NCERT Explained: Class XI Economics, Chapter 1 - Indian Economy on the Eve of Independence

Introduction to the Topic

The history of India's economic development is a fascinating tale of resilience and transformation. To understand India's current economic status, we must first look back at the foundation laid during the colonial era. Chapter 1 of the Class XI Economics textbook, 'Indian Economy on the Eve of Independence,' provides a comprehensive overview of the economic conditions that existed in India before and at the time of independence in 1947.

Before the arrival of the British, India was a prosperous country with a flourishing economy. It was renowned globally for its high-quality handicrafts, cotton, and silk textiles, as well as its intricate metal and precious stone works. However, the economic policies pursued by the colonial government were concerned more with the protection and promotion of the economic interests of their home country (Britain) than with the development of the Indian economy. This transformed India into a mere supplier of raw materials and a consumer of finished industrial products from Britain. This chapter helps students understand the structural distortions created by two centuries of colonial rule.

Key Concepts Explained

1. Low Level of Economic Development

Under the British administration, there was no sincere attempt to estimate India's national and per capita income. While some individual attempts were made by experts like Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai, their results were conflicting. However, Dr. Rao’s estimates are considered very significant. Most of these studies indicated that the country’s real output grew at less than two percent during the first half of the twentieth century, with only a 0.5 percent growth in per capita output per year.

2. The Agricultural Sector

During the colonial period, the Indian economy was fundamentally agrarian; about 85 percent of the country’s population lived mostly in villages and derived livelihood directly or indirectly from agriculture. Despite being the main source of livelihood, the agricultural sector continued to experience stagnation and, not infrequently, unusual deterioration.Key factors for agricultural stagnation included:

• Land Settlement Systems: The most notorious was the Zamindari system implemented in the Bengal Presidency. Under this system, 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.
• Commercialisation of Agriculture: Farmers were forced to produce cash crops like indigo (needed by the British textile industry) instead of food crops. This led to a higher vulnerability to famines as the food grain production decreased.
• Lack of Resources: 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.

3. The Industrial Sector

India could not develop a sound industrial base under colonial rule. Even the world-famous traditional handicraft industries declined, and no modern industrial base was allowed to come up to take their place.The primary motives of the British for de-industrialising India were:

• To reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain.
• To turn India into a sprawling market for the finished products of those British industries.

The decline of handicrafts created massive unemployment and a new demand in the Indian consumer market, which was profitably met by increasing imports of cheap manufactured goods from Britain. During the second half of the 19th century, modern industry began to take root in India (cotton and jute mills), but its progress remained very slow. The Tata Iron and Steel Company (TISCO) was incorporated in 1907, marking a significant milestone. However, there was a severe lack of capital goods industries to help promote further industrialisation.

4. Foreign Trade

India has been an important trading nation since ancient times. But 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.

• Monopoly Control: More than half of India’s foreign trade was restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka), and Persia (Iran).
• Suez Canal: The opening of the Suez Canal in 1869 served as a direct route for ships operating between India and Britain, further intensifying British control over India’s foreign trade.
• Drain of Wealth: The most important characteristic of foreign trade during this period was the generation of a large export surplus. However, this surplus came at a huge cost to the country’s economy. It did not result in any inflow of gold or silver into India. Instead, it was used to make payments for expenses incurred by an office set up by the colonial government in Britain, expenses on war, and the import of invisible items. This is known as the 'Drain of Indian Wealth'.

5. Demographic Condition

Various details about the population of British India were first collected through a census in 1881. Though suffering from certain limitations, it revealed the unevenness in India’s population growth. In demographic transition, 1921 is known as the 'Year of Great Divide' because, after this year, the population of India started growing steadily.

• Literacy Rate: The overall literacy level was less than 16 percent, and female literacy was at a dismal low of about 7 percent.
• Public Health: Public health facilities were either unavailable to large chunks of the population or, when available, were highly inadequate. Consequently, water and air-borne diseases were widespread.
• Life Expectancy: Life expectancy was very low—only 32 years, in contrast to the present 69 years.
• Mortality Rates: The infant mortality rate was quite alarming—about 218 per thousand (today it is around 30 per thousand).

6. Occupational Structure

The occupational structure, which refers to the distribution of working persons across different industries and sectors, showed little sign of change. The agricultural sector accounted for the largest share of the workforce, which usually remained at a high of 70-75 percent, while the manufacturing and services sectors accounted for 10 and 15-20 percent respectively. Another striking feature was the growing regional variation, where parts of the then Madras Presidency, Bombay, and Bengal witnessed a decline in the dependence of the workforce on the agricultural sector with a commensurate increase in the manufacturing and services sectors.

7. Infrastructure

Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts, and telegraphs did develop. However, the real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.

• Railroads: The British introduced the railways in India in 1850. It is considered one of their most important contributions. It enabled people to undertake long-distance travel and broke geographical and cultural barriers. However, it also fostered the commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies.
• Roads: Roads were built primarily for mobilizing the army within India and drawing out raw materials from the countryside to the nearest railway station or port.
• Communication: The introduction of the expensive system of the Electric Telegraph in India served the purpose of maintaining law and order.

Summary & Key Takeaways

By the time India won its independence, the impact of the two-century-long British rule was clearly visible on all aspects of the Indian economy. The following points summarize the state of the economy in 1947:

• Agricultural Sector: Stagnant, burdened with surplus labor, and characterized by extremely low productivity.
• Industrial Sector: In need of modernization, diversification, and increased public investment.
• Foreign Trade: Oriented to feed the Industrial Revolution in Britain.
• Infrastructure: Developed but required expansion and orientation towards public welfare.
• Poverty and Unemployment: Widespread, requiring immediate policy intervention to uplift the masses.

Understanding this historical context is crucial for students as it sets the stage for the subsequent chapters on economic planning and the reforms that shaped the modern Indian economy.