Module II

Features of the Indian Economy at the time of Independence

Composition of National Income and Occupational Structure
Agricultural Scenario
Industrial Structure

Composition of National Income

(Distribution of GDP at Factor Cost)

Occupational Structure
The occupational structure of a country refers to the distribution or division of its population
according to different occupations. The occupation has been divided into three types:
1. Agriculture, animal husbandry, forestry, fishery etc., are collectively known as
“primary” activities.
2. Manufacturing industries, both small and large scale, are known as “secondary”
activities.
3. Transport, communications, banking and finance and services are “tertiary” activities
in the country.
Colin Clark, in his work, ‘conditions of economic progress’, argues that there is a close
relationship between development of an economy on the one hand, and occupational structure
on the other and economic progress is generally associated with certain distinct necessary and
predictable changes in occupational structure

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Occupational Structure of India at the time of Independence
• Agriculture was the principal source of occupation and about 72% of the population
was engaged in agriculture
• Only 10% of the population was engaged in the manufacturing sector and this reflected
backwardness of Indian industry at the time of independence.
• Only 17.2% of the population was engaged in service sector, which proves slow growth
of the tertiary sector at that time of independence.
• There was an unbalanced growth of the Indian economy at the time of independence.

Occupational Distribution of Working Population in India

Agrarian Scenario of India at the time of Independence

1. Regressive Agrarian Structure: Agricultural productivity became very low and this
stagnation in agriculture was mainly due to land settlement system that was introduced
by the British government. In the Zamindari system the profit accruing out of
agriculture was appropriated by the zamindars instead of the tillers of the soil. This led
to discouragement amongst the cultivators who started investing and producing less.
2. Lack of Inputs and Machinery: Low levels of technology, lack of irrigational
facilities and negligible use of fertilizers aggravate the plight of the farmers and
contributed to low productivity in Indian agriculture. Indian agriculture was primarily
dependent on monsoons. No alternative and permanent irrigation facilities were
developed under the British rule.
3. Internal Drain of Capital: Agricultural surpluses were siphoned off from agriculture,
subjecting it to an internal drain of capital. High land revenue demand consumed the
peasant’s surpluses and their subsistence level were at stake. No profitable investment
by the landlords who took no interest other than collecting rent.

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Industrial Structure in India at the time of Independence

1. Discriminatory Tariff Policy: The British Government allowed tariff free export of raw
materials from India and tariff free import of British industrial goods to India that
displaced indigenous handicrafts and artisanal industries of India. But a heavy duty was
imposed on the export of Indian handicrafts which led to the gradual decay of the
handicrafts industry in India.
2. Competition from Machinery: Industrial Revolution in Britain gave a huge completion
to the handicrafts industry in India. Low cost and better quality products produced by
machines forced the Indian craftsmen to shut down their handicrafts industry in India.
3. New Patterns of Demand: owing to British rule in India a new elite class emerged whose
demand preferences differed from the existing demand patterns in India. This led to
change in demand in favor of British goods and against Indian products. Thus there was
eventual degeneration of the Indian industries.
4. Increase in the Size of the Market for British goods: Introduction of railways was a
commercial revolution as it facilitated the transportation and distribution of British
products to different parts of the country. As a result, the size of the market for British
products expanded and the size of the market for relatively high cost Indian products
shrink leading to perpetual erosion of Indian industries. The railways did not have
forward or forward linkage for the Indian economy, instead it encouraged steel and
machine industry in Britain.

Modern banking and insurance were grossly underdeveloped which failed to mobilise the
available capital. Most banks were British controlled and they starved Indian industry of funds
and favoured British-owned and controlled enterprises.
Foreign Investment contributed to
 ‘Guided underdevelopment’ of India by concentrating on the production and export of
raw materials and food
 Foreign investment had flowed into sectors that catered to foreign markets and not
India’s home market
 Multiplier effects in terms of income, employment, capital, technical knowledge and
growth of external economies associated with the investments were largely exported to
the developed world.
Thus India’s economic profile at the time of independence:
 Stagnating per capita income
 Abysmal standard of living
 Stunted industrial development
 Bulk of the population depended on stagnating, low-productivity semi-feudal
agriculture