THE BACKGROUND‌

T

he economic profile of India was in complete distress at the time of Independence. Being a typical case of colonial economy, India was serving a purpose of development not for herself but for a foreign land—the

United kingdom. Both agriculture and industry were having structural distortions while the state was playing not even a marginal role. During the half century before India became independent, the world was having accelerated development and expansion in its agriculture and industry on the shoulders of the active role being played by the states, with the same happening in the UK itself.1

There was not only the unilateral transfer of investible capital to Britain by the colonial state (the ‘drain of wealth’), but the unequal exchange was day by day crippling India’s commerce, trade and the thriving handloom industry, too. The colonial state practiced policies which were great impediments in the process of development in the country. Throughout the colonial rule, the economic vision that the state had was to increase India’s capacity to export primary products, and increase the purchase/import of the British manufactured goods and raise revenues to meet the drain of capital as well as meet the revenue requirements of the imperial defence.2

The social sector was a neglected area for the British rulers which had a negative impact on the production and productivity of the economy. India remained a continent of illiterate peasants under British rule. At the time of Independence, its literacy was only 17 per cent with 32.5 years of life expectancy at birth.3

Industrialisation of India was also neglected by the colonisers—the infrastructure was not built to industrialise India but to exploit its raw materials. Indian capitalists who did emerge were highly dependent on British commercial capital and many sectors of the industry were dominated by British firms, e.g., shipping, banking, insurance, coal, plantation crops and jute.4

The pre-independence period was altogether a period of near stagnation showing almost no change in the structure of production or in the levels of productivity—the aggregate real output during the first half of the 20th century estimated at less than 2 per cent a year or less.5

The overall economic performance of India under the British rule was very low. According to economic statistician Angus Maddison, there was no per capita growth in India from 1600 to 1870—per capita growth was a meagre

0.2 per cent from 1870 to 1947, compared with 1 per cent in the UK.6 The per capita incomes of Rs. 18 for 1899 and Rs. 39.5 for 1895 in current prices say the true story of the abject poverty Indian masses were faced with.7 The repeated famines and disease epidemics during the second half of the nineteenth century and the first half of the twentieth century show the greatest socio-economic irresponsibility and neglect of the British government in India at one hand and the wretchedness of the masses at the other.8‌‌

The political leaders and the industrialists both were very much aware and conscious about the economic inheritance once India became independent. Somehow, these dominant lot of people who were going to lay down the foundation stones of the independent Indian economy were almost having consensual9 view, even before the Independence, on many major strategic issues:

(i) State/governments should be given a direct responsibility for development.

(ii) An ambitious and vital role to be assigned to the public sector.

(iii) Necessity for the development of heavy industries.

(iv) Discouragement to foreign investment.

(v) The need for economic planning.

Once India became independent, it was a real challenge for the government of the time to go for a systematic organisation of the economy. This was a task full of every kind of challenges and hurdles as the economy had hardly anything optimistic. The need of delivering growth and development was in huge demand in front of the political leadership as the country was riding on the promises and vibes of the nationalist fervour. It was not a simple task.

Now the decisions which were to be taken by the political leadership of the time were going to shape the very future of India. Many important and strategic decisions were taken only by 1956 which shaped Indian economic journey till date—undoubtedly they heavily dominated the pre-reform period, but the post-reform period is also not completely free of their impact. To understand the nature and scope of the Indian economy in current times it is not only useful but essential to go through the facts, reasons and the

delicacies which made the economy evolve and unfold the way it evolved and unfolded. A brief overview follows.