Indian Economy Part 2 – State of India’s economy prior to the country’s independence – 2



  1. India could not develop a sound industrial base under the colonial rule.
  2. 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.
  3. The primary motive of the colonial government behind this policy of systematically deindustrialising India was two-fold.
  4. 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.
  5. The decline of the indigenous handicraft industries created not only massive unemployment in India but also a new demand in the Indian consumer market
  6. This was now deprived of the supply of locally made goods.
  7. This demand was profitably met by the increasing imports of cheap manufactured goods from Britain.
  8. During the second half of the nineteenth century, modern industry began to take root in India
  9. Initially, this development was confined to the setting up of cotton and jute textile mills.
  10. The jute mills dominated by the foreigners were mainly concentrated in Bengal.
  11. The iron and steel industries began coming up in the beginning of the twentieth century.
  12. The Tata Iron and Steel Company (TISCO) were incorporated in 1907.
  13. A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.
  14. There was hardly any capital goods industry to help promote further industrialisation in India.
  15. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
  16. The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
  17. The significant drawback of the new industrial sector was the very limited area of operation of the public sector.
  18. This sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.


  1. India has been an important trading nation since ancient times.
  2. 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.
  3. India became an
  4. Exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc.
  5. An importer of finished consumer goods like cotton, silk and woollen clothes and capital goods like light machinery produced in the factories of Britain.
  6. Britain maintained a monopoly control over India’s exports and imports.
  7. The opening of the Suez Canal further intensified British control over India’s foreign trade
  8. The most important characteristic of India’s foreign trade throughout the colonial period was the generation of a large export surplus.
  9. But this surplus came at a huge cost to the country’s economy.
  10. Several essential commodities—food grains, clothes kerosene etc. — became conspicuous by their acute scarcity in the domestic market.
  11. This export surplus did not result in any flow of gold or silver into India.
  12. This was used to make payments for the expenses incurred by an office set up by the colonial government invisible items, all of which led to the drain of Indian wealth.


  1. Though suffering from certain limitations, it revealed the unevenness in India’s population growth.
  2. Every ten years such census operations were carried out.
  3. Before 1921, India was in the first stage of demographic transition.
  4. The second stage of transition began after 1921.
  5. However, neither the total population of India nor the rate of population growth at this stage was very high.
  6. The overall literacy level was less than 16 per cent.
  7. Out of this, the female literacy level was at a negligible low of about seven per cent.
  8. Public health facilities were either unavailable to large chunks of the population or, when available, were highly inadequate.
  9. Water and air-borne diseases were rampant and took a huge toll on life.
  10. Particularly, the infant mortality rate was quite alarming—about 218 per thousand in contrast to the present infant mortality rate of 63 per thousand.
  11. Life expectancy was also very low— 32 years in contrast to the present 63 years.
  12. In the absence of reliable data, it is difficult to specify the extent of poverty at that time.


  1. The occupational structure of India, i.e., distribution of working persons across different industries and sectors showed little sign of change.
  2. The agricultural sector accounted for the largest share of the workforce
  3. While the manufacturing and the services sectors accounted for only 10 and 15-20 per cent respectively.
  4. Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Maharashtra and West Bengal witnessed a decline in the dependence of the workforce on the agricultural sector
  5. However, there had been an increase in the share of the workforce in agriculture during the same time in states such as Orissa, Rajasthan and Punjab.
  6. Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs did develop.
  7. The real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
  8. Roads constructed in India prior to the advent of the British rule were not fit for modern transport.
  9. 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
  10. There always remained an acute shortage of all-weather roads to reach out to the rural areas during the rainy season.
  11. People mostly living in these areas suffered grievously during natural calamities and famines.
  12. The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
  13. The railways affected the structure of the Indian economy in two important ways.
  14. On the one hand, it enabled people to undertake long-distance travel and thereby break geographical and cultural barriers
  15. On the other hand, it fostered commercialisation of Indian agriculture which adversely affected the comparative self-sufficiency of the village economies in India.
  16. The volume of India’s export trade undoubtedly expanded but its benefits rarely accrued to the Indian people.
  17. The inland waterways, at times, also proved uneconomical as in the case of the Coast Canal on the Orissa coast.
  18. The introduction of the expensive system of the electric telegraph in India, similarly, served the purpose of maintaining law and order.
  19. The postal services, on the other hand, despite serving a useful public purpose, remained all through inadequate.

We may conclude that

  1. 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.
  2. The agricultural sector was already saddled with surplus labour and extremely low productivity.
  3. Foreign trade was oriented to feed the Industrial Revolution in Britain.
  4. Infrastructure facilities, including the famed railway network, needed upgradation, expansion and public orientation.
  5. Prevalence of rampant poverty and unemployment required welfare orientation of public economic policy.
  6. In a nutshell, the social and economic challenges before the country were enormous.

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