- India's economy was transformed under British colonial rule from an independent economy focused on agriculture and handicrafts to a colonial economy focused on exporting raw materials and importing British manufactured goods. - Key policies like deindustrialization, lack of infrastructure investment in India, and restricting India's foreign trade weakened India's economic development and caused per capita income to decline relative to Britain. - At independence, India adopted a mixed economy, combining socialist policies like economic planning with private enterprise, in order to promote equitable growth while maintaining economic freedom.

1.  India had been conquered several times before the British
conquest, but the invaders like Portuguese etc. settled in India.
 The differences of the British conquest lies in the fact that it
led to the emergence of a new political and economic system
whose interests were rooted in foreign soil and whose policies
were guided solely by their own interest.
 The main motive of the Britishers was to exploit the Indian
resources for their advantages.

2.  They shifted the trade with the rest of the world. They established
the developed system of railways, telegraphs and legal systems.
 The British concentrated that the Indian economy, trade and
commerce and industrialization should not flourish, and made it
stagnant in the developmental process.
 In 1600, Indian GDP per capita was 60% of British GDP per
capita. But Indian per capita GDP declined absolutely and relatively
as shown in figure below.
 The Great Divergence began partly due to India’s decline and partly
due to British Growth. Indian living standards declined in the 18th
century and stagnated in the 19th century.

3.  India had an independent economy before the advent of British rule.
 India was particularly well known for its handicraft industries in the
fields of cotton and silk textiles, metal and precious stone works,
etc.
 Aim of the British colonial rule in India – To reduce the country to
being a feeder economy for Great Britain’s own rapidly expanding
modern industrial base.
 British Economic policies – concerned more with
the protection and promotion of the economic interests of Britain
than with the development of the Indian economy.

4.  A fundamental change in the structure of the Indian economy –
India was transformed into a net supplier of raw materials
and consumer of finished industrial products from Britain.
 The colonial government never made any sincere attempt to
estimate national and per capita income of India.
 Notable estimators were – Dadabhai Naoroji (Poverty and Un-
British Rule in India), William Digby, Findlay Shirras, V.K.R.V.
Rao (considered very significant) and R.C. Desai

5.  Agrarian Economy – Indian economy under the British rule
was fundamentally agrariane. about 85 per cent of the
country’s population lived mostly in villages and derived
livelihood directly or indirectly from AGRICULTURE.
 Stagnated agriculture sector – Reason being over-
crowded with involvement of maximum population leading to
a very low agricultural productivity, in absolute terms.
 However, the sector experienced some growth due to
the expansion of the aggregate area under cultivation.

6.  Pertaining to systems of land settlement, the profit accruing out of
the agriculture sector went to the zamindars instead of the
cultivators with no zamindars initiating to strive for the
development of agriculture.
 Lack of agricultural inputs – Low levels of technology, lack of
irrigation facilities and negligible use of fertilisers resulted in a
dismal level of agricultural productivity and efficiency.
 India’s agriculture was starved of investment in terracing, flood-
control, drainage and desalination of soil.

7.  The commercialisation of agriculture – could hardly help farmers in
improving their economic condition as they were producing cash
crops which were to be ultimately used by British industries back
home.
 Partition of the country: A sizeable portion of the undivided
country’s highly irrigated and fertile land went to Pakistan leading
to an adverse impact upon India’s output from the agriculture sector
especially, Jute industry (the whole of the area went away to East
Pakistan)

8.  India could not develop a sound industrial base even while
carrying the legacy of churning out the best handicraft stuff in the
world – it declined rapidly and no corresponding modern
industrial base was allowed to take its place.
 Policy of systematic deindustrialisation – To reduce India to
the status of a mere exporter of important raw materials for the
upcoming modern industries in Britain.
 To turn India into a sprawling market for the finished products of
those industries so that their continued expansion could be
ensured to the maximum advantage of Britain.

9.  Decline of the indigenous handicraft industries created
massive unemployment and rural distress in india.
 Cotton and jute textile mills were mainly concentrated in
the western parts of the country – Maharashtra and Gujarat
(Indians).
 During the second half of the nineteenth century, modern industry
began to take root in India but its progress remained very slow and
stagnant.
 Iron and steel industries began to rise up – The Tata Iron and Steel
Company (TISCO) was incorporated in 1907. Other industries like
sugar, cement, paper etc. came up after the Second World War.
 Capital goods industry – Though necessary to help promote further
industrialisation, this industry did not bloom.

10.  Growth rate of the new industrial sector and its contribution to
the Gross Domestic Product (GDP) remained dismal and
piecemeal.
 The industrial sector thus, was left out crying for
modernization, diversification, capacity building and increased
public investment.
 Limited area of operation of the public sector—it remained
confined only to the railways, power generation,
communications, ports and some other departmental
undertakings.

11.  India has been an important trading nation since
ancient times.
 Restrictive policies of commodity production, trade and tariff
made India an exporter of primary products (raw silk, cotton,
wool, sugar, indigo, jute etc.) and an importer of finished
consumer goods (cotton, silk and woollen clothes and capital
goods like light machinery) produced in the factories of Britain

12.  Britain maintained a monopoly control over India’s exports and
imports, leading to more than half of India’s foreign trade to be
restricted to Britain while the rest was allowed with a few other
countries like China, Ceylon (Sri Lanka) and Persia (Iran).
 The opening of the Suez Canal further intensified British control
over India’s foreign trade (box)
 Several essential commodities such as food grains, clothes,
kerosene etc. suffered acute scarcity in the domestic market.
 The expenses incurred by an office, set up by the colonial
government in Britain and expenses on war fought by the British
government were accrued from revenue generated from India.

13.  First documentation of the population of British India was
conducted through the 1881 (decennial) census. This census
revealed the unevenness in India’s population growth. India’s stages
of demographic transition:
 1st stage: Before 1921
 2nd stage: After 1921 – Neither the total population of India nor the
rate of population growth at this stage was very high and the various
social development indicators were also not quite encouraging.
 Overall literacy level: less than 16 per cent; (the female literacy
level was at about seven per cent)

14.  Public health facilities: either unavailable to the larger population
or, when available, were grossly inadequate.
 Rampant occurrence of water and air-borne diseases taking a
huge toll on life
 The overall mortality rate was very high and the infant mortality
rate was quite alarming – about 218:1000
 Life expectancy was also very low – 32 years
 Extensive poverty prevailed in India during the colonial period
which contributed to the worsening profile of India’s population
of the time.

15.  Occupational structure connotes the distribution of working
persons across different industries and sectors
 Very little signs of changes in occupational structure witnessed
during the colonial
 Largest share of the workforce is about 70-75 per cent witnessed
in agriculture.
 Manufacturing and the services sectors accounted for only 10
and 15-20 per cent growth in regional variation respectively.

16.  The parts of the then Madras
Presidency, Maharashtra and West Bengal witnessed a decline
in the dependence of the workforce on the agricultural
sector with a commensurate increase in the manufacturing and
the services sectors
 Orissa, Rajasthan and Punjab experienced an increase in the
share of workforce in agriculture during the same time.

17.  To sub-serve various colonial interests (not to provide basic
amenities to the people), development of basic infrastructure
(railways, ports, water transport, posts and telegraphs) took place
in India.
Roads–
 To mobilize the army within India
 To draw out raw materials from the countryside to the nearest
railway station or to the ports to send these to far away England
 To reach out to the rural areas during the rainy season.

18. Railways–
 Introduced in 1850s by Lord Dalhousie
 Enabled people to undertake long distance travel
thereby breaking geographical and cultural barriers
 facilitated commercialisation of Indian agriculture which
adversely affected the comparative self-sufficiency of the village
economies in India
 Volume of India’s export trade expanded with benefits rarely
being accrued to the Indian people
 Social benefits outweighed the country’s huge economic loss
with the ‘railways’ needing further upgradation, expansion and
public orientation

19.  Electric telegraph served the purpose of maintaining law and
order in remotest parts.
 Postal services were useful but remained inadequate.
 Development of the inland trade and sea lanes – Mixed
reaction to the development of these as sometimes they proved
uneconomical (Coast Canal on the Orissa coast)

20. An Arrangement of
Solving CENTRAL
PROBLEMS of an
Economy
What to Produce Relates to Selection of goods to be produced
According to Market Analysis
As Per Consumer’s demand
How to Produce
Relates to Selection of the technique of
Production
Labour Intensive Technique
Use of more Labour than Capital
Labour>Capital
Capital Intensive Technique
Use of more Capital than Labour
Capital>Labour
For Whom to
Produce Relates to the part of the society for
whom goods are to be produced
According to the distribution of Income
According to the availability of resources

21.  In a capitalist system, the products manufactured are divided among
people not according to what people want but on the foundation of
Purchasing Power – which is the ability to buy products and
services.
 Which means an individual needs to have the money with him to
buy the goods and services.
 Example – The affordable housing for the underprivileged is much
required but will not include demand in the market because the
needy do not have the buying power to back the demand.
 Therefore, the commodity will not be manufactured and provided as
per market forces.

22. URES MERITS DEMERITS
Freedom of Enterprise-
every individual is free to make his own
economic choices
Increase in production Leads to monopoly
Right to Private Property – Every individual
can acquire any amount of property
Flexible system Inequalities
Freedom of choice to the consumers Optimum use of resources
Depression and
unemployment
Competition among producers and sellers Progress and prosperity Insufficient production
More scope for innovation Quality products at low costs
Class conflict

23.  In a socialist society, the government determines what products are
to be manufactured in accordance with the requirements of society.
 It is believed that the government understands what is appropriate
for the citizens of the country, therefore, the passions of individual
buyers are not given much attention.
 The government concludes how products are to be created and how
the product should be disposed of.
 In principle, sharing under socialism is assumed to be based on what
an individual needs and not what they can buy.
 A socialist system does not have a separate estate because
everything is controlled by the government.

24. FEATURES MERITS DEMERITS
Co-existence of private and public
ownership
Welfare state Non-cooperation between the two sectors
Existence of economic planning Better allocation of the resources Inefficient Public sector
Conducive policies by govt. for private
sector
Promotes the equitable distribution of
wealth and social justice
Economic fluctuation and Administered
prices are not the most efficient
Planned and definite economic role of
govt.
Ensures that all citizens have the means to
achieve a minimum living standard
Breeding ground for corruption, red-
tapism, and favouritism.
Consumers do not have absolute freedom
of choice.
It provides comprehensive social security
to all its members
Socialism does not promote hard work or
any creativity in its citizens.

25.  It is a golden combination of a command (Socialist) economy and a
market (Capitalist) economy.
 For this purpose, the mixed economic systems are also called
dual economic systems.
 However, there is no sincere method to determine a mixed system,
sometimes the word represents a market system beneath the strict
administrative control in certain sections of the economy.

26. FEATURES MERITS DEMERITS
combination of a command economy and a
market economy.
Healthy competition in the market. The public sector gets maximum benefits whereas the private
sector remains controlled.
Coexistence of All Sectors- In a mixed
economy all three sectors coexist in
harmony
Enjoys the advantages of central
economic planning
Inefficient Planning – large sectors of the economy remain
outside the control of the government.
Social Welfare- aims to reduce the wealth
gap in the country and fight the
inequalities.
Economic freedom to ownership of
property and choice of goods and
services.
Ineffectiveness of Sectors- private sector does not get full
freedom, hence it becomes ineffective. This leads to
ineffectiveness among the public sector.
Economic Planning – General guideline for
economic growth and prosperity of the
nation.
Existence of price mechanism. So the
allocation of resources is more
scientific and beneficial to the
economy.
Constant fear of nationalisation of the private sector.
Existence of Cooperative
Sector
Corruption and Black Marketing
GOALS AND POLICIES OF MIXED ECONOMIC SYSTEM

27.  It is a golden combination of a command (Socialist) economy and a
market (Capitalist) economy.
 For this purpose, the mixed economic systems are also called
dual economic systems.
 However, there is no sincere method to determine a mixed system,
sometimes the word represents a market system beneath the strict
administrative control in certain sections of the economy.

28. PARAMETER CAPITALIST SOCIALIST MIXED
Ownership of Property
Private
public Both public and private
Price Determination
determined by the market forces of
demand and supply
determined by the central
planning authority.
determined by central planning
authority and demand & supply.
Motive of Production Profit motive Social welfare
The profit motive in the private sector
and welfare motive in the public
sector
Role of Government No role Complete role Full role in the public sector and
limited role in the private sector
Competition Exists No competition
Exist only in the private sector
Distribution of income Very Unequal Quite Equal
Considerable inequalities exist.
DIFFERENCE BETWEEN CAPITALIST, SOCIALIST AND MIXED
ECONOMIC MODELS

29.  India has a mixed economy. Nearly half of India’s working
population is engaged in agriculture, the signature of a traditional
economy.
 One-third of its workers are employed by the services industry,
which contributes two-third of India’s output.
 The productivity of this segment is made possible by India’s shift
towards a market economy.
 Since the 1990s, India has deregulated several industries. It
has privatized many state-owned enterprises, and opened doors to
foreign direct investment.

30.  To maintains a healthy balance between the public and the private
sector. This ensures cooperation and competition between them which
is conducive to attain high growth targets.
 Through its pricing mechanisms as well as freedoms of production,
consumption, occupation and the presence of a profit motive, it ensures
that there is an efficient allocation of resources in the economy.
 By working towards minimizing the inequalities of income, wealth etc.
 Eliminating unemployment and poverty.
 Mixed economy maximizes social welfare. It has all the main features
of a welfare state.

31.  A plan spells out how the resources of a nation should be put to use. It
should have some general goals as well as specific objectives which are to
be achieved within a specified period of time;
 In India plans are of five years duration and are called five year
plans (we borrowed this from the former Soviet Union).
 Our plan documents specify the objectives to be attained in the five years
of a plan and what is to be achieved over a period of twenty years (called
as perspective plan)
 Five year plans of India do not spell out how much of each and every good
and service is to be produced.
 In 1950, the Planning Commission was set up with the Prime Minister as
its Chairperson and the era of five year plans had begun.

32.  Visvesvaraya published his book “Planned economy in India” in 1934. In
this book he presented a constructive draft of the development of India
in 10 years. His core idea was to lay out a plan to shift labour from
agriculture to industries and double up National income in ten years. This
was the first concrete scholarly work towards planning.
 The economic perspective of India’s freedom movement was formulated
during the Karachi session of INC (1931), Faizpur session of INC (1936).
 National Planning Committee (1938) – was the first attempt to develop a
national plan for India. This committee was set up by Congress
president Subhash Chandra Bose and was chaired by Jawaharlal
Nehru. However the reports of the committee could not be prepared and
only for the first time in 1948-49 some papers came out.

33.  Bombay Plan – In 1944, Industrialists of Bombay including Mr. JRD Tata,
GD Birla, Purshottamdas Thakurdas, Lala Shriram, Kasturbhai Lalbhai,
AD Shroff, Ardeshir Dalal, & John Mathai working together prepared “A
Brief Memorandum Outlining a Plan of Economic Development for
India” which was popularly known as Bombay Plan. This plan
envisaged doubling the per capita income in 15 years and tripling the
national income during this period.
 In August 1944, The British Indian government set up a “Planning and
Development Department” under the charge of Ardeshir Dalal. But this
department was abolished in 1946.
 People’s Plan – Plan was based upon Marxist socialism and drafted by M
N Roy. This plan was for a ten years period and gave greatest priority to

34.  Gandhian Plan (1944) – Put forward by Sri Shriman Narayan in 1944 who
was principal of Wardha Commercial College. It was a modest kind of
plan. Plan emphasized economic decentralization with primacy
to rural development by developing cottage industries.
 Sarvodaya Plan (1950) – Plan was drafted by Jaiprakash Narayan inspired
by Gandhian plan as well as Sarvodaya Idea of Vinoba Bhave.
It emphasized on small and cotton industries and agriculture as well.
Plan also stressed upon land reforms and decentralized participatory
planning.

35.  Economic Programme Committee (EPC) – formed by All India Congress
Committee (AICC) with Nehru as its chairman. The aim of this committee
was to make a plan which could balance private and public partnership and
urban and rural economies. The EPC recommended in 1948 to form
a permanent Planning Commission in India.
 In March 1950 in pursuance of declared objectives of the Government,
the Planning Commission was set up by a Resolution, with Jawaharlal
Nehru as the first Chairman of the Planning Commission.
 The Planning Commission was charged with the responsibility of making
assessment of all resources of the country, augmenting deficient
resources, formulating plans for the most effective and balanced utilization
of resources and determining priorities.

36. https://onlyias.com/upscnotes/indian
-economy-before-and-after-
independence/