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Unit 1: Characteristics of Indian Economy on the Eve of Independence

really interested in industrialisation of the country as such. But then Indian industrialists Notes
too were so short-sighted, they rarely bothered about the future and cared very little for
replacement and for renovation of machinery. They were influenced by nepotism rather
than ability in their choice of personnel. They were also influenced by their trading
background viz., high price and high profit margin rather than low prices and larger
sales. They emphasized sales than production. To a certain extent, therefore, unimaginative
private enterprise was responsible for the slow growth of industrialisation in this country.
(b) Problem of capital and private enterprise : In the 19th and 20th centuries, Indian
industrialists had suffered from lack of adequate capital. Just as British enterprise was
prominent, so also British Capital was significant in India’s industrialisation. A larger
part of the total invested capital in modern enterprises in India was imported from Britain.
Capital was scarce not only because the resources of the country were underdeveloped
but also because the avenues for the investment of surplus wealth were few. There were
no Government loans or company stocks and debentures. Accordingly, people held their
wealth in the form of gold and silver.
There was complete absence of financial institutions to help the transfer of savings to
industrial investment. The indigenous financial institutions concerned themselves with
rural moneylending and financing of internal trade. Institutions which concerned
themselves with rural savings for a comparatively long period, were altogether neglected.
In the early days of industrialisation, people were generally hesitant to entrust their savings
to the company promoters.
(c) Private enterprise and the role of the Government : One of the important reasons and
according to some authorities, the most important reason for the slow growth of Indian
industries was the lack of support from the Government. In the 19th century, the
Government did provide certain overhead investments which helped private enterprise.
Examples were the railways and communications. But the Government did not provide
the other conditions essential for private enterprise. The important fact to remember is
that in the critical years of growth (between 1850 and 1947) Indian enterprise was operating
under a foreign government which was extremely unsympathetic to native private
enterprise.
1.6 Colonial Exploitation: Forms and Consequences

The major form through which the exploitation of India was done was trade. Later, the British started
making investments in Indian industries and the process of economic drain started through investment
income in the form of dividends and profits. In addition to this, India had to pay the costs of British
administration, in the form of home charges. They included salaries of British officers (both civil and
military), payment of pensions, furloughs and other benefits, as also interest payments on sterling
debt.
The main forms of colonial exploition were:
(i) Trade policies aimed at developing a colonial pattern of trade in which India would become an
exporter of foodstuffs and raw materials and an importer of manufactures; (ii) encouragement of
British capital to take up direct investment in Indian consumer goods industries; (iii) encouragement
of finance capital, through the managing agency system, to appropriate a major portion of the profits
through various malpractices; and (iv) to force India to pay the costs of British administration as well
as to finance the wars and expeditions undertaken by the British Government.
(a) Exploitation through Trade Policies
Trade policies were used against India by the East India Company and later by the British
Government to drain away wealth from India to feed the expanding British industry with raw
materials and also to encourage the trend towards commercialisation of agriculture so that the
Indian economy could be transformed as an appendage of the British colonial system. Thus,
trade policies were a very convenient, but a potent source of exploitation.

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