East Point School

STUDY NOTES
ECONOMICS CHAPTER 1
Class: - XII

Indian Economy On The Eve Of Independence

AGRICULTURE SECTOR

“During the British colonial rule, despite being the occupation of about 85% of India's
population, the agriculture sector continued to experience stagnation and, not
infrequently, unusual deterioration. Agricultural productivity became low." Do you agree
with the above statement? Give valid reasons in support of your answer.

Nearly 85 % of the country’s population lived mostly in villages and derived livelihood,
directly or indirectly from agriculture
● But the Agriculture sector was stagnant

● During the pre-British period, the condition of Indian agriculture was not at all
satisfactory

1. Land revenue system: -

● Under the Zamindari system the Zamindars exploit the cultivator by imposing
lagan irrespective of their Poor economic condition
● Zamidars took the land of farmers when they were not able to deposit the Lagan
on fixed dates
● Profit accruing out of the agriculture sector went to the Zamindars instead of the
cultivators did nothing to improve the condition of agriculture.
2. Force Commercialization of agriculture: -
● British transformed Indian agriculture into a raw material for their industries

● They forced the commercialization of agriculture in which they encouraged the

production of cash crops instead of food crops
● Due to shortage of food crops country had to suffered from frequent famines
3. Low level of Productivity:
● Dependence on rain/lack of modern technology

● No means or incentives to invest in agriculture

 ● Low levels of technology,

● Lack of irrigation facilities

● Negligible use of fertilizers

INDUSTRIAL SECTOR ( (LIGHT)

India could not develop a sound industrial base under the British 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. ”

India could not develop a sound industrial base under the British rule and was in poor state.
Followings are the reason for the downfall
1. Limited contribution of industries to GDP
● Growth rate of the new modern industrial sector and its contribution to the
country’s GDP was very small.
● Only one sixth (about17%) of the GDP
Slow and limited industrial development
o Cotton textile mill by Indians in Maharashtra and Gujarat,
o Jute mills dominated by the foreigners in Bengal.
o Tata Iron and Steel Company (TISCO) were incorporated in 1907.
2. Inadequate role of Public Sector
● Very limited operation of public sector

● Only restricted to the railways, power generation, communication, ports etc

3. Got Shortage of Capital Goods Industry
● During the British rule, there was hardly any capital goods industry to promote
further industrialization process.
● They always wanted Indians to be dependent on them, for the supply of capital
goods and heavy equipments.
4. Huge Competition from machine-made goods
● Machine-made products from Britain were low cost products and gave a hard
competition to the handicraft products in India.
● It forced the Indian craftsmen to shut-down their enterprises and leads to massive
unemployment
5. Two fold De-Industrialization policy
● Reduce India to exporter of raw materials for rapid industrialization in Britain

● Convert India to importer for the cheap finished products

Impact
Decline in Indian handicraft industries leads to massive unemployment

Demand for cheap imported manufactured goods from Britain rises

FOREIGN TRADE (DIM)

How did the restrictive policies of commodity production, trade and tariff pursued by
the British colonial government affect the structure, composition and volume of foreign
trade?
India has been an important trading nation since ancient times. But the restrictive policies of
commodity production, trade and tariff follow by the colonial government adversely affected
the structure and volume of India’s foreign trade
1. Drain of Indian wealth:
● Export surplus from foreign trade did not result in any flow of gold or silver
into India
● This Export surplus was used make to payments for expenses incurred on war
fought by the British government
2. Importer of finished goods and Exporter of primary products
● India became an exporter of primary products such as raw silk, cotton, silk and
woolen clothes and capital goods like light machinery, produced in the British
Industries.
● As a result there was a shortage of essential commodities in domestic market.
Large export surplus created.
3. Monopoly control of British:
● More than half of India’s foreign trade was restricted to Britain while the rest
was allowed with few other countries like China, Ceylon (Sri lanka) and
Persia (Iran).
● The opening of the Suez Canal in 1869 served as a direct route for the ships
operating between India and Britain.
DEMOGRAPHIC PROFILE
▪ Study of various aspects of population like birth rate, death rate, sex ratio etc.

▪ Demographic conditions during the British Rule exhibited all features of a stagnant
and backward Indian economy.
▪ 1st official Census: The first official census was conducted in the year 1881. Though
suffering from certain limitations, the census revealed unevenness in India’s
population growth. From 1881 onwards, census operations were carried out after
every ten years.
▪ 1921: Year of Great Divide: before 1921, India was in the first stage of demographic
transition. The second stage of transition began after 1921. So, the year 1921 is
described as the ‘year of the Great Divide’.
STATE OF DEMOGRAPHIC PROFILE (SLIP)

Que. Give a quantitative appraisal of India's demographic profile during the colonial
period.
1. Slow population growth Life expectancy was as low as 44 years which shows the lack
of health care facilities water and air-borne diseases, as well as lack of means for health
care. Infant mortality rate was as high as 218.
2. Lack of Public health facilities Health facilities were either unavailable to large portion
of population or, when available, were highly insufficient
3. Illiteracy rate:-Literacy rate was as low as which reflects the social and economic
backwardness of the country. The average literacy rate was 16 % and woman literacy rate
was only 7%.
4. Poverty Wide poverty prevailed in India during the colonial period worsening profile of
India’s population of the time

Particulars DATA 1947 Present 2022

Literacy rate 16%. 77.7%

Female literacy 7% 70.3%

Infant mortality rate 218 Per thousand 27 per thousand

Life expectancy 44 years 70 years

Infant (Child) Mortality (Death) Rate (IMR):- is the number of deaths per 1,000 live births
of children under one year of age

OCCUPATIONAL STRUCTURE

Que. Highlight the salient features of India's pre independence occupational structure.
(NCERT) (4)
Ans. Occupational structure includes distribution of labor force in the three main sectors of
the economy- agriculture, industry and services
Salient features of India's pre-independence occupational structure are:
1. Agriculture was the principal source of occupation
● Agriculture sector 70-75%

● Manufacturing sector 10%

● Service sector 15-20 %

2. Unbalanced growth/ Regional variation:
● Decrease in the share of workforce in the agriculture sector in Tamil
Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra and West Bengal.
 ● Increase in the share of workforce in the agriculture sector in Orissa,
Rajasthan and Punjab.

INFRASTRUCTURE (CARE)
Infrastructure:-Capital invested in the country that helps in production distribution
and consumption.
● Economic infrastructure such as transport, irrigation, banking and credit,
power
● Social infrastructure includes water supply, sanitation , health , education etc

“Under the colonial regime, basic infrastructure such as railways, ports, water transport,
posts and telegraph develop. However, the real motive behind infrastructure development
was not to provide basic amenities to the people but to subserve various colonial interests.
“What objectives did the British intend to achieve through their policies of
infrastructure development in India? (4)
1. Communication:
● Posts and telegraphs were the most popular means of communication.

● The introduction of the expensive system of electric telegraph in India served

the purpose of maintaining law and order.
2. Air and Water Transport:
● Construction of the inland trade and sea lanes was not satisfactory and was
costly.
● Indian waterways proved to be uneconomical, as in the case of the Coast
Canal on the Orissa coast.
● This canal was built at a huge cost, but it failed to complete with the railways,
and finally, canal had to be abandoned
3. Roads
● The colonial administration could not construct large roads due to shortage of
funds.
● The roads that were built to
o Mobilizing the army
o Shifting raw materials.
● There was shortage of roads to reach out to rural areas during the rainy season.

● As a result, people living in these areas suffered badly during natural

calamities and famines.
4. Encourage Railways
● British introduced the railways in India in 1850 and it is considered as one of
their most important contributions.
● Affected the structure of the Indian economy two important ways
 o Helped them take long distance travel and thus break geographical and
cultural barriers.
o It improved commercialization of Indian agriculture

Positive impact of british rule in India (BASIC)

1. Barter system to monetary system:- Barter transactions was replaced by monetary
exchange system which increase the size of trade.
2. Administration system:- Indian economy got the system of efficient administration
from Britishers who bring all the independent states into common frame
3. Spread of railways:-British introduced the railways in India in 1850. The railways
enabled people to undertake long distance travel and thereby break geographical and
cultural barriers.
4. Increasing Commercialization of agriculture:- Promote commercialization of
Indian agriculture and volume of the India’s export trade undoubtedly expanded.
5. Check on famines:- Expanding means of transportation help to check the famine hit
areas as they rush to the drought hit areas

IMPORTANT : The social and economic challenges before India at the time of
independence were enormous. Do you agree with the statement? Give reasons.
Ans. The given statement is correct.
By the time India won its independence, the impact of the two- century long British colonial
rule was already showing on all aspects of the Indian economy. Some of the most crucial
social and economic challenges before the country were:
1. Low level of economic growth and development — The country's growth of aggregate real
output was less than 2% p.a coupled with about 0.5% p.a. growth in per capital output.
2. The agricultural sector was already saddled with surplus labour and extremely low
productivity. About 75% of the country's population derived livelihood directly or indirectly
from agriculture. Agricultural productivity was extremely low due to low levels of
technology, lack of irrigation facilities, negligible use of fertilisers, etc.
3. The industrial sector was crying for modernisation, diversification. capacity building and
increased public investment.
• There were only a few industries in the fields of cotton and jute textile, iron and steel, sugar,
cement, paper, etc.
• There was hardly any capital goods industry to help promote industrialisation in India.
• The industrial growth rate was very low.
• The public sector remained confined only to the railways, power generation,
communication, ports and some other departmental undertakings.
4. Foreign trade was oriented to feed the industrial revolution in Britain. British maintained a
monopoly control over India's exports and imports. A large export surplus generated from
India's foreign trade was used to make payments for the expenses incurred by an office set up
the colonial government in Britain, import of invisible items, etc.; all of which led to the
drain of Indian wealth.
5. Infrastructure facilities such as railway network, roads, water transport, posts and
telegraphs, etc. needed uparadation expansion and public-orientation.
6. Prevalence of rampant poverty and unemployment required welfare orientation of public
economic policy.
Sequence of Events
I Introduction of the railways in India by the British 1850
II Opening of the Suez Canal 1869
III Various details about the population of British India were first 1881
collected through a census
IV The Tata Iron and Steel Company (TISCO) was incorporated 1907
V Second stage of demographic transition in India 1921