DEVELOPMENT POLICIES AND EXPERIENCE (1947-90)

UNIT

IIIUNIT

I

The two chapters in this unit give us an overviewof the state of the Indian economy as it was at theeve of independence till after four decades ofplanned development, which was a path that Indiachose. This meant that the Government of Indiahad to take a series of steps such as theestablishment of the Planning Commission andannouncement of five year plans. An overview ofthe goals of five year plans and a critical appraisalof the merits and limitations of planned developmenthas been covered in this unit.

After studying this chapter, the learners will

• become familiar with the state of the Indian economy in 1947, the year of India’s Independence

• understand the factors that led to the underdevelopment andstagnation of the Indian economy.

INDIAN ECONOMYON THE

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4 INDIAN ECONOMIC DEVELOPMENT

1.1 INTRODUCTION

The primary objective of this book,Indian Economic Development, is tofamiliarise you with the basic featuresof the Indian economy, and itsdevelopment, as it is today, in theaftermath of Independence. However, itis equally important to know somethingabout the country’s economic past evenas you learn about its present state andfuture prospects. So, let us first look atthe state of India’s economy prior to thecountry’s independence and form anidea of the various considerations thatshaped India’s post-independencedevelopment strategy.

The structure of India’s present-day economy is not just of currentmaking; it has its roots steeped inhistory, particularly in the period whenIndia was under British rule whichlasted for almost two centuries beforeIndia finally won its independence on15 August 1947. The sole purpose ofthe British colonial rule in India wasto reduce the country to being a feedereconomy for Great Britain’s own

rapidly expanding modern industrialbase. An understanding of theexploitative nature of this relationshipis essential for any assessment of thekind and level of development whichthe Indian economy has been able toattain over the last six decades. 1.2

1.2 LOW LEVEL OF ECONOMICDEVELOPMENT UNDER THE

COLONIAL RULE

India had an independent economybefore the advent of the British rule.Though agriculture was the mainsource of livelihood for most people,yet, the country’s economy wascharacterised by various kinds ofmanufacturing activities. India wasparticularly well known for itshandicraft industries in the fields ofcotton and silk textiles, metal andprecious stone works etc. Theseproducts enjoyed a worldwide marketbased on the reputation of the finequality of material used and the highstandards of craftsmanship seen in allimports from India.

Box 1.1: Textile Industry in Bengal

Muslin is a type of cotton textile which had its origin in Bengal, particularly,places in and around Dhaka (spelled during the pre-independence period asDacca), now the capital city of Bangladesh. ‘Daccai Muslin’ had gained worldwidefame as an exquisite type of cotton textile. The finest variety of muslin wascalled malmal. Sometimes, foreign travellers also used to refer to it as malmalshahi or malmal khas implying that it was worn by, or fit for, the royalty.

“India is the pivot of our Empire... If the Empire loses any other part of itsDominion we can survive, but if we lose India, the sun of our Empire will haveset.”

Victor Alexander Vruce, the Viceroy of British India in 1894

5INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

The economic policies pursued bythe colonial government in India wereconcerned more with the protectionand promotion of the economicinterests of their home country thanwith the development of the Indianeconomy. Such policies brought abouta fundamental change in the structureof the Indian economy — transformingthe country into a net supplier of rawmaterials and consumer of finishedindustrial products from Britain.Obviously, the colonial governmentnever made any sincere attempt toestimate India’s national and percapita income. Some individualattempts which were made to measuresuch incomes yielded conflicting andinconsistent results. Among thenotable estimators — DadabhaiNaoroji, William Digby, Findlay Shirras,V.K.R.V. Rao and R.C. Desai — it was

Rao whose estimates of the nationaland per capita incomes during thecolonial period were considered verysignificant. However, most studies didfind that the country’s growth ofaggregate real output during the firsthalf of the twentieth century was lessthan two per cent coupled with ameagre half per cent growth in percapita output per year.

1.3 AGRICULTURAL SECTOR

India’s economy under the Britishcolonial rule remained fundamentallyagrarian — about 85 per cent of thecountry’s population lived mostly invillages and derived livelihood directlyor indirectly from agriculture. However,despite being the occupation of sucha large population, the agriculturalsector continued to experience

Fig. 1.1 India’s agricultural stagnationunder the British colonial rule

Box 1.2: Agriculture DuringPre-British India

The French traveller, Bernier, describedseventeenth century Bengal in thefollowing way: “The knowledge I haveacquired of Bengal in two visits inclinesme to believe that it is richer than Egypt.It exports, in abundance, cottons andsilks, rice, sugar and butter. It producesamply — for its own consumption —wheat, vegetables, grains, fowls, ducksand geese. It has immense herds of pigsand flocks of sheep and goats. Fish ofevery kind it has in profusion. Fromrajmahal to the sea is an endlessnumber of canals, cut in bygone agesfrom the Ganges by immense labour fornavigation and irrigation.”

Take note of the agricultural prosperity in our country in the seventeenth century. Contrast itwith agricultural stagnation around the time when the British left India, around 200 years later.

6 INDIAN ECONOMIC DEVELOPMENT

stagnation and, not infrequently,unusual deterioration. Agriculturalproductivity became incrementallylow though, in absolute terms, thesector experienced some growth dueto the expansion of the aggregate areaunder cultivation. This stagnation inthe agricultural sector was causedmainly because of the varioussystems of land settlement thatwere introduced by the colonialgovernment. Particularly, under thezamindari system which wasimplemented in the then BengalPresidency comprising parts of India’spresent-day eastern states, the profitaccruing out of the agriculture sectorwent to the zamindars instead of thecultivators. However, a considerablenumber of zamindars, and not justthe colonial government, did nothingto improve the condition ofagriculture. The main interest of thezamindars was only to collect rent

regardless of the economic conditionof the cultivators; this causedimmense misery and social tensionamong the latter. To a very greatextent, the terms of the revenuesettlement were also responsible forthe zamindars adopting such anattitude; dates for depositing specifiedsums of revenue were fixed, failingwhich the zamindars were to lose theirrights. Besides this, low levels oftechnology, lack of irrigation facilitiesand negligible use of fertilisers, alladded up to aggravate the plight ofthe farmers and contributed tothe dismal level of agriculturalproductivity. There was, of course,some evidence of a relatively higheryield of cash crops in certain areas ofthe country due to commercialisationof agriculture. But this could hardlyhelp farmers in improving theireconomic condition as, instead ofproducing food crops, now they were

Work These Out

Compare the map of British India with that of independent India and find

out the areas that became parts of Pakistan. Why were those parts soimportant to India from the economic point of view? (Refer, to youradvantage, Dr Rajendra Prasad’s book, India Divided).

What were the various forms of revenue settlement adopted by the Britishin India? Where did they implement them and to what effect? How far doyou think those settlements have a bearing on the current agriculturalscenario in India? (In your attempt to find answers to these questions, youmay refer to Ramesh Chandra Dutt’s Economic History of India, which comesin three volumes, and B.H. Baden-Powell’s The Land Systems of BritishIndia, also in two volumes. For better comprehension of the subject, youcan also try and develop an illustrated agrarian map of British India eitherby hand or with the help of your school computer. Remember, nothinghelps better than an illustrated map to understand the subject at hand).

7INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

producing cash crops which were tobe ultimately used by Britishindustries back home. India’sagricultural production received afurther set back due to the country’spartition at the time of independence.A sizeable portion of the undividedcountry’s highly irrigated and fertileland went to Pakistan; this had anadverse impact upon India’s outputfrom the agriculture sector.Particularly affected was India’s juteindustry since almost the whole of thejute producing area became part ofEast Pakistan (now Bangladesh).India’s jute goods industry (in whichthe country had enjoyed a worldmonopoly so far), thus, sufferedheavily for lack of raw material.

1.4 INDUSTRIAL SECTOR

As in the case of agriculture, so alsoin manufacturing, India could notdevelop a sound industrial base underthe colonial rule. Even as the country’sworld famous handicraft industriesdeclined, no corresponding modernindustrial base was allowed to comeup to take pride of place so longenjoyed by the former. The primarymotive of the colonial governmentbehind this policy of systematically de-industrialising India was two-fold. Theintention was, first, to reduce India tothe status of a mere exporter ofimportant raw materials for theupcoming modern industries inBritain and, second, to turn India intoa sprawling market for the finishedproducts of those industries so thattheir continued expansion could be

ensured to the maximum advantage oftheir home country — Britain. In theunfolding economic scenario, thedecline of the indigenous handicraftindustries created not only massiveunemployment in India but also a newdemand in the Indian consumermarket, which was now deprived of thesupply of locally made goods. Thisdemand was profitably met by theincreasing imports of cheapmanufactured goods from Britain.

During the second half of thenineteenth century, modern industrybegan to take root in India but itsprogress remained very slow. Initially,this development was confined to thesetting up of cotton and jute textilemills. The cotton textile mills, mainlydominated by Indians, were located inthe western parts of the country,namely, Maharashtra and Gujarat,while the jute mills dominated by theforeigners were mainly concentrated inBengal. Subsequently, the iron andsteel industries began coming up inthe beginning of the twentieth century.The Tata Iron and Steel Company(TISCO) was incorporated in 1907. Afew other industries in the fields ofsugar, cement, paper etc. came up afterthe Second World War.

However, there was hardly anycapital goods industry to helppromote further industrialisation inIndia. Capital goods industry meansindustries which can produce machinetools which are, in turn, used forproducing articles for currentconsumption. The establishment of afew manufacturing units here and

8 INDIAN ECONOMIC DEVELOPMENT

there was no substitute to the nearwholesale displacement of thecountry’s traditional handicraftindustries. Furthermore, the growthrate of the new industrial sector andits contribution to the Gross DomesticProduct (GDP) remained very small.Another significant drawback of thenew industrial sector was the verylimited area of operation of the publicsector. This sector remained confinedonly to the railways, power generation,communications, ports and someother departmental undertakings.

1.5 FOREIGN TRADE

India has been an important tradingnation since ancient times. But therestrictive policies of commodityproduction, trade and tariff pursuedby the colonial government adverselyaffected the structure, composition andvolume of India’s foreign trade.Consequently, India became an

exporter of primary products such asraw silk, cotton, wool, sugar, indigo,jute etc. and an importer of finishedconsumer goods like cotton, silk andwoollen clothes and capital goods likelight machinery produced in thefactories of Britain. For all practicalpurposes, Britain maintained amonopoly control over India’s exportsand imports. As a result, more thanhalf of India’s foreign trade wasrestricted to Britain while the rest wasallowed with a few other countries likeChina, Ceylon (Sri Lanka) and Persia(Iran). The opening of the Suez Canalfurther intensified British control overIndia’s foreign trade (see Box 1.3).

The most important characteristicof India’s foreign trade throughout thecolonial period was the generation ofa large export surplus. But thissurplus came at a huge cost to thecountry’s economy. Several essentialcommodities—food grains, clothes,

Work These Out

Prepare a list showing where and when other modern industries of Indiawere first set up. Can you also find out what the basic requirements are forsetting up any modern industry? What, for example, might have been thereasons for the setting up of the Tata Iron and Steel Company at Jamshedpur,which is now in the state of Jharkhand?

How many iron and steel factories are there in India at present? Are theseiron and steel factories among the best in the world or do you think thatthese factories need restructuring and upgradation? If yes, how can this bedone? There is an argument that industries which are not strategic in natureshould not continue to be in the public sector. What is your view?

On a map of India, mark the cotton textiles, jute mills and textile mills thatexisted at the time of independence.

9INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

kerosene etc. — became conspicuousby their acute scarcity in the domesticmarket. Furthermore, this exportsurplus did not result in any flow ofgold or silver into India. Rather, this wasused to make payments for theexpenses incurred by an office set upby the colonial government in Britain,expenses on war, again fought by theBritish government, and the import of

invisible items, all of which led to thedrain of Indian wealth.

1.6 DEMOGRAPHIC CONDITION

Various details about the populationof British India were first collectedthrough a census in 1881. Thoughsuffering from certain limitations, itrevealed the unevenness in India’spopulation growth. Subsequently,

Fig.1.2 Suez Canal: Used as highwaybetween India and Britain

Box 1.3: Trade Through the SuezCanal

Suez Canal is an artificial waterwayrunning from north to south across theIsthmus of Suez in north-easternEgypt. It connects Port Said on theMediterranean Sea with the Gulf ofSuez, an arm of the Red Sea. The canalprovides a direct trade route for shipsoperating between European orAmerican ports and ports located inSouth Asia, East Africa and Oceania bydoing away with the need to sail aroundAfrica. Strategically and economically,it is one of the most importantwaterways in the world. Its opening in1869 reduced the cost of transportationand made access to the Indian marketeasier.

Not to scale

Work These Out

Prepare a list of items that were exported from and imported into India duringthe British rule.

Collect information from the Economic Survey for various years publishedby the Ministry of Finance, Government of India, on various items of exportfrom India and its imports. Compare these with imports and exports fromthe pre-independence era. Also find out the names of prominent ports whichnow handle the bulk of India’s foreign trade.

Not to scale

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every ten years such census operationswere carried out. Before 1921, Indiawas in the first stage of demographictransition. The second stage oftransition began after 1921. However,neither the total population of India northe rate of population growth at thisstage was very high.

The various social developmentindicators were also not quiteencouraging. The overall literacy levelwas less than 16 per cent. Out of this,the female literacy level was at anegligible low of about seven percent. Public health facilities wereeither unavailable to large chunks ofpopulation or, when available, werehighly inadequate. Consequently,water and air-borne diseases wererampant and took a huge toll onlife. No wonder, the overall mortalityrate was very high and in that,

particularly, the infant mortalityrate was quite alarming—about 218per thousand in contrast to thepresent infant mortality rate of 63 perthousand. Life expectancy was alsovery low—32 years in contrast to thepresent 63 years. In the absence ofreliable data, it is difficult to specify theextent of poverty at that time but thereis no doubt that extensive povertyprevailed in India during the colonialperiod which contributed to theworsening profile of India’s populationof the time.

1.7 OCCUPATIONAL STRUCTURE

During the colonial period, theoccupational structure of India, i.e.,distribution of working persons acrossdifferent industries and sectors,showed little sign of change. Theagricultural sector accounted for the

Fig. 1.3 Poverty, malnutrition and poor health facilities also cause the population to grow slowly

1 1INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

largest share of workforce, whichusually remained at a high of 70-75per cent while the manufacturing andthe services sectors accounted for only10 and 15-20 per cent respectively.Another striking aspect was thegrowing regional variation. Parts of thethen Madras Presidency (comprisingareas of the present-day states of TamilNadu, Andhra Pradesh, Kerala andKarnataka), Maharashtra and WestBengal witnessed a decline inthe dependence of the workforce onthe agricultural sector with acommensurate increase in themanufacturing and the servicessectors. However, there had been anincrease in the share of workforce inagriculture during the same time instates such as Orissa, Rajasthan andPunjab.

1.8 INFRASTRUCTURE

Under the colonial regime, basicinfrastructure such as railways, ports,water transport, posts and telegraphsdid develop. However, the real motive

behind this development was not toprovide basic amenities to the peoplebut to subserve various colonialinterests. Roads constructed in Indiaprior to the advent of the British rulewere not fit for modern transport. Thecolonial administration also could notaccomplish much on this front due toa paucity of funds. The roads that werebuilt primarily served the purposes ofmobilising the army within India anddrawing out raw materials from thecountryside to the nearest railwaystation or the port to send these to faraway England or other lucrativeforeign destinations. There alwaysremained an acute shortage of all-weather roads to reach out to the ruralareas during the rainy season.Naturally, therefore, people mostlyliving in these areas sufferedgrievously during natural calamitiesand famines.

The British introduced therailways in India in 1850 and it isconsidered as one of their mostimportant contributions. The railwaysaffected the structure of the Indianeconomy in two important ways. Onthe one hand it enabled people toundertake long distance travel andthereby break geographical andcultural barriers while, on the otherhand, it fostered commercialisation ofIndian agriculture which adverselyaffected the comparative self-sufficiency of the village economies inIndia. The volume of India’s exporttrade undoubtedly expanded but itsbenefits rarely accrued to the Indianpeople. The social benefits, which the

Work These Out

Can you find out thereasons behind frequentoccurrence of famines inIndia before independence?You may read from NobelLaureate Amartya Sen’sbook, Poverty and Famines.

Prepare a pie chart forthe occupational structurein India at the time ofindependence.

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Indian people gained owing to theintroduction of the railways, were thusoutweighed by the country’s hugeeconomic loss.

Along with the development ofroads and railways, the colonialdispensation also took measures fordeveloping the inland trade and sealanes. However, these measures werefar from satisfactory. The inlandwaterways, at times, also proveduneconomical as in the case of theCoast Canal on the Orissa coast.Though the canal was built at a huge

cost to the government exchequer, yet,it failed to compete with the railways,which soon traversed the regionrunning parallel to the canal, and hadto be ultimately abandoned. Theintroduction of the expensive systemof electric telegraph in India, similarly,served the purpose of maintaining lawand order. The postal services, on theother hand, despite serving a usefulpublic purpose, remained all through

Fig.1.5 Tata Airlines, a division of Tata andSons, was established in 1932inaugurating the aviation sector in India

Fig. 1.4 First Railway Bridge linking Bombay with Thane, 1854

Work This Out

There is a perception stillgoing around that inmany ways the Britishadministration in Indiawas quite beneficial. Thisperception needs aninformed debate. Howwould you look at thisperception? Argue thisout in your class—‘Wasthe British Raj good forIndia’?

1 3INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

inadequate. You will learn more aboutthe present status of variousinfrastructure in Chapter 8.

1.9 CONCLUSION

By the time India won its independence,the impact of the two-century longBritish colonial rule was alreadyshowing on all aspects of the Indianeconomy. The agricultural sector wasalready saddled with surplus labourand extremely low productivity. Theindustrial sector was crying for

modernisation, diversification, capacitybuilding and increased publicinvestment. Foreign trade was orientedto feed the Industrial Revolution inBritain. Infrastructure facilities,including the famed railway network,needed upgradation, expansion andpublic orientation. Prevalence oframpant poverty and unemploymentrequired welfare orientation of publiceconomic policy. In a nutshell, thesocial and economic challenges beforethe country were enormous.

Recap

An understanding of the economy before independence is necessary toknow and appreciate the level of development achieved during the post-independence period.

Under the colonial dispensation, the economic policies of the governmentwere concerned more with the protection and promotion of Britisheconomic interests than with the need to develop the economic conditionof the colonised country and its people.

The agricultural sector continued to experience stagnation andincremental deterioration despite the fact that the largest section of Indianpopulation depended on it for sustenance.

Systematic policies pursued by the British-India government led to thecollapse of India’s world famous handicraft industries withoutcontributing, in any significant manner, to its replacement by a modernindustrial base.

Lack of adequate public health facilities, occurrence of frequent naturalcalamities and famines pauperised the hapless Indian people and resultedin engendering high mortality rates.

Some efforts were made by the colonial regime to improve infrastructurefacilities but these efforts were spiced with selfish motives though, in thelong run, the independent Indian government built on this base thecountry’s future economic and social development plan.

1 4 INDIAN ECONOMIC DEVELOPMENT

1. What was the focus of the economic policies pursued by the colonialgovernment in India? What were the impacts of these policies?

2. Name some notable economists who estimated India’s per capitaincome during the colonial period.

3. What were the main causes of India’s agricultural stagnation duringthe colonial period?

4. Name some modern industries which were in operation in our countryat the time of independence.

5. What was the two-fold motive behind the systematic de-industrialisation effected by the British in pre-independent India?

6. The traditional handicrafts industries were ruined under the Britishrule. Do you agree with this view? Give reasons in support of youranswer.

7. What objectives did the British intend to achieve through theirpolicies of infrastructure development in India?

8. Critically appraise some of the shortfalls of the industrial policypursued by the British colonial administration.

9. What do you understand by the drain of Indian wealth during thecolonial period?

10. Which is regarded as the defining year to mark the demographictransition from its first to the second decisive stage?

11. Give a quantitative appraisal of India’s demographic profile duringthe colonial period.

12. Highlight the salient features of India’s pre-independence occupationalstructure.

13. Underscore some of India’s most crucial economic challenges at thetime of independence.

14. When was India’s first official census operation undertaken?

15. Indicate the volume and direction of trade at the time ofindependence.

16. Were there any positive contributions made by the British in India?Discuss.

EXERCISES

1 5INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

REFERENCES

SUGGESTED ADDITIONAL ACTIVITIES

1. Prepare a list of goods and services that were available to people inpre-independence India in rural and urban areas. Compare it withthe consumption pattern of such goods and services by the peopletoday. Highlight the perceptible difference in the people’s standardof living.

2. Find pictures of towns/villages, in your vicinity, of the pre-independence period and compare these with their present scenario.What changes can you mark? Are such changes for better or forworse? Discuss.

3. Rally around your teacher and organise a group discussion on ‘Hasthe zamindari system really been abolished in India’? If theconsensus is negative, then what measures would you think shouldbe taken to banish it and why?

4. Identify the major occupations followed by the people of our countryat the time of independence. What major occupations do the peoplefollow today? In the light of reform policies, how would you visualisethe occupational scenario in India 15 years from now—say, 2020?

BADEN-POWELL, B.H. 1892. The Land Systems of British India, Vols I, II and III.Oxford Clarendon Press, Oxford.

BUCHANAN, D.H. 1966. Development of Capitalist Enterprise in India. FrankCass and Co, London.

CHANDRA, BIPAN. 1993. ‘The Colonial Legacy’ in Bimal Jalan (ed.), The IndianEconomy: Problems and Prospects. Penguin Books, New Delhi.

DUTT, R.C. 1963. Economic History of India, Vols. I and II. Ministry ofInformation and Broadcasting, Government of India, New Delhi.

KUMAR, D. AND MEGHNAD DESAI (Eds.). 1983. Cambridge Economic History ofIndia. Cambridge University Press, Cambridge.

MILL, JAMES.1972. History of British India. Associated Publishing House, NewDelhi.

PRASAD, RAJENDRA. 1946. India Divided. Hind Kitabs, Bombay.

SEN, AMARTYA. 1999. Poverty and Famines. Oxford University Press, New Delhi.