NCERT Class 11 • Indian Economic Development • Chapter "Indian Economy on the Eve of Independence"

The Colonial Economy and Its Legacy

On the eve of independence India's economy was stagnant, backward and heavily agricultural. Colonial policy had treated India as a supplier of raw material and a market for finished British goods, and this shaped every sector, from farming and handicraft to trade and infrastructure.

Agriculture and Industry Under Colonial Rule

• Agriculture was stagnant, with very low productivity and a large share of the population depending on it.
• The land settlement systems made revenue collection the priority, so cultivators had no incentive or means to invest.
• Farmers were forced towards commercial crops such as indigo for export rather than food for themselves.
• Handicraft industry, which once had a world reputation in cotton and silk textile, declined sharply.
• This deindustrialisation happened because of heavy duties on Indian goods abroad, free entry of machine made British goods, and the loss of princely patronage.
• Modern industry began late, with cotton textile in western India and jute in Bengal, followed by the iron and steel works at Jamshedpur.
• The public sector was very limited and capital goods industry was almost absent.

Trade, Infrastructure and Demography

• Foreign trade was dominated by Britain, and India exported raw material while importing finished goods.
• The large export surplus did not bring wealth in, because it financed British expenses, which is called the drain of wealth.
• Railways were built mainly to move raw material to ports and troops inland, though they did break local isolation.
• Literacy was very low, life expectancy was short and infant mortality was very high.
• The economy at independence therefore needed a complete restructuring, which is why planning was adopted.

Drain of wealth — the transfer of India's export surplus to Britain in the form of expenses and payments without any return flow of goods.