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

Two major forms of investment Notes
(i) Direct private foreign investment in India was made in coal, mining companies, in jute
mills, tea, coffee, rubber plantations and in sugar.
(ii) Sterling loans given to the British Government in India and public and semi-public
organisations to undertake investments in railways, ports, electricity undertakings and
other public utilities. These loans represented sterling debt.
(c) Exploitation through finance capital via the Managing agency system
Indian business did not possess any experience of the organisation of modern industry by
setting up joint stock companies. The British merchants who had earlier set up trading firms
acted as pioneers and promoters in several industries like jute, tea and coal. These persons
were called as managing agents.
The managing agency firms may be described as partnerships of companies formed by a group
of individuals with strong financial resources and business experience. The managing agency
firm is entitled to the management of the whole affairs of the Company unless otherwise provided
in the agreement.
The principal functions of the managing agents were as follows : (i) to do the pioneering work
of floating new concerns; (ii) to provide their own funds and also to arrange for finance by
acting as the guarantors; (iii) to act as agents for the purchase of raw materials, stores, equipments
and machinery; (iv) to act as agents for marketing of the produce; and (v) to manage the affairs
of the business.
(d) Exploitation through payments for the costs of British administration
The British employed a large number of British officers for the military and civil administration
of the country. The British officers in the army were given a separate cadre and were paid much
higher salaries and allowances than their Indian counterparts. All the top ranking positions
were monopolised by the British officers.
Similar situation prevailed in the civil administration. All the key positions and top ranks were
manned by British officers. They were also paid fabulous salaries and allowances. Besides this,
they were provided other benefits for the maintenance of their children. These officers had
immense administrative powers. They could award contracts for supplies and stores and thus
the contractors paid them commissions for the favours. These unauthorised earnings had also
become a part of the system. These officers after a certain specified period of service could seek
retirement and thus were entitled to benefits of pension. The payments which were remitted to
England out of the savings of the officers living in India and also on account of pension and
other benefits were called as family remittances. These payments were a heavy drain on our
resources. Besides, India had also to pay interest on sterling loans raised for the construction of
railway and irrigation works. Payments accruing on account of interest on debts incurred by
India and those connected with civil departments in India, such as pensions, gratuities, furlough
allowances, and payments for stores purchased in India — all taken together were called Home
Charges. In 1931, the payments accruing to Britain on account of home charges amounted to
` 43 crores.
Not only that, India was forced to pay for the various wars of the East India Company like the
Mysore and Maratha Wars, the Afghan and Burmese Wars. The British forced the Indian people
to pay through their nose for their expeditions to Prussia, Africaetc. The entire cost of the
telegraph line from England to India was charged from India.
During the two World Wars, India exported more to Britain than it imported. Against this
positive balance of trade, Britain authorised the Government of India to issue more currency on
the backing of the Sterling Balance held in England. India exported more and imported less.
The Sterling Balances, therefore, represented the sweat, the tears and the toil of the millions of
the poor people of India. But Great Britain by its policy only exported inflation to India. This
accounted for a much larger rise of the price level in India during the war. It imposed a heavy
burden on the Indian people.

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