owned) from the second half of the nineteenth century; TISCO, 1907; sugar, cement and paper later. Industry's share of output stayed small.

Weak base: almost no capital goods industry; the public sector was limited to railways, power, communication, ports and some departmental undertakings.

Composition: exporter of primary products (raw cotton, raw silk, wool, jute, indigo, sugar); importer of finished goods (cloth, light machinery).

Direction: a British monopoly — more than half of India's trade was with Britain; the rest mainly with China, Ceylon and Persia. The Suez Canal (1869) cut the time and cost of shipping.

Export surplus and drain: exports exceeded imports, but the surplus paid for the colonial office in Britain, wars and invisible imports. No gold or silver came in, and grain, cloth and kerosene were scarce at home.

The first census was taken in 1881. Until 1921, birth and death rates were both high and growth was slow (first stage of the demographic transition). After 1921 the death rate fell while the birth rate stayed high, so population grew steadily: 1921 is the year of the great divide.

Approximate indicators: literacy under 16 per cent (women about 7 per cent); life expectancy about 32 years; infant mortality over 200 per thousand. Public health facilities were scarce; diseases and famines were frequent; poverty was widespread.

Occupational structure is the distribution of the workforce across sectors. Around 1947, approximately: agriculture 70–75 per cent, manufacturing about 10 per cent, services 15–20 per cent.

Regional variation: the share of agriculture fell slightly in parts of the Madras, Bombay and Bengal presidencies, but rose in Orissa, Rajasthan and Punjab.

Railways (passenger service from 1853): long-distance travel, broke geographical and cultural barriers, wider markets; but built for administration and export trade, carried British goods inland and aided commercialisation.

Roads served troops and linked the interior to stations and ports; most villages had no all-weather roads. Inland waterways were developed, but some (like a coastal canal in Orissa) were uneconomical. Posts remained inadequate; the electric telegraph served mainly law and order.

Overall: independent India inherited a poor, stagnant economy, with a usable but colonially shaped base of infrastructure.