Indian Economy on the Eve of Independence

When India became independent in 1947, it inherited an economy shattered by nearly two centuries of British colonial rule. The sole aim of British policy had been to serve the interests of Britain — India was used as a supplier of cheap raw materials for British industry and a market for finished British goods. As a result, India's own economy was kept backward and stagnant.

By the eve of independence, India's economy showed the marks of this colonial exploitation: very low growth (national income grew at well under 1% a year in the first half of the 20th century), low per-capita income, and widespread poverty.

The agricultural sector — on which about 85% of the population depended — was in a particularly poor state. Its key features:

• It was stagnant and backward, with very low productivity. Farming used old methods and there was little irrigation or modern technology.
• The land revenue (zamindari) system in many areas left actual cultivators poor and exploited, while intermediaries (zamindars) profited; this killed any incentive to improve the land.
• Farmers were forced into commercialisation of agriculture — growing cash crops (like indigo and cotton) for export rather than food for themselves — which often caused hardship and famine.
• Output was low and the country could not even feed itself well; famines were common.

So at independence, the foundation of the economy — agriculture — was weak, low in productivity, and structured to benefit Britain rather than the Indian farmer.

The British did not just neglect industry — their policies actively de-industrialised India. Before colonial rule, India was famous for its handicrafts (fine textiles, metalwork) that were known worldwide. Under the British, these were systematically ruined:

• Cheap, machine-made British goods (especially textiles) flooded Indian markets and destroyed the demand for Indian handicrafts.
• India's traditional handicraft industries declined, throwing artisans out of work, while no modern industry was built to replace them. This twin process — the decline of handicrafts without the rise of modern industry — is called de-industrialisation.
• A few modern industries (cotton textiles in the west, jute in the east, later iron and steel — TISCO, 1907) did come up, but they were too few, concentrated in a few regions, and largely under foreign control. There was almost no capital goods industry.

India's foreign trade was shaped to benefit Britain: India became an exporter of primary products (raw cotton, jute, indigo, tea, food grains) and an importer of finished goods (British cloth, machinery). India usually had an export surplus, but this did not help Indians — it was used to pay for Britain's expenses and led to a drain of wealth from India to Britain.

The occupational structure hardly changed throughout British rule: agriculture employed about 70–75% of the workforce, while industry and services together employed only a small share. This showed an undeveloped, backward economy that had failed to modernise.

The demographic condition of India before independence was typical of a poor, underdeveloped country (the "first stage" of demographic transition):

• Both the birth rate and the death rate were very high (around 48 and 40 per thousand). High death rates were caused by famines, epidemics and lack of healthcare.
• Life expectancy was extremely low — only about 32 years.
• Infant mortality was very high (about 218 per thousand), and overall literacy was very low — under 16%, with female literacy near 7%.
• Mass poverty and poor health and education were the rule.

The infrastructure that the British did build was meant to serve their own interests, not India's development:

• Railways (introduced in 1853) were the most important. They did break India's isolation and help movement — but their main purpose was to carry raw materials from the interior to the ports for export, and British goods inland; they were not built to develop India.
• Roads, ports, and the telegraph were similarly developed for British administration and trade.
• There was very little development of schools, hospitals, irrigation or modern industry — the things that would have helped ordinary Indians.

So on the eve of independence, India was a backward, stagnant economy — poor agriculture, ruined handicrafts, little industry, a drained treasury, a high-birth-high-death population, mass illiteracy, and an infrastructure built for the coloniser. This was the difficult starting point from which independent India had to build its development — the subject of the chapters that follow.