Indian Economy Part 1 – State of India’s economy prior to the country’s independence

State of India’s economy prior to the country’s independence

  • 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 when India 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 feeder economy for Great Britain’s rapidly expanding modern industrial base.


  • India had an independent economy before the advent of the British rule.
  • Though agriculture was the main source of livelihood for most people.
  • 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.


Textile Industry in Bengal

  • Muslin is a type of cotton textile which had its origin in Bengal, particularly, places in and around Dhaka (spelt during the pre-independence period as Dacca)

  • Daccai Muslin’ had gained worldwide fame as an exquisite type of cotton textile

  • The finest variety of muslin was called malmal.

  • Sometimes, foreign travellers also used to refer to it as malmal shahior malmal khas implying that it was worn by, or fit for, the royalty.



  • 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 net supplier of raw materials and consumer of finished industrial products from Britain.
  • The colonial government never made any sincere attempt to estimate India’snationaland per capita income.

Individual attempts by some Indians to measure per capita income

  1. Some individual attempts which were made to measure such incomes yielded conflicting and inconsistent results
  2. Among the notable estimators — Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai
  3. It was Rao whose estimates of the national and per capita incomes during the colonial period were considered very significant.
  4. 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 with a meagre half per cent growth in per capita output per year.


  • 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 agriculture.
  • Agricultural productivity became incrementally 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
  • Those were introduced by the colonial government. Particularly, under the zamindari system
  • This 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
  • 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;
  • 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.
  • India’s agricultural production received a further set back due to the country’s partition at the time of independence.
  • A sizeable portion of the undivided country’s highly irrigated and fertile land went to Pakistan this had an adverse impact upon India’s output from the agriculture sector.
  • Particularly affected was India’s jute industry since almost the whole of the jute producing area became part of East Pakistan (now Bangladesh).
  • India’s jute goods industry (in which the country had enjoyed a world monopoly so far), thus, suffered heavily for lack of raw material.

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