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IAS Study Material Complete Syllabus for IAS

Colonialism was not only the political domination of the country. It was a complete unified structure which sustained itself through various institutions and structures. However, the primary aim of this unified structure was to facilitate the drain of surplus from India to Britain in one form or the other. This drain which continued for the entire 200 years of colonial rule damaged the Indian economic structure. The colonial structure linked the Indian economy to world in a subordinate position. As a result, on the eve of independence, the Indian economy was a backward stagnant economy characterised by widespread poverty. The entire economic structure had been geared to the colonial needs of the British; it was totally a dependent system. Apart from this, the partition of the country brought in its wake innumerable problems for the country, not only in political and social arena but the economic aspects as well. Some of the aspects of the Indian economy at the time of Indian independence are as under:

State of Indian Agriculture

Agriculture has always been the primary occupation of India, and it was so in 1947 i.e. on the eve of independence. About 70 per cent of the total labour force was engaged in this sector. About 50 per cent of the national product was generated in this sector. Food crops accounted for most of the land under cultivation. Low productivity necessitated large areas for food crop cultivation. Even this failed to meet the food requirements of the country. Important crops that were produced were wheat, rice, millets, sugarcane, cotton and jute.  Low  productivity   in the  agricultural   sector  could  be explained by a number  of factors;  more  important   among  these  were  (i) the  rising  pressure  of population  on land;  and  (ii) the neglect of agricultural improvements at the hands of the British Government in India.

  1. The mass of Indian handicraftsmen, ruined as a result of the influx of machine­ made goods  of

British industries could not be absorbed in the indigenous industries. These took to agriculture for subsistence. It was this overcrowding on land, which primarily explained the ruinous subdivision and fragmentation of land resulting in the growth of uneconomic holdings. This, in turn, resulted in a steady decline in the income of the large section of the agricultural population. The impoverishment of the agriculturists disastrously affected agriculture. The impoverished agriculturist could not renew his livestock or properly manure the field. He and his family lost physical energy due to malnutrition and thereby, capacity for labour on the field. Thus, agriculture stagnated, in fact, deteriorated.

  1. The institutional and the infrastructural framework that obtained in the agricultural sector on the eve of independence were also largely responsible for backward agriculture. The Zamindari   system, introduced by the British covered 62 per cent of the land. The remaining 38 per cent was under the Ryotwari system. The Zamindars used to extort as much rent as they could from the cultivators, leaving no surplus and little incentive for the cultivator to bring about any improvements on the land. The Government did not invest in the agricultural in sufficient quantities. Though, some works like canal network in some areas had been laid down, but this was grossly inadequate. Likewise, orderly markets for agricultural produce did not exist, nor were there any government agencies entrusted with this task.  For his credit requirements, the farmer depended upon indigenous bankers in absence of any organised credit system. These bankers like the zamindar or the moneylender grossly exploited the farmer. In short, the agricultural sector as a whole suffered decay and stagnation; the economic condition of peasantry was poor. This type of system could only prove to be a drag on growth and cried for immediate relief and improvement.

State of Indian Industry

Pre-British India was a land of artisans and handicraftsmen. It was during the British period that the modern machine-based industries were established in India. But the industrial development of India was insufficient and lop-sided. The relative backwardness of industrial development in India may be judged from the fact that in 1948-49 factory establishments accounted for only 6.6 per cent of total national income. The total labour force engaged in such establishments was about 2.4 million or 1.8 per cent of the working population in the country. While in the aggregate India’s industrial output may look massive, per head of population it was very much lower than the industrial output in advanced countries. Prior to the First World War the only major industries, which had developed substantially were cotton and jute textiles, for which the country had exceptional natural advantages. The industrial development since the twenties was associated with the adoption of a more progressive industrial and fiscal policy.  The Second World War created conditions for improved utilisation of the existing capacity in Indian industries. This was the major factor responsible for the increase in the recorded industrial production. Industrial   development   during  the war  and  the post-war   period  was influenced,  largely  by the  prevailing   inflationary   conditions   and  scarcities,   with  the result   that  long  term  factors   such  as  the  most-advantageous     location   or  scale  of operation,   the  availability   of raw  materials,   the size  of the  market  and  the  adequacy of the financial  and technical  organisation   for successful  operation  under  competitive conditions   did  not  receive  the  attention   they  deserved.   In the established   industries, the  need  during  the  war period  to work  multiple  shifts  and  difficulties   in the way of securing   imports   for  depreciation    and  replacement    led  to  a  large  accumulation   of deficit  in the maintenance   of capacity.  It took the country several years to make good this deficit.

Major   emphasis   in  industrial   development    in  India   was  on  consumer goods industries; while the development   of basic capital goods industries lagged  far behind. A  high  and   sustained   rate   of  industrial   advance   could   not  be  achieved   without increasing   substantially    the  production   of  basic  industries   such  as  iron  and  steel, aluminum,   ferro-alloys,   and other  metal-making   industries,   chemical   industries  such as  caustic    soda   and   ash,   fertilisers    and   petroleum    products.    In respect   of the manufacture    of plant and machinery   required   by various   industries   only a small beginning had   so far been made with the textile machinery industry.  The developments in power   generation   had to depend   on generating   equipment   from abroad.   In the manufacture   of synthetic drugs and antibiotics and of dyestuffs and organic chemicals only small beginnings   had been made.  Thus industrial growth was neither evenly spread across regions nor across the various industrial sub-sectors. Industrial  structure remained,  palpably   dependent   on  imports  of  plant  and  equipment,   raw  materials   as well  as  spares.

State of Currency and  Banking

Before the British came to India, every independent   province had a distinct currency of its own. This hampered free trade among various states. The East lndia Company   adopted silver rupee coin as the standard   unit of currency in 1806. Rupee  was  also declared  the  legal  tender  currency,   i.e. everyone  was made to accept  rupee  in various  trade  transactions.   These developments   helped to establish a unified monetary system, which helped in expansion   of the market system. Banking on the modern   lines was introduced   in India during the last quarter of the 18th century and the 19th century.  In 1840s, three residency banks were established, one each in Bengal (1840), Bombay (1840),   and Madras (1843).   The  three  banks were  amalgamated   in 1921 to form a new bank, which  came  to be known  as Imperial Bank of India ( after  its nationalisation    in 1955, this  bank acquired  the name  of State Bank of India). The  Reserve  bank  of India,  which  served  as the central  bank  of the country,   was  established   in  1935.  Establishment    of the  chain  of commercial   banks in the  country   helped  to  promote   the  money  and  the  market  system.

State of Industrial Infrastructure

                        The  slow  and  lop-sided   growth  of  the  Indian   industry   could  also  be  attributed   to inadequate   availability   of  infrastructure,    specially   industrial   infrastructure.    During the   British   rule,   although some   steps   had been   taken   to create   and   spread infrastructure facilities,   specifically    in the form of irrigation,   railways,   roads and telephone, these were more intended to gear up colonial exploitation and were also grossly inadequate in relation to the requirements. Communications    facilities were outdated and could hardly be of use to facilitate economic   transactions    by the   industrial   sector.   Likewise,   largely   because   of the indifference shown   towards   raising   generating   capacity,   power   generation    in the economy was nearly negligible.  It could not have provided a basis for strong industrial growth in future.  Similarly,   the  design  of  the  railway  system  and  the freight  policy of the railways,  both favoured  the movement  of manufactured   goods and raw materials from and  to port towns  and  not within  the  country  itself.  This  encouraged   export  of raw materials  rather  than  their  domestic  use, and  import  of industrial  products  rather than their  domestic  manufacture.   In short, infrastructural   inadequacies   at the time of Independence   proved a formidable   challenge   for the economic   policy-makers    in the post-independence era.

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