• The British rule that started with the conquest of Plassey battle in 1757
  • Britishers ruled India for almost 200 years, till 15th August, 1947.
  • Their sole purpose was to exploit the natural resources of India for their own benefit and to reduce the country to being a raw material supplier for Great Britain’s own rapidly expanding modern industrial base.




  • Prior to British rule, the Indian economy was a development economy.
  • India was known as “Sone Ki Chidiya”, so many travelers have described India as a rich country.
  • Agriculture was well-developed and villages were self-sufficient.
  • Indian handicrafts was famous worldwide.



An economy consists of all production units or institutions such as farms, factories, workshops, mines, shops, railways, hospitals, schools, colleges, offices, banks etc. which provide employment to its people on one hand and produce a variety of goods and services required by them regularly on the other.




Indian economy under the British rule was subjected to colonial exploitation. It implied a targeted exploitation of all sectors of the economy by British Government. This is how it happened:


  1. Colonial Exploitation of Agricultural Sector: Agriculture was exploited through zamindari system of land revenue.
  2. Colonial Exploitation of Industrial Sector: Prior to the British rule, industrial sector in India was well known for its handicrafts.
  3. Colonial Exploitation of International Trade: India’s international trade was exploited through discriminatory tariff policy. It Britain.





  1. Stagnant Economy: On the eve of independence, Indian economy was completely a stagnant economy. A stagnant economy is the one which little or no growth in income between 1860-1945, growth rate of per capita income was as low as 0.5 per cent per annum and between 1925 and 1950 it was 0.1 per cent annum.
Ø  The individual estimates of the national income and per capita income were provided by Dadabhai Naoroji for 1867-68. According to him, the national and per capita income in this year were ₹340 crore and ₹20 per annum respectively. Apart from Naoroji, William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai were among the notable estimators.


Ø  Estimate by V.K.R.V. Rao was considered the first scientific estimate. He estimated national income at ₹ 1689 crore income and per capita income at ₹ 62 for the year 1931-32.

On account of this stagnation, bulk of Indian population lived in poverty. Standard of living of the people remained miserably low.



  1. Backward Economy: Indian economy was a backward economy on the eve of independence. Backward economy is the one on which per capita income is very low. In 1947-48, per capita income in India was just Rs. 230.The bulk of the population was very poor, without sufficient food, clothing and shelter. Unemployment was rampant.


  1. Agricultural Backwardness: it is highlighted by the following facts:
  • Nearly 72 per cent of the country’s working population was engaged in agriculture. But its contribution to GDP was only 50 per cent.
  • Food grain production was barely enough for subsistence. In 1947-48, it was recorded to be just 527 lakh tones.


  1. Industrial Backwardness: following facts are of underlined significance:


  • There was a virtual lack of the basic and heavy industries in the country.
  • Production of machines was almost negligible.
  • Small-scale and cottage industries were almost ruined.
  • For the bulk of its capital-goods requirement, the Indian industry was dependent upon imports from Britain.



  1. Rampant Poverty: Bulk of the population was very poor. People were not getting two square meals a day. They lacked shelter and massive illiteracy.


  1. Poor infrastructure: infrastructure development (including energy) was extremely low. In 1948, power generation capacity was merely 2,100 MW, lengthy of railway lines was 53,596 km, roads had a coverage of 155 thousand km only.


  1. Heavy Dependence on Imports: the country had to depend on imports for machinery and other equipment of production. Armed force of the country also depended heavily on foreign imports for like sewing machines, medicines, kerosene oil, bicycles, etc. used to be imported from abroad.


  1. Limited Urbanistation: At the time of independence, bulk of the population of India Lived in villages. In 1948 only 14 per cent of population lived in urban areas while 86 per cent lived in rural areas. Rural population lacked opportunities outside agriculture. This compounded their poverty.


  1. Semi-feudal Economic: on the eve of independence, Indian economy was neither wholly feudal nor a capitalist economy. It was a mixed economy or a semi-feudal economy. Such an economy had the mixture of feudalistic and capitalist modes of production. Feudalistic mode of production leads to low productivity. Low productivity leads to backwardness.



Semi-feudal Economy
Existence of middlemen between the actual cultivators and the government
Existence of capitalistic industries such as, cotton textile, jute, iron, and steel, sugar, paper etc.
Signs of capitalism in agriculture: Tea, Rubber and Coffee Plantation were capitalistic enterprises

























  1. Colonial Economy: Indian economy was a colony of British government. It implied exploitation of the Indian economy for the benefit of the British economy. Following observations highlight how Indian economy suffered at the hands of the British rulers:


  • British government curbed domestic industry by imposing heavy taxes. This forced the Indians to buy the British goods.
  • Indian economy was used as a source of raw material for the British industries. Exports of raw material were almost duty-free. Thus, natural resources on India were depleted for the growth of the British industry.





  1. Low production and Productivity: Production refers to total output, while productivity refers to output per hectare of land. Both (production as well as productivity) were found to be extremely low on the eve of independence.

Table Shows production and productivity levels in 1947 for wheat and rice, compared with their levels in 2016-17.


Productivity(Kg Per Hectare)               Production(In Lakh tonnes)
Crops/Years 1947 2016-17 1947 2016-17
Wheat 660 3216 64 984
Rice 665 2550 220 1102


Level of output of wheat was nearly 15.5 times lower, and that of rice was nearly 5 times lower in 1947 compared with their levels in 2016-17.


  1. High Degree of Uncertainty: Agriculture showed a high degree of uncertainty. Because, it was excessively dependent upon rainfall. Good rainfall implied good output, while poor rainfall implied poor output. No effort was ever made under the British rule to develop permanent means of irrigation (including wells and canals).


  1. Dominance of Subsistence Farming: farming was taken mostly as a means of subsistence. Subsistence farming is a form of farming in which the crop are produced to provide for the basic needs of the family. There is little surplus left for in the market. Implying a lack of commercial outlook. Accordingly, backwardness prevailed and poverty dominated.


  1. Gulf between Owners of the Soil and Tillers of the Soil: Agriculture, during the British Raj was characterized by a gulf between ‘owners of the soil’ on the one hand and ‘tillers of the soil’ on the other, while the owners shared the output, they seldom (hardly) shared the cost of production. They were interested in maximizing their rental income (in terms of share of output). The tillers of the soil were merely given enough for subsistence.


  1. Small And Fragmented Holdings: Landholdings were both small as well as fragmented. [Fragmented holdings mean a piece here and a piece there]. Accordingly, most landholdings were uneconomic:

Yielding low output at high cost.


  1. Land Revenue System under the British Raj: the British government in Indian introduced a unique system of land revenue. It set up a triangular relationship among the government, the owner of the soil and the tiller of the soil. This was popularly known as zamindari system of Land Revenue. The distinct features of this system were as these:


  • The zamindars were recognized as permanent owners of the soil.
  • The zamindars were to pay a fixed sum to the government as land revenue.
  • The zamindars were free to extract as much from the tillers of the soil as they could.


Zamindari system : Zamindari system was introduced by Cournwallis in 1793 through permanent settle act (or also known as Permanent Settlement System). Under this system, zamindars were made owners of the lands and were given rights to collect the rent (lagaan) from the peasants. Lord Cornwallis entered into permanent settlement with landlords with a view to increasing the revenue of the East India Company. Under the system, the zamindars were to function as intermediaries between the cultivators (i.e. tenants) and the government. Under this system zamindars were given unlimited rights to collect as much as rent (lagaan) as they desired.














  1. Forced Commercialisation of Agriculture: Commercialisation of agriculture refers to a shift from cultivation for self-consumption to cultivation for the market. Following are some notable points in this context:
  • Farmers were forced to shift to commercial crops (indigo, in particular) from the conventional subsistence crops (like rice and wheat). Reason: Indigo was required by the textile industry in Britain for dyeing/bleaching of the textile.
  • The farmers were either lured or forced to accept advance payment for the cultivation of indigo. it Exposed the subsistence farmers to uncertainties of the market.









India’s Agricultural Sector at the Time of Independence

  • About 72% of the total workforce was employed (derived livelihood) from agriculture.
  • Despite with large proportion of population, agriculture was a subsistence and stagnant occupation.
  • Agricultural production was less than its demand.
  • The level of productivity was quite low due to the use of old techniques of production and lack of production and lack of irrigation facilities.
  • Farmers were being forced to produce commercial crops due to which famines were taking place.





  1. Some industries were established by the private entrepreneurs. These included: iron steel (Tata Iron & Steel Company was founded in 1907, sugar, cement and paper industries. These were established in the wake of worldwide scarcity of industrial good because of World Wars I and II.


  1. The state participation in the process of modern industrialization was very limited. It con fined only to the areas which would enlarge the size of the market for the British products in India. These areas included: (a) Railways, (b) Power generation, (c) Development of ports, and (d) The means of communication.


  1. There was no capital goods industry worth the name. Capital goods industry produces goods like machines and industrial plant which are used further industrialization. In the absence of the industry, industrialization in India remained lopsided.





  1. Discriminatory Tariff Policy of the State: The British rule in India coincided with industrial revolution in Britain. The British found India as the best source of raw material as well as the best market for their industrial products. Accordingly, a discriminatory tariff policy was pursued. It allowed:
  • Tariff-free export of raw material from India, and
  • Tariff-free import of British industrial products into India.


But, at the same time, heavy duty was placed on the export of Indian handicraft products. As a consequence, while the British products started gaining the Indian markets, the Indian handicraft products started losing their domestic as well as foreign market. Decay of handicrafts was the end-result.


  1. Disappearance of Princely Courts: Prior to the British rule, nawabs, rajas, princes and emperors ruled different parts of the country. They were regular customer handicrafts because of which the Indian handicraft industry had acquired international reputation. The beginning of British rule implied the end of princely courts. Consequently, the handicraft started decaying.


  1. Competition from Machine-made Products: Machine-made products from Britain were low cost products and gave a stiff competition to the handicraft products in India. Also, machine-made products out-excelled Indian handicraft products in precision and quality. Competition forced the Indian craftsmen to shut-down their enterprises.


  1. New Patterns of Demand: Owing of the impact of British culture, a new class emerged in India which was keen to adopt the western lifestyle. This changed in India which was keen to adopt the western lifestyle. This changed the pattern of demand against the Indian products and in favour of the British products. In the process, the Indian industry tended to perish/finish.


  1. Introduction of Railways in India: With the introduction of railways, size of the market for the low-cost British products tended to expand while it started shrinking for the high-cost Indian products. This hastened/quickened the process of decay of the Indian handicrafts. Briefly, the British government converted the Indian economy into a colonial market for the British industrial goods, Implying, exploitation of the Indian market as: (i) a source of raw material (for the British industry) and (ii) a destination of demand for the British products. In the process, the handicraft industry in India was finally perished.


India’s Industrial Sector during the British Period

  • Britishers systematically destroyed Indian handicraft industries and no modern industrial base was allowed to come up. Thus, British rulers deindustrialised the Indian economy.
  • During the British rule, there was hardly any capital goods industry to promote further industrialisation in India.
  • During the second half of the 19th century, modern industries started developing, though very slowly which were mainly confined to cotton textile and jute mills.
  • The contribution of industrial sector to GDP was very small. It was about 17%.
  • There was very limited area of operation of the public sector in the country. Public sector was confined only to the railways, power generation, communication, ports and a few departmental undertakings.









  1. Net Exporter of Primary Product and Importer of Finished Goods: Owing to colonial exploitation of the Indian economy, India became net exporter of raw materials and primary products (like raw silk, cotton, wool, jute, indigo, sugar, etc.).

On the other hand, it became net importer of finished goods produced by the British industry. Our importer of finished goods produced by the British industry. Our imports included cotton, silk and woolen clothes, besides several types of capital goods produced in England.

Composition of exports and imports reflected utter backwardness of the Indian economy.


Year Exports

(₹ crore)


(₹ crore)

Balance of Trade


1938-39 169 152 +17
1945-46 266 245 +21
1946-47 319 288 +31
1947-48 403 399 +14



  1. Monopoly Control of India’s Foreign Trade: During the British rule, exports and imports of the country came under monopoly control of the British government. In this context, two observations are of critical significance:
  • More than 50 per cent of India’s foreign trade was directed towards Great Britain.
  • While exports of primary products (raw material) from India supplied inputs to the British industry, imports of finished goods from Britain provided a huge market to the British industry.


  1. Surplus Trade but only to Benefit the British: Surprisingly, during the British of balance of trade. But, note these points carefully:
  • This surplus was owing largely to the export of primary goods (not the industrial goods) which is a sign of economic backwardness.


  • The trade surplus was not used for growth and development of the country; instead it was used to meet:
  • Administrative expenses of the British government in India, and
  • Expenses of wars fought by the British government.


  • Administrative and war expenses led to a huge drain of wealth from India. It compounded the backwardness of the Indian economy.








Main Features of India’s Foreign Trade during the British Period

  • Britain maintained a monopoly control over India’s foreign trade (both exports as well as imports). Half of the trade was restricted to Britain.
  • India was net exporter of raw materials and net importer of finished goods.
  • India has large export surplus which, however, could not result in any flow of gold or silver into India.





  1. Size of Population: Various details of demography under British rule were first collected through a census in 1881. The year of 1921 is regarded as the Year of Great Divide. Prior to 1921, size of population in India kept on fluctuating (i.e. increasing in one census and falling in the other), but from the year 1921 onward, the size of Indian population never declined. It showed a consistent rise. The size of population in India since 1891 can be seen from the table given below:


Growth of Population in India (1891-51)


Year Population in crores Change (crore)
1891 23.87
1901 23.83 -0.04
1911 25.21 +1.38
1921 25.14 -0.07
1931 27.90 +2.76
1941 31.86 +3.96
1951 36.10 +4.24


  1. High Birth Rate of Death Rate: Birth rate refers to number of live births per thousand in a year. Death rate refers to number of people dying per thousand persons in a year. Both birth rate and death rate were very high. Birth rate was 45.2 while death rate was 33.3 during 1931-41. In contrast to the present levels (2016) of 20.4 and 6.4 per thousand respectively.


  1. Literacy: Literacy rate is defined as the total number of literate persons as a percentage of total population. At the time of independence, the overall literacy level was less than 16 percent which means more than 80 per cent of country’s population was illiterate. Female literacy was at a very low level of about 7 per cent.



  1. Poor Health Facilities: Public health facilities were either unavailable to large groups of population or were highly inadequate. Consequently, the overall infant mortality rate was quite alarming. It was 218 per thousand as against the present infant mortality rate of 34 per thousand. Infant mortality rate refers to the number of the deaths per 1000 live birth of children under one year. Life expectancy was very low. (Life expectancy refers to the average number of years for which people are expected to survive). It was 44 years in contrast to the present level of 68.8 years in 2017. There was massive poverty in India.




  1. Agriculture: The Principal Source of Occupation: On the eve of independence, about 72.7 per cent of working population was engaged in agriculture. Percentage of population depending on agriculture is much less in advanced countries of the world. For instance, in England and America 2 per cent, in Japan 12 per cent and in Germany 4 per cent of the population depend on agriculture. This establishes backwardness of the Indian economy at the time of independence.


  1. Industry: An insignificant Source of Occupation: On the eve of independence, barely 9.0 per cent of the working population in India was engaged in manufacturing industries, mining, etc. As against it, 32 per cent in the USA, 42 per cent in England and 39 per cent in Japan engaged in these activities. It further proves how backward the Indian economy was at the time of independence.


  1. Unbalanced Growth: the table shows unbalanced growth of the Indian economy. Growth is said to be balanced when all sectors of the economy are equally developed. However, in case of India, secondary and tertiary sectors were in their infant stage of growth. Hence, the conclusion that Indian economy at the time of independence was lopsided and therefore, backward.





  1. The roads constructed were not fir for modern transport. There was an acute shortage of all-weather roads. Also, the roads that were built primarily served the purposes of mobilizing army within the country and to facilitate the transportation of raw material to the port cities.


  1. Railways were developed to transport finished goods from Britain to the interiors of the colonial India (with a view to widening the size of the market). It aimed at widening the size of the market for the British products in India.


  1. Ports were developed to handle export of raw material to Britain and import of finished goods from Britain.


  1. They took steps to develop inland trade and sea lanes. However, these inland waterways proved to be uneconomical.


  1. Electric telegraph system was developed for the purpose of maintaining law and order.


  1. The postal services were also initiated but they were inadequate.





  1. Improvement in Agricultural Productivity: Commercialisation of agriculture initiated by British Government resulted in improvement in agricultural productivity. Agriculture gradually came to be accepted as a profitable venture rather than merely a means of subsistence.


  1. Better means of transportation: Development of roads and railways provided cheap and rapid transport system and opened up new opportunities of economic and social growth.


  1. Modern Postal System: In 1837, the British introduced the modern postal system. The postal services served a useful public purpose. The expensive electric telegraph system was introduced in India, which was useful for the purpose of maintaining law and order.


  1. Check on Famines: The development and expansion of roads and railways worked as a great check on the occurrence and spread of famines as food supplies could be transported to the affected areas in case of droughts.


  1. Shift of Monetary Economy: British rule helped Indian economy to shift from barter system of exchange (exchange of goods for goods) to monetary system of exchange.


  1. Effective administrative setup: The British Government had an effective administration system, which serves as a ready reckoner for Indian politicians.












  • The estimate of national income by V.K.R.O. Rao (for 1931-32) was considered the first scientific estimate during the colonial period.
  • The battle of Plassey in 1757 laid the foundation of British rule in India.
  • The country’s in growth of real output during the first half of the 20th century was less than 2 percent.
  • The growth in per capita income was just 0.5 per cent per annum.
  • Zamindari System was introduced by Lord Cournwallis in 1793.
  • Thomas Munco introduced Ryotwari system in 1820.
  • Mahalwari system was introduced by William Bentinck in 1833.
  • Railways were introduced in India in 1850.
  • India’s first train started on April 16, 1853 between Bombay to Thane.
  • The opening of Suez Canal occurred in 1869.
  • India’s first official census was undertaken in 1881.
  • Tata Iron and Steel Company was established in 1907.
  • The year 1921 is known as the year of Great Divide.
  • 70-75 per cent of the workforce was engaged in primary sector, while the manufacturing and service sectors accounted for only 10 per cent and 15-20 per cent respectively.
  • Demographic
  • Literacy rate ® less than 16 per cent.
  • Infant mortality rate was 218 per thousand.
  • Life expectancy was 44 years.
  • Modern postal system was introduced in 1837
  • Bengal Famine of 1943 took lives of 30 lakh people.


By Ravi Kashyap

Commerce Expert

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