Tracing the Path of Industrialisation in India: Colonial Legacy and Post-independence Developments

Before British colonisation, India was one of the world’s foremost economic powers. Cities like Dhaka, Murshidabad, and Surat were thriving industrial centres, producing textiles, metalwork, and ships that supplied markets across Asia, Europe, and Africa. Then came colonial rule – and with it, one of the most consequential economic reversals in modern history. Understanding how India went from a manufacturing giant to a deindustrialised colony, and then rebuilt itself through competing visions of development after independence, is essential to understanding the social and economic structure of modern India.

India before colonisation: a manufacturing powerhouse 🔗

India in the eighteenth century was both a great manufacturing and agricultural country. Its textile exports – fine muslins from Bengal, calicos from Gujarat, silk from multiple regions – were sought after across the globe. Towns like Dacca, Surat, Patna, Lucknow, and Varangal specialised in different crafts and industries. Beyond textiles, India excelled in shipbuilding, metallurgy, and gem cutting – with Gujarat and Malabar ships known for quality across the Indian Ocean, and Golconda renowned for precision diamond work.

This was not a backward or stagnant economy. It was deeply integrated into global trade networks, and Indian goods commanded premium prices in European markets. Indian textiles held over 20% of total English trade with southern Europe in the 1720s, a share that would decline sharply over the coming century.

Colonial deindustrialisation: how Britain dismantled Indian industry 🔗

The term “Indian Economic Deindustrialisation” refers to the period of industrial decline in the Indian economy from 1757 to 1947. It was not a gradual or natural process – it was the direct result of deliberate colonial policies designed to serve British economic interests.

The British government implemented policies that favoured British industries and restricted the growth of Indian ones. The Charter Act of 1813 allowed one-way free trade for British citizens, enabling cheap British goods to flood Indian markets. India was reduced from a producer to a raw material supplier – cotton was exported to mills in Manchester, processed into cloth, and sold back to Indians at inflated prices.

The consequences were severe. The textile industry serves as the most striking example of deindustrialisation. As Britain underwent its own Industrial Revolution, the British textile industry began producing goods more cheaply than traditional Indian handloom products. Skilled artisans lost their hereditary livelihoods and were forced into agriculture, swelling an already overcrowded rural workforce.

The number of workers engaged in agriculture increased from 7.17 crore to 10.02 crore between the early nineteenth century and 1931, while workers in industry fell from 2.11 crore to 1.29 crore during the same period. The city of Dacca, once called the Manchester of India for its fine muslin, saw its population collapse as its weaving economy was gutted.

Railways and roads: infrastructure in colonial service 🔗

The British did build infrastructure – but primarily to serve their own extraction. The construction of railways and roads reduced the cost of importing and exporting goods, but the new transport network exposed once-isolated, largely self-sufficient communities to regional and global competition, overwhelming traditional producers rather than empowering them. By 1947, India had over 40,000 miles of railway track, yet this network was built to evacuate resources to ports, not to fuel integrated industrial growth.

Early sparks of indigenous industrialisation 🔗

Despite the colonial stranglehold, some Indian entrepreneurs found a way through. Jamsetji Tata founded India’s first steel plant (TISCO) in Jamshedpur in 1907, while figures like Ghanshyam Das Birla and Walchand Hirachand also emerged as key Indian business figures. Alongside this, the Swadeshi Movement – which called on Indians to boycott British goods and support indigenous production – began building an economic consciousness that would eventually fuel the independence struggle.

By the 1950s, India’s share of the global economy had dropped to approximately 4%, down from an estimated 25% in the early eighteenth century. The country that independence leaders inherited was not simply poor – it had been actively impoverished.

The great debate: Gandhi vs. Nehru on industrialisation 🔗

When India gained independence in August 1947, its leaders faced an immediate and deeply contested question: what kind of economy should the new nation build? Two towering figures offered fundamentally different answers – Mahatma Gandhi and Jawaharlal Nehru. Their disagreement was not merely about economics. It reflected opposing philosophies about what development means and who it should serve.

Gandhi’s vision: the village as the foundation 🔗

Gandhi’s philosophy was rooted in truth, non-violence, and self-reliance. He believed economic development should be measured not by industrial output but by moral well-being and equitable distribution. His ideal was “Sarvodaya” – the welfare of all – built around village self-rule, or “Gram Swaraj.”

Gandhi championed khadi and cottage industries not merely as economic tools but as symbols of resistance against colonial exploitation. The spinning wheel (charkha) represented the possibility of village-based self-sufficiency, keeping wealth distributed rather than concentrated. Gandhi was only against industrialism that uproots rural life – not against industrialisation that supports and does not subordinate the traditional economy.

Gandhi’s opposition to large-scale modern industry was partly based on the observation that despite considerable industrial development in British India between 1881 and 1931, there was no appreciable increase in gainfully employed workers – gains in organised industry were offset by losses in the traditional sector. His concerns about exploitation and inequality were not sentimental; they were grounded in what he had seen happen under colonial capitalism.

Nehru’s vision: heavy industry as the path to modernity 🔗

Nehru held an entirely different view of India’s future. He saw large-scale industries as engines of progress and advocated for a centralised planning system, believing the state should play a key role in directing economic development. Nehru was a modernist, deeply influenced by Fabian socialism and the achievements of the Soviet Union, which had transformed from an agrarian society to an industrial power within decades.

In a famous exchange in 1945, Nehru rejected Gandhi’s vision of harmonious villages directly, writing that a village was “backward intellectually and culturally” and that no progress could come from such an environment. He sought a different kind of self-sufficiency – industrialisation and the steel mill – with his central objective being to overcome India’s poverty through large-scale transformation.

Nehru believed that “to import from abroad is to be slaves of foreign countries” – a conviction that drove his emphasis on building domestic capacity in heavy industry, capital goods, and infrastructure. Industries producing basic and heavy goods were prioritised for public investment, while consumer goods were left largely to small private firms that could generate employment.

Building a new industrial India: the Nehruvian model in action 🔗

With Gandhi’s assassination in January 1948, nothing remained to restrain Nehru’s industrial programme. The state moved quickly to put its vision into policy.

The Industrial Policy Resolutions of 1948 and 1956 🔗

The Industrial Policy Resolution of 1948 established India as a mixed economy where both the public and private sectors could coexist, classifying industries into four categories. It reserved arms, atomic energy, and railways for the state, and created a mixed zone for industries like iron, steel, and aircraft manufacturing where private producers could continue but nationalisation was possible after a decade.

The more comprehensive Industrial Policy Resolution of 1956 – often called the “Economic Constitution of India” – classified industries into three schedules: those exclusively reserved for the state, those where the state would take initiative but private investment was welcome, and those open to private enterprise. Schedule A alone reserved 17 industries for exclusive state control, including steel, coal, atomic energy, and aircraft.

The 1956 resolution was also influenced by the Mahalanobis model of economic planning, which prioritised heavy industries and capital goods as the foundation of self-reliant growth. The logic was that investing in the capacity to produce machines would, over time, make India capable of producing everything else without depending on imports.

Five Year Plans and the public sector 🔗

India launched its First Five-Year Plan in 1951, soon after independence, focusing on the primary sector – agriculture, irrigation, and rehabilitation. It was the Second Five-Year Plan (1956-61) that decisively shifted the strategy toward heavy industrialisation, based on the Mahalanobis model. Major public sector enterprises – the Bhilai Steel Plant, Bharat Heavy Electricals (BHEL), Indian Oil Corporation – were established during this period, forming the backbone of what Nehru called the “temples of modern India.”

The 1956 Industrial Policy Resolution expanded the list of industries reserved for the public sector to cover 14 industries in which new establishments were to be set up only by the state, with the state also expected to take a leading role in 12 additional sectors. This institutional architecture dominated Indian economic policy for the next three decades.

The License Raj and its contradictions 🔗

Nehru’s model created a mixed economy, but one weighted heavily toward state control. The system of industrial licensing – requiring government approval for most business activities – was intended to prevent monopolies and ensure planned development. In practice, it created bureaucratic delays, reduced competition, and often rewarded political connections over productive efficiency. Under a policy that was one of a kind, consumer goods like apparel, footwear, and furniture were reserved by law for production only by small firms, limiting their ability to achieve economies of scale.

Despite these contradictions, the Nehruvian period produced real achievements. Five Indian Institutes of Technology (IITs) were established by the end of the First Plan in 1956, laying the groundwork for the scientific and technical capacity India would eventually leverage in information technology, pharmaceuticals, and space exploration.

Legacy, tensions, and what came after 🔗

Colonial deindustrialisation left India with an economy heavily dependent on agriculture and raw material exports – a structure that persisted well into the post-independence period, influencing rural-urban population distribution and international trade patterns. Independent India essentially had to rebuild its industrial base from scratch, which explains why Nehru’s urgency about large-scale industrialisation resonated so strongly.

Yet Gandhi’s concerns were not proved wrong either. Rapid industrialisation did concentrate economic activity in cities, did create new inequalities, and did leave vast rural populations behind. Programmes like the Khadi and Village Industries Commission (KVIC) and later initiatives in rural self-employment embodied Gandhi’s emphasis on local empowerment, while continued investment in infrastructure reflected the Nehruvian legacy. Even the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) of modern India carries the philosophical fingerprints of Gandhi’s insistence that rural labour must be protected and valued.

Despite the economic reforms of 1991, India still reflects the socialist principles of both Gandhi and Nehru – seen in public-private partnerships, state support for weaker sections, strengthening of local governments, and promotion of small and micro enterprises. The debate between these two visions was never fully resolved, and that is perhaps why it remains so generative – each generation of policymakers finds itself returning to it.

India’s industrialisation story is ultimately not one of triumph or failure, but of a country navigating immense historical disadvantage while simultaneously arguing, often fiercely, about what kind of society it wants to be. That argument – between growth and equity, between the city and the village, between the machine and the hand – continues today.

What do you think? Gandhi believed that large-scale industrialisation would deepen inequality and displace rural communities – and several of his predictions came true. Does that mean his village-centred model was the more ethical path, or was Nehru’s push for heavy industry an unavoidable necessity for a newly independent nation? And given India’s contemporary challenges of urban overcrowding, rural distress, and environmental degradation, whose vision seems more relevant today?

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