The following points highlight the five main reasons for the industrial backwardness of India. The reasons are: 1. Social and Religious Institutions 2. Shortage of Capital 3. Scarcity and Shyness of Entrepreneurs 4. Scarcity of Labour 5. The British Imperial System.
Reasons for the Industrial Backwardness of India
- Social and Religious Institutions
- Shortage of Capital
- Scarcity and Shyness of Entrepreneurs
- Scarcity of Labour
- The British Imperial System
Industrial Backwardness: Reason # 1. Social and Religious Institutions:
One school of thought emphasises the role of non-economic factors in the industrial backwardness of India. Prof. Knowles, for instance, blames “the essentially non-economic outlook of Indians” while G.C. Allen contends that Indian Capital and talent were drawn in other directions because her social traditions and institutions were unfavorable to native enterprise in modern large-scale industry.
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That social and religious institutions did hinder industrial development is not doubted. But to blame these institutions as the sole cause of India’s Industrial backwardness would be to exaggerate their role. Marwaris and Jains among the Hindus and Khojas and Bohras among the Muslims are highly religious and yet they took a prominent part in the new industrial life of the country.
The fact is that the profession of the Hindu or Mahommedan religion is not in compatible with the pursuit of material gains. The other worldliness of the people was largely a reflection of the prevailing conditions of poverty, recurring famines, epidemics, and a govt., totally indifferent to the plight of the people.
Unable to improve his life of unending misery, the Indian resigned himself to this fate. In other words, he became fatalistic. Therefore, the non-economic outlook of the Indians was more an effect of the British rule than a cause of the industrial backwardness of India.
Industrial Backwardness: Reason #
2. Shortage of Capital:
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Many economic historians have singled out scarcity of capital as responsible for the slow rate of India’s industrial growth. In the words of Ranade “just as land in India thirsts for water so the industry is parched up for want of capital.” This argument, however, ignores the fact that capital ultimately depends on the level of investment.
As India served primarily as a marked for British goods or as a source of surpluses for the British Empire, much of the potential investment out of high profits was made not in India but abroad. Therefore, if capital was scarce, this scarcity was, at least partly, caused by the working of the British Imperialism.
Had the govt., encouraged industries by direct policies of the kind successfully tried in Germany, Japan, and the U.S.A., the resources for further investment would also have expanded at a faster rate.
The fact is that there was no shortage of capital; only the capital market was, as in all under developed countries, imperfect. Smaller industrialists naturally found difficulty about industrial finance. But neither the European managing agency houses nor the larger Indian business houses complained about such shortage.
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This is proved by the ease with which Tata iron and steel company was able to raise capital and the Virtual stoppage of foreign borrowing by the govt., of India and the provincial govts, in the thirties. The conclusion follows that the scarcity of capital did not limit the growth of industries; rather investment was discouraged by the absence of many profitable opportunities.
Industrial Backwardness: Reason #
3. Scarcity and Shyness of Entrepreneurs:
Another favoured explanation is the scarcity or shyness of Indian entrepreneurs. R.P. Pillai observes that “supreme need of the country is for—managers and entrepreneurs” implying that Indian industrial development was hampered by the lack of suitable industrial leaders.
Habakkuk, contrasting Japan’s industrial progress with India’s backwardness, opines that the disparity was due to the ‘difference in character and quality of entrepreneurs’ One fails to understand why the Indian entrepreneurship was condemned as shy.
Capital can be called shy if it was not forthcoming even in fields which were reasonably profitable. Critics, however, rarely provide concrete examples where the rate of profit was reasonable and yet Indian capital was not forthcoming for investment.
The truth is that Indian entrepreneurship had very few profitable investment opportunities open to them. It is not that the British entrepreneurs were the more daring. In export industries, European business houses earned higher rates of return because of advantages in information, contact, shipping, and banking services.
Besides, they had access to the organised money market which charged lower rates of interest. This enabled European businessmen to accept a lower rate of return. On the other hand, Indian Businessmen, having been denied this facility, borrowed at a higher rate from the open market and, quite naturally, expected a higher rate of return also.
It is, therefore that Indian entrepreneurs confined themselves to trade and money-lending where the rate of return was higher than in industry.’
Thus, we find that the Indian capital was not basically shy; only it was discouraged by the low rate of profits available in most fields of industry. Otherwise, in a few cases, even before 1914, in which Indian entrepreneurship had emerged, it was no less enterprising. If anything, Indians showed greater courage since they did not have many of the advantages enjoyed by foreign businessmen.
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Industrial Backwardness: Reason #
4. Scarcity of Labour:
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Many writers, either directly or indirectly, have held scarcity of labour as a serious handicap for the growth of industry in India. The Royal Commission on Labour also found few employers assured of adequate labour at all seasons of the year.
The wide acceptance of this view in a country with such a high density of population was due to the fact that in some parts of India, especially East Bengal and Assam, there was a genuine shortage of labour for agricultural operations.
Secondly, in the absence of an organised labour market, employment arrangements in mills were handled by the jobber who, in some cases, created artificial scarcity by transferring labour from one to another mill even when there was an overall excess supply of labour.
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Further-more, even though roads and railways had been built, yet Indian labour was less mobile because of scanty information about employment opportunities, long distances involved, social and religious barriers.
The most important reason, however, was that “no region in India expanded fast enough to exert a very strong pull on labour from the rest of the country.” Hence emerged conditions of short-run shortage of labour even when the long-run supply was perfectly elastic.
As regards skilled labour, there was a shortage, the reason for which is to be found in the policy of racial discrimination. Under this policy, British industrialists, businessmen and the govt., systematically excluded Indians from all senior high-salaried posts.
This was especially true of the govt., which was neither willing to extend its traditional activities nor would it employ the technically trained Indians in its existing commercial and industrial undertakings.
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What is more, it did not interfere with the recruitment policies of private firms either. Side by side, it pursued a policy of severely limiting the facilities for technical education. Under the circumstances, educated Indians turned towards govt., civil and judicial service where they had a much better chance of making the grade.
Naturally, therefore, whenever there was a sudden increase in the demand for trained personnel, there was a shortage of Indians meeting the required qualifications.
This shortage, however, was temporary for when, in the inter-war period, Indian-controlled enterprises sprang up in the iron and steel, sugar, paper, and Engineering industries, Indians were easily able to replace the European staff engaged in managerial and supervisory duties.
The shortage of skill, therefore, was not a cause but largely an effect of the industrial backwardness of the country and the policies of recruitment followed by the British govt., and foreign businessmen.
Therefore, India’s industrial backwardness was caused neither by the so-called scarcity of capital nor by the shyness of Indian entrepreneurs; not even by her socio-religious system and attitudes. The fundamental cause of India’s industrial backwardness lay in the British Imperial System.
Industrial Backwardness: Reason #
5. The British Imperial System:
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India occupied a special position in the British Empire. She was the supplier of raw-materials; she provided a ready market for the sale of British manufactures. Furthermore, India was the chief source of non-sterling exchange with which was balanced Britain’s deficits with the U.S.A. and China.
Naturally, the economic and industrial policy of the govt., was so designed as to preserve and promote British interests at the expense of India. This can be seen from what follows.
Industrial Policy:
As Rostow has rightly emphasised, the most important condition for sustained economic development is political, that is, establishment of an effective modern govt., sympathetic to the process of economic development.
In all the countries which completed their process of ‘take-off’ into ‘self-sustained’ growth this basic condition was satisfied. Further, during the initial stages of economic development, the state played a very vital role in all these countries.
In India, however, the govt., instead of attempting to encourage and develop an efficient factory industry, perused policies designed to keep India as a supplier of food and raw material, and as a market for British manufacturing industry. Towards this end, provisions were made to penalize Indian goods both in India and foreign markets.
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These included, among other things, a complete ban on certain Indian exports to England; 40—50% import duties on Indian textiles coming into great Britain; doubling of excise duty on Indian exports if carried in non-British ships; denial of protection to Indian mill industry and imposition of an excise duty on the cotton mill industry so as to neutralize the slight advantage of an export duty on cotton goods and yarns.
Because of these policies, ancient Indian industries were ruined and many an attempt to establish new ones thwarted.
Discriminating Protection:
Even when the govt., did adopt discriminating protection in the inter-war years, no simultaneous steps were taken to mobilise capital needed for the expansion industries—no attempt to encourage all purpose banks as in Germany, no special govt., sponsored financial institutions as in Japan, and no effort to utilise the Govt’s taxation power to raise capital for the basic and heavy industry as was done in Russia before 1950.
That is one of the reasons why the policy, half-hearted as it was, failed to produce the spectacular results witnessed in other countries.
Stores-Purchase:
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The policy of Stores-purchase was another potent instrument which could have been used to promote and encourage indigenous industries. All countries of western Europe, Japan and U.S.A. assisted their domestic industries by buying home-made products wherever possible.
India, however, was an exception where most of the govt., needs, even for those stores as were locally available were met from abroad. Before the I world war, such purchases outside the country amounted to £5—10 million a year and included most of the manufactured stores used and practically all of them came from England.
Indian industries were thus deprived of assistance which could have been of immense value in fostering their development.
Drain from India:
One of the most important reasons for the industrial backwardness of India was the economic drain from the country. This drain, amounting to 2—3% of India’s national income during 1757—1939, consisted of various payments to the U.K. for which India got no material return.
These payments were, so to say, savings of the country. Had this amount been invested in India, she would have achieved a growth rate only a shade less than that of the U.S. and the U.K. during the 19th century.
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Agrarian System:
Industrial Development of a country is limited by the extent of the market. Both Japan and England depended upon foreign markets for selling their industrial products. In this respect, India, with its huge population, had a decisive advantage over them.
However, mainly as a result of the inequitable system of land tenures, a general neglect of agriculture, and an oppressive land revenue system, the Indian cultivator was impoverished and this led to the contraction of the home market for Indian Industrial goods. The agrarian system was thus a serious constraint on the Country’s industrial expansion.
Apart from reducing the cultivator to the position of a pauper and limiting the size of the market, the land tenure system had another significant consequence for India’s industrial development. The notoriously conspicuous consumption of the zamindars and their failure to accumulate productive capital for investment in industry, reduced the threat of competition for British businessmen.
It also widened the market for shabby luxury goods exported from Britain. The govt., far from discouraging this luxury consumption, encouraged it by regularly decorating the zamindars for their lavish hospitality to British Officials or for giving away sizeable sums of money for the benefit and amusement of British civil and military officers.
It is clear therefore, that the industrial question in India could not be solved apart from the question of agriculture which involved the foundations of the Imperialist rule.
Role of Foreign Capital:
The foreign capital invested in India was another positive hindrance in industrial development. In the first instance, the bulk of foreign capital went into fields which assisted the export of raw-materials from India, such as mines, plantations, railways, etc. This brought no benefit to the country as the multiplier effects in terms of income, employment, technical knowledge were largely exported back to England.
As for the remaining investment, care was taken to ensure that it did not spill into sectors which either competed with British Industries or did not serve Britain’s raw-material requirements. Furthermore, powerful companies established in India, competed with infant Indian industries and brought about their ruin.
For example, the western India Match company, a Swedish concern, destroyed 30 Indian match factories of ten years. Foreign capital, instead of assisting in the process of industrial development, became a major hurdle in its way.
We may conclude that the industrial backwardness of India was brought about by the Bright Imperialism. To overlook the political system under which India labored and single out such end —results as poverty and lack of entrepreneurs as the factors responsible for industrial backwardness is “to mistake the symptoms for the cause of the disease.”