The primary objective of studying the Indian economy on the eve of independence is to understand its historical roots under colonial rule, which lasted for nearly two centuries before ending on 15 August 1947.
The sole purpose of the British colonial rule was to reduce India to a mere raw material supplier for Great Britain's rapidly expanding modern industrial base.
The colonial government never made any sincere attempt to estimate India's national income and per capita income. Notable individual estimators included:
Most studies indicated that during the first half of the twentieth century, India's aggregate real output growth was less than $2\%$ per year, with a meager per capita output growth of about $0.5\%$ per year.
Under British rule, India's economy remained fundamentally agrarian, with about $85\%$ of the population deriving their livelihood directly or indirectly from agriculture.
India could not develop a sound industrial base under colonial rule, resulting in systematic de-industrialisation.
This led to massive unemployment due to the decline of traditional handicrafts and created a new demand for cheap imports from Britain.
The restrictive trade and tariff policies of the colonial government transformed India's trade structure.
Britain maintained a monopoly control over India's exports and imports. More than half of India's foreign trade was restricted to Britain, with the remainder allowed with countries like China, Ceylon (Sri Lanka), and Persia (Iran).
The opening of the Suez Canal in 1869 served as a direct trade route, reducing transportation costs and intensifying British control over Indian trade.
Although India generated a large export surplus, it came at a huge cost. Essential commodities became scarce domestically, and the export surplus was used to pay for British administrative expenses, war costs, and invisible imports, leading to a massive drain of wealth.
Demographic data collected through the first official census in 1881 highlighted severe underdevelopment.
| Indicator | Colonial Period Value |
|---|---|
| Overall Literacy Rate | Less than $16\%$ |
| Female Literacy Rate | Around $7\%$ |
| Infant Mortality Rate | $218$ per thousand |
| Life Expectancy | $32$ years |
Water and air-borne diseases were rampant due to highly inadequate public health facilities, leading to high mortality rates and extensive poverty.
The distribution of the workforce across sectors showed little change:
Basic infrastructure (railways, ports, water transport, posts, and telegraphs) was developed not for public welfare, but to subserve colonial interests: