ECONOMICS
CHAPTER - 1
Grade 12
Introduction :
The structure of India's present day economy has its roots steeped in the period
when India was under British rule, which lasted for almost two centuries before
India finally won its independence on 15th 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 Indian economy before independence is necessary to
know and appreciate the level of economic development achieved during the
post-independence period, i.e. over the last seven and half decades.
India had an independent economy before the advent of the British rule.
Agriculture was the main source of livelihood for most people, yet the
country's economy was also characterised by various kinds of
manufacturing activities.
TOPIC A -
Low Level of Economic Development Under the Colonial Rule:
Focus of the economic policies pursued by the colonial government in 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 a supplier of raw materials and
consumer of finished industrial products from Britain.
The colonial government never made any sincere attempt to estimate India's
national income and per capita income.
● Some notable economists who estimated India's national income and per
capita income during the colonial period were- Dadabhai Naoroji, William
Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai. But their attempts to
measure such incomes yielded conflicting and inconsistent results.
● However, most studies revealed that during the first half of the 20th
century, the country's growth rate of aggregate real GDP was only less
than 2% per year and per capita real GDP was close to 0.5% per year.
TOPIC B-
Condition of Agriculture under the British Colonial Rule :
Stagnant agricultural sector -
Despite being the main occupation of the majority of the country's
population during British rule, the agricultural sector
continued to experience stagnation and deterioration. Agricultural
productivity became low.
CAUSES OF INDIA'S AGRICULTURAL STAGNATION AND LOW
PRODUCTIVITY:
1. Various systems of land settlement that were introduced by the colonial
government, particularly, the Zamindari system
The stagnation in the agricultural sector was caused mainly because of the
various systems of land settlement that were introduced by the colonial
government, particularly, 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 to the cultivators. However, nothing was done 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 cultivators.
● To a very large extent, the terms of the revenue settlement were also
responsible for the zamindars adopting such an attitude,e.g. dates for
depositing specified sums of revenue were fixed, failing which the
zamindars were to lose their rights.
2. Low levels of technology, lack of irrigation facilities and negligible
use of fertilisers
Low levels of technology, lack of irrigation facilities and negligible use of
fertilisers were responsible for the plight of the farmers and contributed to
the dismal level of agricultural productivity.
3. Lack of resources and incentives
India's agriculture was starved of investment in terracing, flood-control,
drainage and desalinisation of soil. A large section of tenants, small
farmers and sharecroppers had neither resources and technology nor
incentive to invest in agriculture.
Commercialisation of agriculture :
There was 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.
TOPIC C-
Industrial Sector during the British Colonial Rule:
Collapse of India's world famous handicraft industries during the British
rule-
Before the advent of the British rule, India was 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 because of the
reputation of the fine quality of material used and the high standards of
craftsmanship seen in all imports from India.
The rule of the British government led to the collapse of India's world
famous handicraft industries. The establishment of a few manufacturing
units was no substitute to the near wholesale displacement of the country's
traditional handicraft industries.
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.
The two-fold motive behind the systematic de-industrialisation
effected by the British:
The primary motive of the colonial government behind this policy of
systematically destabilising India was two-fold.
1. To get raw materials from India at cheaper rates
The first motive was to reduce India to the status of a mere exporter of
important raw materials for the upcoming modern industries in Britain and,
2. To sell finished products produced by the Britain industries in
Indian market at higher prices
The second motive was 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.
India could not develop a sound industrial base under the colonial
rule.
The modern industry began to take root in India during the second half of
the nineteenth century, but its progress remained very slow.
● Initially, the industrial 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.
Other shortfalls of the industrial policy pursued by the
British colonial administration:
1. Lack of capital goods industry
There was hardly any capital goods industry to help promote
industrialisation in India.
2. Low growth rate
The growth rate of the new industrial sector and its contribution to the
Gross Domestic Product (GDP) or Gross Value Added (GVA) remained
very small.
3. Limited area of operation of the public sector
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.
TOPIC D-
India's Foreign Trade During the British Colonial Period
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.
1. Britain's monopoly control over India's exports and imports
For all practical purposes, Britain maintained a monopoly control over
India's exports and imports. As a result, more than 50% of India's foreign
trade was restricted to Britain while the remaining was allowed with a few
other countries like China, Ceylon (Sri Lanka) and Persia (Iran).
The opening of the Suez Canal in 1869 further intensified British
control over India's foreign trade.
2. India as exporter of raw material and importer of finished goods
India became an exporter of primary products such as raw silk, cotton,
wool, sugar, indigo, jute etc. and an importer finished consumer goods like
cotton, silk and woollen clothes and capital goods like light machinery
produced in the factories of Britain.
3. Generation of a large export surplus but at a huge cost - Drain of
Indian wealth
The most important characteristic of India's foreign trade throughout the
colonial period was the generation of a large export surplus. But this export
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 payments for:
● the expenses incurred by an office set up by the colonial government in
Britain,
● expenses on war fought by the British government, and
● the import of invisible items.
All of these led to the drain of Indian wealth.
TOPIC E-
India's Demographic Condition During the Colonial Period
● Various details about the population of British India were first
collected through a census in 1881. 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 (Year of Great
Divide). 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.
Quantitative appraisal of India's demographic profile during
the colonial period
1. Low level of literacy rate
The overall literacy level was less than 16%. Out of this, the female literacy
level was at a negligible low of about 7%.
2. Lack of adequate public health facilities
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.
3. High infant mortality rate
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.
4. Low life expectancy
Life expectancy was also very low - 32 years in contrast to the present 69
years.
5. Extensive poverty
Extensive poverty prevailed in India during the colonial period which
contributed to the worsening profile of India's population of the time.
TOPIC F-
Occupational Structure during the Colonial Period :
Salient features of India's pre-independence occupational structure:
1. Predominance of agriculture sector
The agricultural sector accounted for the largest share of workforce, which
usually remained at a high of 70-75 per cent while the manufacturing and
the services sectors accounted for only 10 and 15-20 percent respectively.
2. Growing regional variation
● Parts of the Madras Presidency, Bombay and Bengal witnessed a
decline in the dependence of the workforce on the agricultural sector
due to rise of the manufacturing and the services sectors.
● However, there had been an increase in the share of workforce in
agriculture in states such as Orissa,Rajasthan and Punjab.
TOPIC G-
Infrastructure Development in India under the Colonial Regime:
Some efforts were made by the colonial regime to improve infrastructure facilities
in India such as railways, ports, water transport, posts and telegraphs but these
efforts were spiced with selfish motives.
The real motive of the British behind infrastructure development in India was to
subserve various colonial interests, and not to provide basic amenities to the
people.
Construction of Roads:
Roads constructed in India prior to the advent of the British rule were not fit for
modern transport. There always remained an acute shortage of all-weather roads
to reach out to the rural areas during the rainy season. Naturally, therefore,
people mostly living in these areas suffered grievously during natural calamities
and famines
.
The roads that were built primarily served the purposes of:
● mobilising the army within India; and
● drawing out raw materials from the countryside to the nearest railway
station or the port to send these to far away England or other foreign
destinations.
Introduction of the Railways:
The British introduced the railways in India in 1850 and it is considered as one of
their most important contributions.
The railways affected the structure of the Indian economy in two important ways:
On the one hand, it enabled people to undertake long distance travel and thereby
break geographical and cultural barriers; while on the other hand, it fostered
commercialisation of Indian agriculture which adversely affected the self-
sufficiency of the village economies in India.
The volume of India's exports undoubtedly expanded but its
benefits rarely accrued to the Indian people.
Thus, the social benefits, which the Indian people gained owing to
the introduction of the railways, were outweighed by the country's
huge economic loss.
Development of the inland trade and sea lanes:
Along with the development of roads and railways, the British also took measures
for developing the inland trade and sea lanes. However, these measures were
far from satisfactory.
● Uneconomical inland waterways
The inland waterways proved uneconomical as in the case of the Coast Canal on
the Orissa coast. Though the canal was built at a huge cost to the government,
yet it failed to compete with the railways, which had to be ultimately abandoned.
● Expensive electric telegraph
The introduction of electric telegraph in India, which served the purpose of
maintaining law and order, was very
expensive.
● Inadequate postal services
The postal services despite serving a useful public purpose, remained all through
inadequate.
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