1. Indian Economy-Underdeveloped:

On the eve of independence, Indian economy was underdeveloped economy. As an underdeveloped economy, Indian economy had the following features:

(i) Low Per Capita Income:

Underdeveloped economies have low per capita income. India has no exception to it. In 1947-48, per capita income was Rs. 230. People were poor. They were not getting fair square meals a day. They had no shelter and clothing. Most of the people were unemployed.

(ii) Poor Infrastructure:


On the eve of independence infrastructural development which comprised of communication and transport and electricity etc. was very poor. In 1948, power generation capacity was nearly 2100 MW; length of railway lines was 53,596 Kms.

(iii) Dependence on Imports:

The country had to heavily depend on imports. Armed forces of the country also depended on foreign imports. Moreover, several consumer goods like sewing machines, medicines, oil, bicycles etc. were imported from abroad.

(iv) Illiteracy:


Illiteracy was both cause and effect of poverty. Due to illiteracy, people were unable to use new techniques in agriculture and industry. They were unable to organize trade and commerce on modern lines. In 1948, rate of illiteracy was 18%. Thus 82% of the population was illiterate.

(v) Agricultural economy:

Indian economy was predominantly agricultural. In 1948, about 70% population was engaged in agriculture. Moreover, agriculture constituted 50% of national income. But agriculture itself was backward. Regarding productivity, it was 110 kg/hectare for rice in 1947 as against 748 kg in Japan.

(vi) Low Development of Industries:


There was very little development of industries. Large industries used to produce consumer goods. Basic and key industries were very less in number. In 1947, cement production was 26 lakh tonnes, of sugar 10 lakh tonnes and that of cloth just 421 crore meter.

2. Stagnant Economy:

During the British period, Indian economy remained almost stagnant. There was very slow growth of economy. This was clear from the fact that for almost a century, the average annual growth rate of per capita income in India was not more than 0.5%.

The high growth rate of population tended to make it difficult to maintain even the proposed growth rate. In fact poverty was widespread and about 40% people were living below poverty line.

The causes of stagnation and backwardness are laissez faire, commercialization of agriculture, neglect of irrigation, destruction of cottage and handicraft and economic drainage and discriminatory tariff policy.

3. Semi-Feudal Economy:


During the British rule, Indian economy had a mixed mode of production. Feudalism was more prominent than other modes of production.

A substantial developed capitalistic sector had emerged. Handicraftsmen had lost their independent status and were engaged in a simple commodity production. Bonded labour force was prevalent in agriculture. Primitive social organizations existed in areas inhabited by the tribals.

4. Depreciated Economy:

On the eve of Independence Indian economy was depreciated. In every economy, extensive use of factors of production, inevitably leads to their wear and tear. If no arrangements are made to replace the depreciated factors then the stock of gross capital declines.

This results into the fall in production capacity. Such an economy is called depreciated economy. After World War II Indian economy also turned into depreciated economy.


During World War II India had supplied large quantity of goods to Britishers. India was paid for it in terms of sterling. But due to lack of real capital, its production capacity declined.

5. Pre-dominance of Agriculture:

Agriculture is the main sector of Indian economy, which is in total contrast to the economic structure of a developed economy. More than 70 per cent of the total population is engaged in agricultural activities while the picture is absolutely different in advanced countries.

According to Dr. Cloustone, “India has depressed classes, the tool has depressed industries and unfortunately, agriculture is one of them” Therefore, the essence of Indian economy is an agrarian economy.

6. Underutilized Natural Resources:

It has been rightly stated that India is a rich country inhabited by poor people. It means that the country possesses abundant stock of natural resources but the problem is that these resources are not fully utilized for the production of material goods and services. The result is poverty of the people. The vicious circle of poverty moves for year to year together.

7. Heavy Population Pressure:


Population is a major factor influencing the nature of a country’s economy. Over-population creates complex economic problems.

The income per capita is low, the efficiency of labour is not satisfactory and there is an acute housing shortage. Unemployment and low standard of living dominate the scene. In India, the rate of growth of population was about 1.25% per annum during 1941-51.

8. Capital Deficiency:

Deficiency of capital is another basic characteristic of Indian economy. In case of physical capital, its total stock is not adequate for equipping well to the entire labour force and full utilization of natural resources.

Similarly, human capital is far from satisfaction. The major reasons of low level of capital formation in India were (i) low inducement to invest and (ii) low propensity and capacity to save.

9. Famines:

In the pre-British period famines had been occurring. These famines showed an unbridled increase in the 18th and 19th centuries. Between 1765-1858 the country experienced 12 famines and 4 scarcities. Similarly, between 1860-1908, 20 famines spread their wings.

In 1943 Bengal famine shook the foundation of the country. William Digby estimated that during 1854-1901, 28.8 million persons died due to famines. In the famine of 1899-1900 2.5 million persons died of starvation.

10. Industrial Backwardness:

On the eve of independence Indian economy was backward from industrial point of view there was deficiency of basic and heavy industries. Among heavy industries, there was Tata Iron and Steel industry.

The production of machines in the country was negligible. Statistics reveal that in 1947 total production of iron & steel was 9 lakh tonnes.

11. Low Levels of Living:

India has been, and even today is one among the poorest countries of the world. Barma few rich, the common masses forced to lead a miserable life. Almost half of country’s population is below the poverty line.

Quantity of goods available per head of population is meager and the quality is invariably indifferent. Nutritional content of consumption is grossly inadequate and hunger, starvation and disease are fairly widespread.

12. Lack of Social Overhead Capital:

Social Overhead Capital comprises of such industries which help in the growth of other industries. Social overhead capital or infrastructure as it is now called, includes such industries like railways and other means of transport, electricity and other sources of energy, communication, banking etc.

Unfortunately not much attention was paid to this during the British rule and consequently the development of industries in India remained slow and tardy.

13. Widespread Unemployment:

Unemployment in India is a direct outcome of rapidly increasing population. More people need more jobs but the underdeveloped economy of India cannot accommodate them. This naturally leads to widespread unemployment. Thus unemployment becomes an all round problem in the country.

14. Income Disparities:

The gap between wealth and poverty is exceedingly wide in India. A handful of rich persons get a relatively large share of the total income while the large mass of poor population gets a relatively small portion of it.

Inequalities of income distribution are to be observed both in the rural and urban sectors of the economy. Inequalities of income are to be seen in the form of unequal distribution of land in the agricultural sector and concentration of economic power in non-agricultural sector.

15. Absence of Enterprise and Initiative:

In India, enterprise and initiative are inhibited by the social system which denies opportunities for creative faculties. T

The force of custom, the rigidity of status, absence of intellectual curiosity and distrust of new ideas, combine to create an atmosphere inimical to enterprise, experimentation and innovation. Whatever little entrepreneurship exists tends to become monopolistic and quasi-monopolistic.