Chapter 1 — Indian Economy on the Eve of Independence

Chapter 1 is titled 'Indian Economy on the Eve of Independence.' It describes the state of India's economy in 1947, the year of independence, covering agriculture, industry, foreign trade, demographic conditions, occupational structure, and infrastructure. It explains how British colonial policies led to underdevelopment and stagnation across all sectors.

According to the chapter, the sole purpose of British colonial rule was to reduce India to a raw material supplier for Britain's own rapidly expanding modern industrial base. Colonial economic policies were concerned more with the protection and promotion of British economic interests than with developing the Indian economy.

Agricultural stagnation was caused mainly by the various systems of land settlement introduced by the colonial government. Under the zamindari system, implemented in the Bengal Presidency, profit from agriculture went to zamindars rather than cultivators. Additionally, low levels of technology, lack of irrigation facilities, and negligible use of fertilisers aggravated the plight of farmers and contributed to dismal agricultural productivity.

Under the zamindari system, which was implemented in the Bengal Presidency comprising parts of India's present-day eastern states, the profit accruing from agriculture went to the zamindars instead of the cultivators. The main interest of zamindars was only to collect rent regardless of the economic condition of cultivators, causing immense misery and social tension. Dates were fixed for depositing specified sums of revenue, failing which zamindars would lose their rights, so they had little incentive to invest in improving agriculture.

Modern industry began taking root in India during the second half of the nineteenth century. Cotton textile mills, mainly dominated by Indians, were located in Maharashtra and Gujarat, while jute mills dominated by foreigners were concentrated in Bengal. The Tata Iron and Steel Company (TISCO) was incorporated in 1907. A few other industries in the fields of sugar, cement, and paper came up after the Second World War.

The two-fold motive was, first, to reduce India to the status of a mere exporter of important raw materials for upcoming modern industries in Britain, and second, to turn India into a large market for the finished products of those industries so that their continued expansion could be ensured to the maximum advantage of Britain. This systematically destroyed India's indigenous handicraft industries.

India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, and jute, and an importer of finished consumer goods and capital goods produced in Britain. Britain maintained monopoly control over India's exports and imports — more than half of India's foreign trade was restricted to Britain, with the rest allowed with a few countries like China, Ceylon (Sri Lanka), and Persia (Iran). The opening of the Suez Canal further intensified British control.

India generated a large export surplus during the colonial period, but this surplus did not result in any flow of gold or silver into India. Instead, it was used to make payments for expenses incurred by a colonial government office set up in Britain, expenses on wars fought by the British government, and imports of invisible items. These outflows together constituted the drain of Indian wealth.

The overall literacy level was less than 16 per cent, with female literacy at a negligible low of about 7 per cent. The infant mortality rate was about 218 per thousand, in contrast to the present rate of 28 per thousand. Life expectancy was only 32 years, in contrast to the present 70 years. Public health facilities were either unavailable or highly inadequate, and water and air-borne diseases were rampant.

Various details about the population of British India were first collected through a census in 1881. Though it suffered from certain limitations, it revealed the unevenness in India's population growth. Subsequently, census operations were carried out every ten years. Before 1921, India was in the first stage of demographic transition; the second stage of transition began after 1921.

The agricultural sector accounted for the largest share of the workforce, usually remaining at a high of 70–75 per cent, while the manufacturing and services sectors accounted for only 10 and 15–20 per cent respectively. There was also growing regional variation — parts of the then Madras Presidency, Bombay, and Bengal witnessed a decline in dependence on agriculture, while states such as Orissa, Rajasthan, and Punjab saw an increase in the share of agricultural workforce.

The British introduced railways in India in 1850. While railways enabled people to undertake long-distance travel and break geographical and cultural barriers, and fostered commercialisation of Indian agriculture, the real motive was not public welfare. Roads and railways primarily served to mobilise the army within India and to draw out raw materials from the countryside to the nearest railway station or port to send them to England. The volume of exports expanded but its benefits rarely accrued to the Indian people.

Notable estimators of India's national and per capita income during the colonial period included Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao, and R.C. Desai. Among these, V.K.R.V. Rao's estimates during the colonial period were considered very significant. Most studies found that the country's growth of aggregate real output during the first half of the twentieth century was less than two per cent, with a meagre half per cent growth in per capita output per year.

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