• The structure of India‘s present- day economy is not just of current making; it has its roots steeped in history, particularly in the period when India was under British rule which lasted for almost two centuries before India finally won its independence on 15 August 1947.


  • Agriculture was the main source of livelihood for most people, yet, the country‘s economy was characterized by various kinds of manufacturing activities.
  • India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works etc.
  • 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 as Dacca), now and the capital city of Bangladesh. ‗Daccai Muslin‘ had gained worldwide fame as an exquisite type of cotton textile.
  • The finest variety of muslin was called malmal.
  • foreign travelers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty.
  • Most important roles contributed to calculate national and per capita income were Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai — it was Rao, whose estimates during the colonial period was considered very significant.
  • Studies did find that the country‘s growth of aggregate real output during the first half of the twentieth century was less than two per cent coupled with a meager half per cent growth in per capita output per year.


  • Under the British colonial rule remained fundamentally agrarian — about 85 per cent of the country‘s population lived mostly in villages and derived livelihood directly or indirectly from agriculture.
  • Despite being the occupation of such a large population, the agricultural sector continued to experience stagnation and, not infrequently, unusual deterioration. 
  • Agricultural productivity became low though, in absolute terms, the sector experienced some growth due to the expansion of the aggregate area under cultivation.
  • This stagnation in the agricultural sector was caused mainly because of the various systems of land settlement that were introduced by the colonial government. Particularly, under the zamindari system which was implemented in the then Bengal Presidency comprising parts of India‘s present-day eastern states, the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators.
  • There was, of course, some evidence of a relatively higher yield of cash crops in certain areas of the country due to commercialization of agriculture.


  • India could not develop a sound industrial base under the colonial rule. 
  • The primary motive of the colonial government behind this policy of systematically de- industrializing India was two-fold.

The intention was, first, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain and,

Second, 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 their home country — Britain.

During the second half of the nineteenth century, modern industry began to take root in India but its progress remained very slow.

  • Initially, this development was confined to the setting up of cotton and jute textile mills. 
  • The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while the jute mills dominated by the foreigners were mainly concentrated in Bengal.
  • The iron and steel industries began coming up in the beginning of the twentieth century. The Tata Iron and Steel Company (TISCO) was incorporated in 1907. A few other industries in the fields of sugar, cement, paper etc. came up after the Second World War.


  • There was hardly any capital goods industry to help promote further industrialization in India. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption.
  • The growth rate of the new industrial sector and its contribution to the Gross Domestic Product (GDP) remained very small.
  • Another drawback of the new industrial sector was the very limited area of operation of the public sector. 
  • sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings.


  • India was exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of finished consumer goods like cotton, silk and woolen clothes and capital goods like light machinery produced in the factories of Britain. 
  • Britain maintained a monopoly control over India‘s exports and imports. As a result, more than half of India‘s foreign trade was restricted to Britain while the rest was allowed with a few other countries like China, Ceylon (Sri Lanka) and Persia (Iran). 
  • opening of the Suez Canal further intensified British control over India‘s foreign trade
  • most important characteristic of India‘s foreign trade throughout the colonial period was the generation of a large export surplus. But this surplus came at a huge cost to the country‘s economy.
  • This export surplus did not result in any flow of gold or silver into India. Rather, this was used to make payments for the expenses incurred by an office set up by the colonial government in Britain, expenses on war, again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.


  • Various details about the population of British India were first collected through a census in 1881.
  • Before 1921, India was in the first stage of demographic transition.
  • The second stage of transition began after 1921.
  • However, neither the total population of India nor the rate of population growth at this stage was very high.
  • The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a negligible low of about seven per cent.
  • Public health facilities were either unavailable to large chunks of population or, when available, were highly inadequate. The overall mortality rate was very high.
  • Particularly, the infant mortality rate was quite alarming— about 218 per thousand in contrast to the present infant mortality rate of 63 per thousand.


  • The agricultural sector accounted for the largest share of workforce, which usually remained at a high of 70-75 per cent while the manufacturing and the services sectors accounted for only 10 and 15-20 per cent respectively.
  • Parts of the then Madras Presidency (comprising areas of the present-day states of Tamil Nadu, Andhra Pradesh, Kerala and Karnataka), Bombay and 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.


  • The real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests.
  • The British introduced the railways in India in 1850 and it is considered as one of their most important contributions.
  • The railways affected the structure of the Indian economy in two important ways. On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while, on the other hand, it fostered commercialization of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.
  • Along with the development of roads and railways, the colonial dispensation also took measures for developing the inland trade and sea lanes.
  • The introduction of the expensive system of electric telegraph in India, similarly, served the purpose of maintaining law and order.
  • The postal services, on the other hand, despite serving a useful public purpose, remained all through inadequate. 

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