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(194790)
UNIT
III
UNIT
I
The two chapters in this unit give us an overview
of the state of the Indian economy as it was at the
eve of independence till after four decades of
planned development, which was a path that India
chose. This meant that the Government of India
had to take a series of steps such as the
establishment of the Planning Commission and
announcement of five year plans. An overview of
the goals of five year plans and a critical appraisal
of the merits and limitations of planned development
has been covered in this unit.
After studying this chapter, the learners will
becomefamiliarwiththestateoftheIndianeconomyin1947,the
yearofIndiasIndependence
understandthefactorsthatledtotheunderdevelopmentand
stagnationoftheIndianeconomy.
INDIAN ECONOMY
ON THE
EVE OF INDEPENDENCE
1
4INDIANECONOMICDEVELOPMENT
1.1 INTRODUCTION
Theprimaryobjectiveofthisbook,
Indian Economic Development,isto
familiariseyouwiththebasicfeatures
oftheIndianeconomy,andits
development,asitistoday,inthe
aftermathofIndependence.However,it
isequallyimportanttoknowsomething
aboutthecountryseconomicpasteven
asyoulearnaboutitspresentstateand
futureprospects.So,letusfirstlookat
thestateofIndiaseconomypriortothe
countrysindependenceandforman
ideaofthevariousconsiderationsthat
shapedIndiaspostindependence
developmentstrategy.
ThestructureofIndiaspresentday
economyisnotjustofcurrent
making;ithasitsrootssteepedin
history,particularlyintheperiodwhen
IndiawasunderBritishrulewhich
lastedforalmosttwocenturiesbefore
Indiafinallywonitsindependenceon
15August1947.Thesolepurposeof
theBritishcolonialruleinIndiawas
toreducethecountrytobeingafeeder
economyforGreatBritainsown
rapidlyexpandingmodernindustrial
base.Anunderstandingofthe
exploitativenatureofthisrelationship
isessentialforanyassessmentofthe
kindandlevelofdevelopmentwhich
theIndianeconomyhasbeenableto
attainoverthelastsixdecades.1.2
Dominion we can survive, but if we lose India, the sun of our Empire will have
set.
Victor Alexander Vruce, the Viceroy of British India in 1894
INDIANECONOMYONTHEEVEOFINDEPENDENCE5
Theeconomicpoliciespursuedby
thecolonialgovernmentinIndiawere
concernedmorewiththeprotection
andpromotionoftheeconomic
interestsoftheirhomecountrythan
withthedevelopmentoftheIndian
economy.Suchpoliciesbroughtabout
afundamentalchangeinthestructure
oftheIndianeconomytransforming
thecountryintoanetsupplierofraw
materialsandconsumeroffinished
industrialproductsfromBritain.
Obviously,thecolonialgovernment
nevermadeanysincereattemptto
estimateIndiasnational andper
capita income.Someindividual
attemptswhichweremadetomeasure
suchincomesyieldedconflictingand
inconsistentresults.Amongthe
notableestimatorsDadabhai
Naoroji,WilliamDigby,FindlayShirras,
V.K.R.V.RaoandR.C.Desaiitwas
Raowhoseestimatesofthenational
andpercapitaincomesduringthe
colonialperiodwereconsideredvery
significant.However,moststudiesdid
findthatthecountrysgrowthof
aggregaterealoutputduringthefirst
halfofthetwentiethcenturywasless
thantwopercentcoupledwitha
meagrehalfpercentgrowthinper
capitaoutputperyear.
amplyforitsownconsumption
wheat,vegetables,grains,fowls,ducks
andgeese.Ithasimmenseherdsofpigs
andflocksofsheepandgoats.Fishof
everykindithasinprofusion.From
rajmahal totheseaisanendless
numberofcanals,cutinbygoneages
fromtheGangesbyimmenselabourfor
navigationandirrigation.
Takenoteoftheagriculturalprosperityinourcountryintheseventeenthcentury.
Contrastit
withagriculturalstagnationaroundthetimewhentheBritishleftIndia,around200
yearslater.
6INDIANECONOMICDEVELOPMENT
stagnationand,notinfrequently,
unusualdeterioration.Agricultural
productivity becameincrementally
lowthough,inabsoluteterms,the
sectorexperiencedsomegrowthdue
totheexpansionoftheaggregatearea
undercultivation.Thisstagnationin
theagriculturalsectorwascaused
mainlybecauseofthevarious
systemsofland settlement that
wereintroducedbythecolonial
government.Particularly,underthe
zamindari systemwhichwas
implementedinthethenBengal
PresidencycomprisingpartsofIndias
presentdayeasternstates,theprofit
accruingoutoftheagriculturesector
wenttothezamindars insteadofthe
cultivators.However,aconsiderable
numberofzamindars, andnotjust
thecolonialgovernment,didnothing
toimprovetheconditionof
agriculture.Themaininterestofthe
zamindars wasonlytocollectrent
regardlessoftheeconomiccondition
ofthecultivators;thiscaused
immensemiseryandsocialtension
amongthelatter.Toaverygreat
extent,thetermsoftherevenue
settlement werealsoresponsiblefor
thezamindars adoptingsuchan
attitude;datesfordepositingspecified
sumsofrevenuewerefixed,failing
whichthezamindars weretolosetheir
rights.Besidesthis,lowlevelsof
technology,lackofirrigationfacilities
andnegligibleuseoffertilisers,all
addeduptoaggravatetheplightof
thefarmersandcontributedto
thedismallevelofagricultural
productivity.Therewas,ofcourse,
someevidenceofarelativelyhigher
yieldofcashcropsincertainareasof
thecountryduetocommercialisation
of agriculture.Butthiscouldhardly
helpfarmersinimprovingtheir
economicconditionas,insteadof
producingfoodcrops,nowtheywere
Work These Out
ComparethemapofBritishIndiawiththatofindependentIndiaandfind
outtheareasthatbecamepartsofPakistan.Whywerethosepartsso
importanttoIndiafromtheeconomicpointofview?(Refer,toyour
advantage,DrRajendraPrasadsbook,India Divided).
WhatwerethevariousformsofrevenuesettlementadoptedbytheBritish
inIndia?Wheredidtheyimplementthemandtowhateffect?Howfardo
youthinkthosesettlementshaveabearingonthecurrentagricultural
scenarioinIndia?(Inyourattempttofindanswerstothesequestions,you
mayrefertoRameshChandraDuttsEconomic History of India, whichcomes
inthreevolumes,andB.H.BadenPowellsThe Land Systems of British
India,alsointwovolumes.Forbettercomprehensionofthesubject,you
canalsotryanddevelopanillustratedagrarianmapofBritishIndiaeither
byhandorwiththehelpofyourschoolcomputer.Remember,nothing
helpsbetterthananillustratedmaptounderstandthesubjectathand).
INDIANECONOMYONTHEEVEOFINDEPENDENCE7
producingcashcropswhichwereto
beultimatelyusedbyBritish
industriesbackhome.Indias
agriculturalproductionreceiveda
furthersetbackduetothecountrys
partitionatthetimeofindependence.
Asizeableportionoftheundivided
countryshighlyirrigatedandfertile
landwenttoPakistan;thishadan
adverseimpactuponIndiasoutput
fromtheagriculturesector.
ParticularlyaffectedwasIndiasjute
industrysincealmostthewholeofthe
juteproducingareabecamepartof
EastPakistan(nowBangladesh).
Indiasjutegoodsindustry(inwhich
thecountryhadenjoyedaworld
monopolysofar),thus,suffered
heavilyforlackofrawmaterial.
importantrawmaterialsforthe
upcomingmodernindustriesin
Britainand,second,toturnIndiainto
asprawlingmarketforthefinished
productsofthoseindustriessothat
theircontinuedexpansioncouldbe
ensuredtothemaximumadvantageof
theirhomecountryBritain.Inthe
unfoldingeconomicscenario,the
declineoftheindigenoushandicraft
industriescreatednotonlymassive
unemploymentinIndiabutalsoanew
demandintheIndianconsumer
market,whichwasnowdeprivedofthe
supplyoflocallymadegoods.This
demandwasprofitablymetbythe
increasingimportsofcheap
manufacturedgoodsfromBritain.
Duringthesecondhalfofthe
nineteenthcentury,modernindustry
begantotakerootinIndiabutits
progressremainedveryslow.Initially,
thisdevelopmentwasconfinedtothe
settingupofcottonandjutetextile
mills.Thecottontextilemills,mainly
dominatedbyIndians,werelocatedin
thewesternpartsofthecountry,
namely,MaharashtraandGujarat,
whilethejutemillsdominatedbythe
foreignersweremainlyconcentratedin
Bengal.Subsequently,theironand
steelindustriesbegancomingupin
thebeginningofthetwentiethcentury.
TheTataIronandSteelCompany
(TISCO)wasincorporatedin1907.A
fewotherindustriesinthefieldsof
sugar,cement,paperetc.cameupafter
theSecondWorldWar.
However,therewashardlyany
capital goods industry tohelp
promotefurtherindustrialisationin
India.Capitalgoodsindustrymeans
industrieswhichcanproducemachine
toolswhichare,inturn,usedfor
producingarticlesforcurrent
consumption.Theestablishmentofa
fewmanufacturingunitshereand
8INDIANECONOMICDEVELOPMENT
therewasnosubstitutetothenear
wholesaledisplacementofthe
countrystraditionalhandicraft
industries.Furthermore,thegrowth
rateofthenewindustrialsectorand
itscontributiontotheGross Domestic
Product (GDP) remainedverysmall.
Anothersignificantdrawbackofthe
newindustrialsectorwasthevery
limitedareaofoperationofthepublic
sector.Thissectorremainedconfined
onlytotherailways,powergeneration,
communications,portsandsome
otherdepartmentalundertakings.
keroseneetc.becameconspicuous
bytheiracutescarcityinthedomestic
market.Furthermore,thisexport
surplusdidnotresultinanyflowof
goldorsilverintoIndia.Rather,thiswas
usedtomakepaymentsforthe
expensesincurredbyanofficesetup
bythecolonialgovernmentinBritain,
expensesonwar,againfoughtbythe
Britishgovernment,andtheimportof
invisibleitems,allofwhichledtothe
drainofIndianwealth.
everytenyearssuchcensusoperations
werecarriedout.Before1921,India
wasinthefirststageofdemographic
transition.Thesecondstageof
transitionbeganafter1921.However,
neitherthetotalpopulationofIndianor
therateofpopulationgrowthatthis
stagewasveryhigh.
Thevarioussocialdevelopment
indicatorswerealsonotquite
encouraging.Theoverallliteracylevel
waslessthan16percent.Outofthis,
thefemaleliteracylevelwasata
negligiblelowofaboutsevenper
cent.Publichealthfacilitieswere
eitherunavailabletolargechunksof
populationor,whenavailable,were
highlyinadequate.Consequently,
waterandairbornediseaseswere
rampantandtookahugetollon
life.Nowonder,theoverallmortality
rate wasveryhighandinthat,
particularly,theinfant mortality
rate wasquitealarmingabout218
perthousandincontrasttothe
presentinfantmortalityrateof63per
thousand.Life expectancy wasalso
verylow32yearsincontrasttothe
present63years.Intheabsenceof
reliabledata,itisdifficulttospecifythe
extentofpovertyatthattimebutthere
isnodoubtthatextensivepoverty
prevailedinIndiaduringthecolonial
periodwhichcontributedtothe
worseningprofileofIndiaspopulation
ofthetime.
largestshareofworkforce,which
usuallyremainedatahighof7075
percentwhilethemanufacturingand
theservicessectorsaccountedforonly
10and1520percentrespectively.
Anotherstrikingaspectwasthe
growingregionalvariation.Partsofthe
thenMadrasPresidency(comprising
areasofthepresentdaystatesofTamil
Nadu,AndhraPradesh,Keralaand
Karnataka),MaharashtraandWest
Bengalwitnessedadeclinein
thedependenceoftheworkforceon
theagriculturalsectorwitha
commensurateincreaseinthe
manufacturingandtheservices
sectors.However,therehadbeenan
increaseintheshareofworkforcein
agricultureduringthesametimein
statessuchasOrissa,Rajasthanand
Punjab.
1.8 INFRASTRUCTURE
Underthecolonialregime,basic
infrastructuresuchasrailways,ports,
watertransport,postsandtelegraphs
diddevelop.However,therealmotive
behindthisdevelopmentwasnotto
providebasicamenitiestothepeople
buttosubservevariouscolonial
interests.RoadsconstructedinIndia
priortotheadventoftheBritishrule
werenotfitformoderntransport.The
colonialadministrationalsocouldnot
accomplishmuchonthisfrontdueto
apaucityoffunds.Theroadsthatwere
builtprimarilyservedthepurposesof
mobilisingthearmywithinIndiaand
drawingoutrawmaterialsfromthe
countrysidetothenearestrailway
stationortheporttosendthesetofar
awayEnglandorotherlucrative
foreigndestinations.Therealways
remainedanacuteshortageofallweather
roadstoreachouttotherural
areasduringtherainyseason.
Naturally,therefore,peoplemostly
livingintheseareassuffered
grievouslyduringnaturalcalamities
andfamines.
TheBritishintroducedthe
railwaysinIndiain1850anditis
consideredasoneoftheirmost
importantcontributions.Therailways
affectedthestructureoftheIndian
economyintwoimportantways.On
theonehanditenabledpeopleto
undertakelongdistancetraveland
therebybreakgeographicaland
culturalbarrierswhile,ontheother
hand,itfosteredcommercialisationof
Indianagriculturewhichadversely
affectedthecomparativeselfsufficiency
ofthevillageeconomiesin
India.ThevolumeofIndiasexport
tradeundoubtedlyexpandedbutits
benefitsrarelyaccruedtotheIndian
people.Thesocialbenefits,whichthe
Work These Out
Canyoufindoutthe
reasonsbehindfrequent
occurrenceoffaminesin
Indiabeforeindependence?
YoumayreadfromNobel
LaureateAmartyaSens
book,Poverty and Famines.
Prepareapiechartfor
theoccupationalstructure
inIndiaatthetimeof
independence.
12INDIANECONOMICDEVELOPMENT
Indianpeoplegainedowingtothe
introductionoftherailways,werethus
outweighedbythecountryshuge
economicloss.
Alongwiththedevelopmentof
roadsandrailways,thecolonial
dispensationalsotookmeasuresfor
developingtheinlandtradeandsea
lanes.However,thesemeasureswere
farfromsatisfactory.Theinland
waterways,attimes,alsoproved
uneconomicalasinthecaseofthe
CoastCanalontheOrissacoast.
Thoughthecanalwasbuiltatahuge
costtothegovernmentexchequer,yet,
itfailedtocompetewiththerailways,
whichsoontraversedtheregion
runningparalleltothecanal,andhad
tobeultimatelyabandoned.The
introductionoftheexpensivesystem
ofelectrictelegraphinIndia,similarly,
servedthepurposeofmaintaininglaw
andorder.Thepostalservices,onthe
otherhand,despiteservingauseful
publicpurpose,remainedallthrough
Fig.1.5 Tata Airlines, a division of Tata and
Sons, was established in 1932
inaugurating the aviation sector in India
Fig. 1.4 First Railway Bridge linking Bombay with Thane, 1854
inadequate.Youwilllearnmoreabout
thepresentstatusofvarious
infrastructureinChapter8.
1.9 CONCLUSION
BythetimeIndiawonitsindependence,
theimpactofthetwocenturylong
Britishcolonialrulewasalready
showingonallaspectsoftheIndian
economy.Theagriculturalsectorwas
alreadysaddledwithsurpluslabour
andextremelylowproductivity.The
industrialsectorwascryingfor
modernisation,diversification,capacity
buildingandincreasedpublic
investment.Foreigntradewasoriented
tofeedtheIndustrialRevolutionin
Britain.Infrastructurefacilities,
includingthefamedrailwaynetwork,
neededupgradation,expansionand
publicorientation.Prevalenceof
rampantpovertyandunemployment
requiredwelfareorientationofpublic
economicpolicy.Inanutshell,the
socialandeconomicchallengesbefore
thecountrywereenormous.