India s colonisation by the British created an institutional environment that, on paper, guaranteed property rights among the colonisers, encouraged free trade, and created a single currency with fixed exchange rates, standardised weights and measures and capital markets. It also established a system of railways and telegraphs, a civil service that aimed to be free from political interference, a common law and an adversarial legal system. This coincided with major changes in the world economy industrialisation, and significant growth in production and trade. However, at the end of colonial rule, India inherited an economy that was one of the poorest in the developing world, with industrial development stalled, agriculture unable to feed a rapidly growing population, a largely illiterate and unskilled labour force, and extremely inadequate infrastructure.
The 1872 census revealed that 91.3 Percent of the population of the region constituting present day India resided in villages, and urbanisation generally remained sluggish until the 1920s, due to the lack of industrialisation and absence of adequate transportation. Subsequently, the policy of discriminating protection where certain important industries were given financial protection by the state , coupled with the Second World War, saw the development and dispersal of industries, encouraging rural urban migration, and in particular the large port cities of Bombay, Calcutta and Madras grew rapidly. Despite this, only one sixth of India s population lived in cities by 1951.
The impact of British occupation on India s economy is a controversial topic. Leaders of the Indian independence movement and economic historians have blamed colonial occupation for the dismal state of India s economy in its aftermath and argued that financial strength required for industrial development in Europe was derived from the wealth taken from colonies in Asia and Africa. At the same time, right wing historians have countered that India s low economic performance was due to various sectors being in a state of growth and decline due to changes brought in by colonialism and a world that was moving towards industrialisation and economic integration.