DAMODARAM SANJIVAYYA NATIONAL

LAW UNIVERSITY
VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

EFFECT OF WORLD WARS ON INDIAN ECONOMY

SUBJECT

ECONOMICS- II

NAME OF FACULTY

MR. ABHISHEK SINHA

KUSUMKALI MITRA

2018111

III semester

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 CERTIFICATE

Subject: Economics-II

Name of the faculty: Mr. Abhishek Sinha

I, Kusumkali Mitra, hereby declare that this Project titled “EFFECT OF WORLD WARS
ON INDIAN ECONOMY” submitted by me is an original work undertaken by me. I have
duly acknowledged all the sources from which the ideas and extracts have been taken. The
project is free from any plagiarism issue.

Place: Visakhapatnam Name: Kusumkali Mitra

Date: 20th October,2019 Roll No. 2018111

3rd Semester

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 ACKNOWLEDGEMENT

I have endeavoured to attempt this project. However, it would not have been feasible without
the valuable support and guidance of Mr. Abhishek Sinha. I would like to extend my sincere
thanks to her.

I am also highly indebted to Damodaram Sanjivayya National Law University Library Staffs,
for their patient co-operation as well as for providing necessary information & also for their
support in completing this project.

My thanks and appreciations also go to my classmates who gave their valuable insight and
help in developing this project.

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 INDEX

1. Introduction…………………………………………………………………..5-6

2. Agriculture
2.1 World War I………………………………………………………………………7-8
2.2 World War II……………………………………………………………………8-10

3. Industry
3.1 World War I………………………………………………………………….11-12
3.2 World War II………………………………………………………………..12-13

4. Foreign Trade
4.1 World War I……………………………………………………………….14-15
4.2 World War II……………………………………………………………..15-17

5. Money market
5.1 World War I………………………………………………………………...18
5.2 World War II……………………………………………………………19-20

6. Prices
6.1 World War I……………………………………………………………….21
6.2 World War II………………………………………………………….21-23

7. Employment
7.1 World War I………………………………………………………….24-25
7.2 World War II………………………………………………………..25-27

8. Conclusion………………………………………………………..28-29

9. Bibliography…………………………………………………………30

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 INTRODUCTION

The two world wars of the twentieth century were events in a single process of reaction
against globalisation that was prolonged and, from time to time, violent. From 1815 to 1914
trade and capital flows increased alongside global productivity. Everywhere, economic
development tended to reduce local risks. At the same time, falling trade and transport costs
exposed farmers, firms, and labouring households to new instabilities and risks that
originated faraway, in countries and markets across the world.

By the end of the nineteenth century, leaders of several newly industrialising countries were
seeking to insulate their economies from global risks through tariff protection. After World
War I, the instabilities intrinsic to the global economic order increased. As the world market
shrank, the great powers struggled over national shares. In the 193os the world economy
broke up into several relatively closed trading blocs. In India, the return of Punjabi soldiers
after the end of the war also galvanised political activity against colonial rule in that province,
which became the spark for wider protest. The economic historian Tirthankar Roy has
explained in his work how the British engagement in World War I had a complicated impact
on India. There was a sharp increase in demand for Indian goods in Britain as production
capabilities in Britain itself were diverted to the war effort.

The worldwide trade disintegration contributed to the causes of World War II. The economies
of the Axis powers, Germany, Italy, and Japan were too small to prosper without
specialisation and external sources of food, fuel, and other materials. In mobilizing resources,
the richer market economies had a significant advantage. Poor economies, especially those
with a large peasant population, tended to collapse under the stress of total war, although they
tended to be less reliant on external trade. WW2 had much serious implications because it
had curtailed India’s trade policies within the commonwealth of Britain and ended India’s
touch with European nations. In the Second World War had also caused a catastrophic loss to
the Indian economy, between the years of 1939-45 external factors influenced the economy
majorly which led to huge economic imbalances that prevailed long after peace was attained
in India. The root cause of the entire Indian economic problem was Inflation which
manifested due to tremendous amount of treasury which was used to finance various military
activities. There were four major consequences of Second World War on India and they
included high inflation which was on account of war expenditure, the value of Indian

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currency took a nose dive, economic imbalances due to currencies exchange problems and
the development of exchange control.

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 AGRICULTURE

WORLD WAR 1

India was one of the foremost suppliers of raw materials during the First World War. In
colonial India, for most Indians rights to land were contingent on prompt payment of a
substantial land tax, labour was constrained first by systems of slavery and then by laws of
indenture with plantation managers being given judicial powers over their workers, officials
of the government were given enormous discretionary powers over Indians and the latter
faced racial discrimination in most walks of life.

The war put an end to a period of relative prosperity based on a growing integration of India
into the world capitalist economy. That prosperity, which never reached the mass of the
population, rested basically on the export of a number of cash crops, mostly jute, cotton and
tea, to Europe, North America and Japan. While the production of tea was almost entirely in
the hands of big British companies which employed a mass of poorly paid coolies, cotton and
jute were grown mostly by small Indian farmers and commercialized by Indian intermediaries
who sold the produce to big British, European and Japanese trading firms based in the port-
cities of Bombay and Calcutta.

The war led at once to a drastic decline in India's exports to continental Europe. This had
highly damaging effects on the earnings of Indian farmers, who were dependent for their
meager cash earnings on two crops, namely, jute and cotton. In case of jute, 'the mills on the
Hoogly had [thus] practically a captive supply of jute, and they were also monopolists as far
as jute manufactures were concerned. While the beginning of the war saw a weakening of the
demand for jute manufactures for peaceful purposes, with the intensification of [military]
operations, the demand for canvas, sand bags, cornsacks, etc. more than compensated for the
fall in civilian demand. The mills obtained cheap labour which had been released by the
stoppage of railway construction and other large public works owing to the war; they could
thus operate an eighty-hour week for most of the war period. Naturally the result was that the
jute mills made very large pr arge profits during the war . During the war and later, up to
1926, dividends declared by the jute mills managed by the two biggest (British) managing
agency houses in eastern India, Bird & Co. and Andrew Yule & Co. were generally above
1oo per cent of their paid-up capital. Other British-controlled mills also declared very high
dividends .With declining or stagnant real wages of workers during the war , the income

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distribution shifted further towards capital and away from workers. The production of rice
increased as a staple food crop.

Although raw cotton exports also fell by a large percentage after the beginning of hostilities,
cotton mill owners in India did not gain the full advantage of a potentially captive raw
material market, for two reasons. First, Japan had already emerged as the biggest importer of
cotton from India before WWI. In 1914-15, for example, Japan imported 4,817,560 cwts of
cotton from India as against Germany, the next biggest importer, Germany which accounted
for 1,688,670 of India's cotton exports. Japan's imports of the fibre increased further during
the war. In 1915-16, for example, Japan imported 5,913,981 cwts of cotton from India .
Second, Japan emerged as a major competitor of Indian and British cotton mills in the Indian
market.

1.Rice output in British India(in’000tons), 1916-17 to 1918-19.

1916-17 1917-18 1918-18

British India 30286 30996 20332
Greater Bengal 16836 17639 11672
Madras 6022 5512 4203
United Province 2671 2646 1446
Assam 1497 1935 1293
Central Province 1496 1629 744
Bombay- Sind 1356 1254 677

WORLD WAR 2

In the first few months, following the outbreak of the war, it appeared that the clouds of
depression that had gathered thick on Indian agriculture, world be dispersed at last. Prices of
raw-materials and food stuffs rose and a large overseas demand for commodities like raw-jute
and oil-seeds appeared. This prosperity was, however, short-lived.

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The difficulties of shipping but more than that, the capture of one country after another by
Germany in Europe and by Japan in the East, reduced the area to which exports from India
were either possible or permitted.

The magnitude of the problem can be estimated from the fact that with Europe alone, India’s
loss of trade amounted to over Rupees 30 crores or 1/6 her total over-seas trade. The
Commodities most affected were groundnuts, raw- jute, and raw-cotton. The first problem in
India, arising out of war, was thus of the so called agricultural surpluses. A problem more
serious than the problem of agricultural surpluses was that of the shortage of food grains.
While the demand for food had greatly increased on account of war evacuees and prisoners, a
large foreign army, and increased consumption within the country, the supply position
deteriorated not so much because of a fall in production as due to a reduction in the
marketable surplus.

In view of the high prices of agricultural produce, it was now possible for the farmer to pay
off his fixed charges by selling a smaller quantity than before. The rest he retained for this
self-consumption. Just when the marketable surplus at home decreased, imports from abroad
also declined from 2.15 million tons in 1939 to 0.5 million tons in 1941. Wheat became the
staple food crop due to high price of other food crops.

Besides, fear of currency depreciation and the expectation of a further rise in prices led to
stock building by consumers, traders and farmers much beyond their normal requirements.
These were the factors which brought about a scarcity of food and raised its prices.

The situation took an ugly turn with the fall of Burma in April, 1942 and the resulting loss of
rice supplies from that country. The situation could have been saved had the government
taken energetic steps to dehoard the stocks and ensure their equitable distribution. The
attitude of the govt. was, however, complacent and her measures half-hearted.

There was lack of co-operation between different administrative units so that speculators
exploited the situation to their full advantage. The result was the Bengal Famine in 1943; 15
lakhs human lives were lost before the govt. introduced rationing in selected centres. At the
same time, steps were taken to import food grains from abroad while within the country, the
‘Grow-More-Food grains’ scheme was launched.

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The rise in the prices of agricultural commodities benefitted only the well-to-do landlords
who had large marketable surpluses. It were they who repaid a large part of their debts. But
indebtedness among the small farmers did not decline while terms of tenancy grew harsher
and the conditions of agricultural labourers grew worse.

Sky-high prices and near famine conditions forced the small farmers to sell their lands. In one
year, 1943 April-1944 April, 25% of all peasant families sold or mortgaged their land, about
2/3 of it falling into the hands of local residents, chiefly absentee landlords.

2. Wheat Output in British India(in ‘000tons), 1916-17 to 1918-19.

1916-17 1917-18 1918-19

British India 8401 8276 6496

Greater Punjab 2881 3334 2840

United Provinces 3061 2889 2304

Bombay-Sind 680 748 259

Central Provinces 1125 763 677

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 INDUSTRY

WORLD WAR 1

The First World War led to the development of the Indian industries. It was because of many
reasons. During the First World War, the British industries focused on meeting the war needs
of the army. This led to the decline of imports from Manchester.

.This created a void in the Indian markets which was filled by the Indian industries. During
the war, Indian industries also had to supply goods to the army. They mostly supplied jute
bags, cloth for making army uniforms, leather boots and saddles. Many new industries were
set up in India to cater to the war needs. Many workers were employed. After the war,
Manchester was never able to regain its lost position in the market

Apart from commercial agriculture, other sectors which had been expanding in the pre-war
years were coal mining, largely dominated by British firms, and manufacturing industry. The
latter was dominated by textiles, cotton and jute. While jute mills in Calcutta were in the
hands of British (mostly Scottish) capitalists, the cotton industry was more dispersed
(Bombay being the largest centre) and dominated by Indian capitalists. In the ten years from
19o5-1914 some Indian firms had diversified from textiles into other industries such as
cement or steel. Most spectacular had been the foundation of a steel industry in the jungles of
Bihar by the great Bombay Parsi firm of Tatas.

The squeezing of the Indian economy reached new heights during the time of World War I.
According to the calculations of Saini (1977, pp. 152-53, p. 173), India made a direct cash
contribution of £229 million and sent overseas materials amounting to at least £25o million.
These materials included every item from leather and hides, clothing for the army personnel
to railway tracks and rolling stock, ammunition and military equipment. Third, another
impact of the World War I was felt when the prices of industrial goods as also of imported
manufactures went up sharply.

Massive requisitions of cereals, in particular for the needs of the cavalry, led to a rapid rise in
the price of food that hurt the urban poor and agricultural labourers who depended on the
market for their daily needs. Producers did not derive many benefits from higher prices, as
intermediaries reaped most of them. A thriving black market developed, as always in times of
war, in which fortunes were made. Exports of cash crops, especially jute, suffered from the
loss of the German market and from the obstacles to communications with Britain due to the

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threat of German submarines. The main beneficiary of the war was the domestic
manufacturing industry, especially the cotton mills which profited from the decline in imports
of Lancashire piece-goods which dominated the market before the war. The production of
piece-goods was 5o% higher in 1917-18 than in the pre-war years.

Manufacturing units were gradually established and for the first time, the British Raj adopted
a policy of industrialization. India acted both as a supplier as well as a sprawling market for
finished British goods in order to sustain Britain's wartime economy1.

WORLD WAR 2

The war provided a major demand stimulus to Indian industry. The Govt. placed, both on its
own behalf as well as on behalf of England and her allies, large orders for domestic industrial
products. New firms, which had entered industry amidst threats of over-production, now
found a ready market for their products. Older firms expanded their sales and almost every
industry operated at full capacity.

Among the older industries to expand were cement, cotton textiles, Iron and steel, and sugar.
In 1945, production of cement and paper was 96%, of steel 43% and that of textiles 2o%
higher than that in 1937. At the same time, some new industries started production for the
first time during the war. These included, among others, diesel engines, pumps, bicycles,
sewing machines, machine tools, caustic soda, chlorine, Sugar, Phosphates, Ferro Silicon and
Ferro-Manganese.

In an atmosphere of increasing demand and rising prices, the established industries reaped a
rich harvest of profits. The over all index of profits (Base 1928) moved from 72 in 1939 to
163 in 1945. The mill owners of Bombay alone made 92 crores of rupees in profits on an
initial capital of rupees 13.5 crores-their average annual profits being 11 times the pre-war
average. These were, however, frittered away and not conserved for modernisation and
expansion in the post-war years.

Mention may also be made of the impetus received by small-scale industries. owing to the
huge demand for war goods and the comparatively small capacity of large scale industries,

1
Manikumar, K. A. (2oo3). A Colonial Economy in the Great Depression, Madras (1929–1937).

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increasing reliance was placed on the small scale producer who supplied large and increasing
quantities of cotton and woollen goods including blankets, durries, tents, camouflage nets,
army boots, glass-ware and other small articles like Pith hats, socks and hoses. Despite an
impressive increase in the output of certain selected industries, the overall expansion in
industrial production was an insignificant 20%. This progress pales into insignificance before
the industrial advance registered in America where industrial production went up by 116%
between .1939-44.

The relatively small increase in industrial output in India was due to the difficulty of
importing plant and equipment from abroad. Preoccupation of Allied countries with the war,

danger of enemy submarines, and non-availability of shipping precluded this possibility. The
main reason, however, lay in India’s lack of control over her own economic destiny.

The Govt. was still not interested in the industrialisation of India as may be seen from the fact
that the proposals to manufacture automobiles and ships were turned down just at the time
when the government was placing huge orders for them in foreign countries.

Therefore, the increase in production was principally obtained through fuller utilisation of
idle capacity by working extra-shifts and more efficient utilisation of capacity in other ways.
This led to heavy wear and tear of plant and machinery and created difficulties for post war
reconstruction and development.

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 FOREIGN TRADE

WORLD WAR 1

India provided large quantities of iron, steel and other material for the manufacture of arms
and armaments .The Tata steel mills were saved from looming bankruptcy by a contract to
supply rails to Mesopotamia where the British built 1,5oo miles of railway lines to transport
troops and material.[12] From a longer-term perspective, Indian capitalists benefitted from the
fact that British businessmen felt powerfully the pull of loyalty to the homeland and tended as
a result to somewhat reduce their involvement in the Indian economy, a trend that would only
accelerate throughout the interwar period. All in all, while some operators, both British and
Indian, reaped handsome profits from war contracts, the mass of the population suffered a fall
in an already low purchasing power. Although the 192os saw the return of a modicum of
prosperity, the dynamics of the colonial economy had been somewhat broken and it would
never recover its pre-1914.

India was wrecked by high taxation – and the high inflation accompanying it – to support the
war, while the disruption of trade caused by the conflict led to widespread economic losses.
All this while the country was reeling from a raging influenza pandemic – the 1918-19
Spanish flu was the most devastating in history, with estimates of global mortality ranging
from 2o to 5o million, and the focal point of the pandemic was India, with an estimated death
toll of between 1o and 2o million. Poverty, disease and suffering all worsened in India during
these years. The drain on the Indian economy in the form of cash, kind and loans to the
British government came to about 367 million pounds.

Domestic manufacturing sectors such as cotton benefited from the decline in British goods
that had dominated the pre-war market. The steel sector so crucial after independence
benefited as well. British investment was rerouted to the UK, creating opportunities for
Indian capital. The war economy boosted Indian capitalism in some ways. At that time, India
gifted as high as 1oo million British Pounds (Rs 893 crore) to Britain to fund their war in
hope of dominion status and home rule in return.India also supplied as much as 37 lakh
tonnes of supplies to the British.

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3.India's National Income from 1914-15 to 1918-19 in Rs. million and pound million.

Year In Rs. Million In pound million

1914-15 19,678 1,475.850

1915-16 19,219 1,441.425

1916-17 19,767 1,462.525

1917-18 19,422 1,456.650

1918-19 17,366 1,302.450

WORLD WAR 2

The extension in the scope and intensity of the war also brought into play a number of factors
affecting the volume, value, composition and direction of India’s foreign trade. The first
effect was to reduce the volume. The quantum of exports declined due to loss of the
continental markets and an acute shortage of shipping which hampered our exports even to
the U.K. Later, the loss of Burma and the Far Eastern markets and the imposition of export
restrictions further reduced India’s exports.

Imports fell because of the preoccupation of the exporting countries with the war effort,
restrictions on shipping space, increasing incidence of freight and war-risk insurance and the
cutting off of the large supplies of imported goods from some of the enemy countries. On the
whole, the quantum of exports in I944-45 was 53% and imports only 40% (in 1943-44) of
that in 1938-39.

However, the decline in the volume of trade was more than compensated by the rise in its
value from Rupees 385 crores to Rs. 459 crores; the value of exports alone in 1944-45 way
35% higher than that in 1938-39. This increase in value was brought about by a steep rise in
prices, both of imports as well as exports.

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No less significant were the changes involved in the composition of trade. The proportion of
manufactured articles in our exports went up from 30% in 1938-39 to 47% in 1945-46 while
the share of raw-materials declined from 45% to 28%. The trend was just the reverse in the
case of imports where the share of raw-materials increased from 22% to 48% while that of
manufactures came down from 61% to 14% during the same period.

These changes, contrary to what many believe, don’t indicate the extent of industrialisation
achieved during the war because the increase in the percentage share of raw-materials in our
imports was caused by a large increase in the imports of petroleum for war purposes.
Similarly, most of the exports of manufactured articles consisted of cotton and jute goods
products of old and well established industries.

A more significant change was in the direction of foreign trade. Due to the shortage of
shipping, there was a comparative decline in long distance traffic and a corresponding
improvement in our trade relations with nearby countries like Egypt, Iran, Saudi, Arabia,
Iraq, Kenya, Australia and Ceylon. The share of the U.S.A. also improved while that of
England declined.

India’s balance of trade was traditionally favourable. War made it more so. England and her
allies, engaged as they were in a desperate struggle for survival, were not in a position to
meet India’s needs. Rather, they needed almost everything that India could produce and
export to help their war effort.

As a result, trade surpluses went on mounting so that at the end of the war, India had not only
liquidated her external debt but also accumulated a large sterling balance.

4. India's National Income from 1939-40 to 1944-45 in Rs. million and pound million.

Year In Rs. Million In Pound. Million

1939-40 3850 288.75

1940-41 3912 293.40

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1941-42 4219 316.425

1942-43 4558.50 227.925

1943-44 4782.72 358.704

1944-45 4950 371.25

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 MONEY MARKET

WORLD WAR 1

Massive requisitions of cereals, in particular for the needs of the cavalry, led to a rapid rise in
the price of food that hurt the urban poor and agricultural labourers who depended on the
market for their daily needs. Producers did not derive many benefits from higher prices, as
intermediaries reaped most of them.

During the initial stages of the war, the finances of the Central Govt., paradoxically enough,
showed small surpluses. Expenditure, of course, increased but the revenues also expanded
due to new taxation, up-grading of old tax-rates, borrowing and inflation. Taxation,
borrowing, and resort to the printing press were the three principal methods adopted by the
Govt. to finance the war. As regards taxation, a new tax, called the Excess profits tax, was
introduced while the rate of Income Tax, railway fares and freights, as well as postal,
telegraph and telephone rates were enhanced. Likewise, among indirect taxes, surcharge on
tobacco and spirit and excise duty on Tobacco were increased while betel nuts, coffee and tea
were also brought under the Central Excise Tariff.

Taxation alone was not sufficient to meet the enormous expenditure. The government,
therefore, undertook a large scale programme of public borrowing. Defence Bonds, Defence
Saving Certificates and interest-free bonds of various denominations were issued.

It is noteworthy that while inflationary forces were held in severe check in the U.S. and U.K.,
in India, inflation grew from bad to worse inflicting intense suffering on the people.

The most objectionable aspect of the war finance in India was that the problem was not
viewed and tackled as a whole with an eye to post war reconstruction. Mention may also be
made of the indiscriminate levying of indirect taxes without the compensating feature of
giving subsidies in respect of essential articles as in Britain. This had the effect of further
feeding the persistent inflationary pressures.

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 WORLD WAR II

The immediate effect of the war was a certain amount of hurried withdrawals from the banks.
The situation, however, soon eased and from 1942, joint stock banks began to take rapid
strides as judged by the increase in their number, branches, and deposits.

The number of scheduled banks, including the Imperial Bank and the exchange banks,
increased from 51 in June 1939 to 93 in June 1946 and the total number of offices rose from
1959 to 5321.

The largest among the new banks established during the war were the United Commercial
Bank, Calcutta, and the Bharat Bank, Delhi, sponsored by the Houses of Birla and Dalmia
respectively. With increase in the number of banking offices and the volume of money in the
hands of the public, bank deposits rose from Rs. 238 crores at the commencement of the war
to Rupees 1097 crores at the end of 1946.

There was, however, a significant change in the character of these deposits in so far as the
proportion of fixed to total deposits declined from ½ to less than ¼. The reason, apart from
the unattractive rate of interest, was the difficulty of obtaining industrial equipment during
the war.

Savings, therefore, could not be used for the erection or extension of industrial establishments
and had to be used as working capital for obtaining larger output from the existing scale of
equipment.

Although, the progress of Indian banking was rapid and substantial, yet it was not free from
defects. There were large-scale complaints of interlocking of banks and other concerns,
undesirable manipulation of accounts, indiscriminate branch expansion, opening of branches
in centres already well-served, leading to unhealthy and wasteful competition.

The inevitable crash came and between 1939-45, as many as 482 banks failed. But from
1942-43 onwards, on account of the vastly expanded scale of war-operations and India’s
increasing participation in it, the expenditure began to increase rapidly.

Overall expenditure rose by over three times between 1941-42 and 1945-46 while defence
expenditure alone recorded a more than nine-fold increase. Although tax revenue also

19
expanded by more than four times from Rs. 76 crores in 1938-39 to Rs. 311 crores in 1945-
46, but lost ground in the race with expenditure.

There followed a series of progressively-increasing budget deficits — Rs. 17 crores in 1941-

42, 47 crores in 1942-43,92crores in 1943-44 and Rs. 78 crores in 1944-45. The public debt
of India jumped up from Rs. 1204 crores in 1939-4o to Rs. 2308 crores in 1945-46. Total
note issue increased about seven times —from Rs. 179 crores in August, 1939, to Rs. 1,247
crores on 26 January 1946.

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 PRICES

WORLD WAR 1

The war brought in its train a sudden speculative rise in retail prices. Hoarding became
widespread and flourishing in several essential commodities appeared all over the country. In
order to deal with this situation as also to mobilise maximum resources for war effort, the
government instituted a variety of controls in the country.

The first was in regard to export trade when the flow of all goods to enemy countries was
prohibited while that to friendly and neutral countries was restricted in accordance with war
needs and shipping scarcity. This was followed by the imposition of the import control and
control of foreign exchanges.

These controls succeeded in controlling both foreign trade and balances in foreign countries
although, as a consequence, India suffered on account of the scarcity of consumer goods as
well as the depletion of her Dollar resources.

But it was only after the Food Grains Policy Committee had reported that effective measures
to control supply, fix prices and to ration necessities were adopted.

These controls were “un-co-ordinated, ill-conceived and irresolute”. They failed to control
the flourishing black-markets partly because of lack of popular support but mainly because of
the absence of a coherent policy and a complete lack of the necessary personnel to enforce it.
Besides, wage control and limitation of dividends and profits was either not attempted at all
or was not strictly enforced. That is why these controls brought no more than a modest
alleviation of the situation.

WORLD WAR 2

Among the various war-time developments in the Indian economy, the enormous rise in the
price level and the cost of living overshadowed all others by its spectacular character, the
wide sweep and its direct impact on the daily life of the common man.

21
Leaving out China and Greece where runaway inflationary conditions prevailed, India was
among those countries which experienced the highest rise in the price level. In 1945, the
economic advisor’s price index (August 1939 = 100) stood at 244.

This increase in prices was not equally shared by all commodities. Until the middle of 1943,
prices of agricultural commodities lagged behind those of manufactured goods, but from July,
1943 under the stress of scarcity and cutting off of rice supplies from Burma, they not only
overtook but even stole a march over them.

The basic cause of the rise in prices was the huge defence expenditure amounting to Rupees
2500 crores incurred during the course of the war, the annual average representing 3 times
India’s annual revenue at that time. This expenditure was met by a peculiar method under
which the British and Allied Govts. made payments for the purchases made on their behalf in
India in Sterling in London but the Indian Government released the equivalent amount in
rupees in India.

Thus, while sterling accumulated in London, notes in circulation in India rose from Rs. 203
crores in September, 1939 to Rs. 1085 crores in March, 1945. In this manner, inflation was
kept at bay in England but unleashed in India.

While the burden of the war was borne by the country as a whole, the inflationary method of
war finance and the resulting inflation, which vakil characterised as robbery, distributed this
burden most inequitably over different sections of the population.

Broadly, the proportion of country’s wealth, which fell to the share of the low-paid manual
worker, the fixed income employee and the small producer diminished while the proportion
commanded by the big supplier, the middle man, the war profiteer, the speculator, the large
investor, and producer increased.

More important than trade control were the commodity controls. Among the chief control
measures adopted in 194o-41, rationing of petrol and prices control in respect of Iron and
steel, matches, medicines, newsprint, Kerosene and non-ferrous metals were introduced. By
1943, by a further extension of controls, a number of industries like leather, cement, paper,
rubber, tea, and sugar were also brought within their purview.

22
In October, 1943, an ordinance for the prevention of hoarding and profiteering and
notifications for limiting profits, in a large number of commodities, to 2o% above the landed
cost or cost of production were issued.

23
 EMPLOYMENT

WORLD WAR I

Among the dizzyingly diverse ranks of Indian non-combatants were the departmental
followers who made up the medical, ordnance and transport services, and public and private
regimental followers who served as cooks, sweepers, water carriers, valets, blacksmiths and
cobblers2. The follower ranks also included veterinary personnel, grass-cutters and grooms,
postal workers, and the skilled and unskilled labour required by the army of occupation in
Iraq for the Inland Water Transport and the running of railways.

The army’s manpower needs always had to be balanced against other imperatives equally
crucial for an empire at war: the generation of material resources, the creation of export
surpluses to balance Britain’s trade deficits, and the diversion of transport infrastructure to
meet military needs. For the same reason, the circulation of Indian labour around the Bay of
Bengal was allowed to continue throughout the war, although on a reduced scale, because it
sustained docks, mines, plantations and oil works in Sri Lanka, Malaya, the Straits
and Burma. In India significant labour pools, as in Bihar and Orissa, had to be divided up
between the army, the civil departments and commercial interests. Another concern was to
ensure that, in crucial recruiting areas such as Punjab, harvests could be brought in and
agricultural wages did not spiral out of control3.

The Indian Army during World War I contributed a large number of divisions and
independent brigades to the European, Mediterranean and the Middle East theatres of war
in World War I. In World War I the Indian Army fought against the German
Empire in German East Africa and on the Western Front. At the First Battle of
Ypres, Khudadad Khan became the first Indian to be awarded a Victoria Cross. Indian
divisions were also sent to Egypt, Gallipoli and nearly 7oo,ooo served in Mesopotamia
against the Ottoman Empire4. While some divisions were sent overseas others had to remain
in India guarding the North West Frontier and on internal security and training duties.

2
War Office: Statistics of the Military Effort of the British Empire during the Great War, 1914-192o, London
1919, p. 777, online: https://archive.org/stream/statisticsofmilioogrea#page/776/mode/2up (retrieved: 27 January
2o16).
3
Singha, Finding Labor 2oo7.
4
"Participants from the Indian subcontinent in the First World War". Memorial Gates Trust. Retrieved 12
September 2oo9.

24
In 1901 oil had been discovered in commercial quantities at Masjid-e-Suleiman at the head of
the Persian Gulf5. At the start of the war in 1914, the privately owned Anglo-Persian Oil
Company which owned the concessions for these fields was about to be bought by the British
Government, primarily to fuel the British Fleet. It soon became clear that the Ottoman
Turkish Army was being mobilised and in August the Indian Government was instructed to
prepare contingency plans to protect these strategic assets. The plans dictated that in the event
of the Turkish Army coming out in support of the Germans, the Indian Army was to act to
secure the oilfields. As a contingency, the Indian Expeditionary Force D under command
of Lieutenant-General Sir Arthur Barrett sailed from Bombay on 16 October 1914 for
Bahrain6. They, together with Expeditionary Force A who had been hurriedly sent to Europe
at the end of September7 in response to a request from the Imperial General Staff for men to
support the war effort— became the first Indian elements committed to war outside of India.

4. Table showing number of army personnel deployed during the period of 1914-1918 by
different countries.

Countries Standing & reserved armies Mobilised forces

Russia 5,971,000 12,000,000
France 4,017,000 8,410,000
United Kingdom 975,000 8,905,000
United States 2,00,000 4,355,000

WORLD WAR II

The Indian Army was the largest volunteer force during the Second World War. Without
resorting to conscription, the British were able to recruit 2.5 million Indians in the colonial
Indian Army. The Indian Army fought the three major Axis powers (Japan, Italy, and
Germany) from Hong Kong in the east to Italy in the west. It displayed tactical virtuosity and
organizational flexibility while fighting in varying terrains, from the swamps and jungles of

5
Kinzer, p.48
6
Ford, pp.23–24.
7
Omissi, David. "India and the Western Front". Retrieved 18 October, 2009.

25
Malaya and Burma to the rocky terrain of Eritrea, the sandy desert of North Africa, and the
mountains of central Italy.

The Imperial Japanese Army experienced its greatest defeat in Burma, where most of the
Commonwealth soldiers were Indians. Strangely, the Indian Army experienced very few
mutinies during the war. Nevertheless, both Germany and Japan were able to create pro-Axis
satellite armies from captured Indian prisoners of war. However, after the Allied victory in
August 1945, the Indian soldiers were demobilized and communal riots broke out. As the
sword arm of the Raj disintegrated, India moved inexorably toward independence and
Partition.

Indian contribution could be seen in all aspects of the war effort and included serving in
merchant supply ships taking material and food for soldiers in Europe.
Indian doctors and nurses were deeply involved on the British soil and other countries. In
1939, the Indian Comforts Fund (ICF) was established at India House in Aldwych that was
run by Indian and British women. Between 1939 and 1945, the ICF supplied over 1.7 million
food packets to soldiers and Asian prisoners of war, besides putting together warm clothes
and other supplies.
Back home, the nation contributed by collecting food and other material to support the war.
Kolkata was the Allies’ Rest and Recreation point, where American and British soldiers
stopped to rest and recuperate before heading back to war or heading home. In fact, many are
not aware that India was also home to Italian POWs. As early as 1941, a batch of Italian
POWs, which included four Generals, arrived by ship at Mumbai. Ranchi, capital of
Jharkhand today, had a camp where POWs were housed.
During World War II, even women worked in factories producing munitions, building ships,
aeroplanes, in the auxiliary services as air-raid wardens, fire officers and evacuation officers,
as drivers of fire engines, trains and trams, as conductors and as nurses. During this period
some trade unions serving traditionally male occupations like engineering began to admit
women members.

26
5. Table of army personnel employed in military by different nations, year 1939 to 19458.

Year Germany United United States Russia

Kingdom
1939-1940 114 338 235 562
1940-41 118 325 228 562
1941-42 315 318 230 940
1942-43 461 321 234 1300
1943-44 596 336 274 1300
1944-45 603 350 294 1433

8
The Correlates of War Project,J. David Singer,University of Michigan.

27
 CONCLUSION

While the First World War gave a boost to Indian nationalism, the Second World War
brought Indian independence in its wake, a reminder that India’s history is part of a broader
international framework.

World War I brought about massive social upheaval, as millions of women entered the
workforce to support men who went to war and to replace those who never came back. The
first global war also helped to spread one of the world’s deadliest global pandemics,
the Spanish flu epidemic of 1918, which killed an estimated 20 to 50 million people. World
War I has also been referred to as “the first modern war.” Many of the technologies we now
associate with military conflict—machine guns, tanks, aerial combat and radio
communications—were introduced on a massive scale during World War I.

The severe effects that chemical weapons such as mustard gas and phosgene had on soldiers
and civilians during World War I galvanized public and military attitudes against their
continued use. The Geneva Convention agreements, signed in 1925, restricted the use of
chemical and biological agents in warfare and remains in effect today.

The First World War was crucial in changing the political climate in the country its impact on
individual veterans was no less important. The war did have an impact on the development of
a political consciousness among some former soldiers and while the extent of this is hard to
document colonial archives do tell us that former soldiers did play a role in the burgeoning
national movement. For many Indian troops the war was an experience that broadened their
horizons and increased their knowledge of the world – they had been exposed to new
geographies, cultures and ideas and this impacted the way they negotiated life in India as
well.

Along with World War I, World War II was one of the great watersheds of 20th-century
geopolitical history. It resulted in the extension of the Soviet Union’s power to nations of
eastern Europe, enabled a communist movement to eventually achieve power in China, and
marked the decisive shift of power in the world away from the states of western Europe and
toward the United States and the Soviet Union.
There can be no real statistical measurement of the human and material cost of World War II.
The money cost to governments involved has been estimated at more than

28
$1,000,000,000,000 but this figure cannot represent the human misery, deprivation, and
suffering, the dislocation of peoples and of economic life, or the sheer physical destruction of
property that the war involved.
The Second World War provided yet one more graphic picture of the ruthless exploitation of
the resources and people of India by England on one side and the Indian monopolist on the
other. Apart from a large volume of accumulated sterling balances and the small beginnings
made in the field of chemical, metallurgical, and engineering industries, it bequeathed to the
country an inflated structure of currency and prices, an intensive and complicated system of
exchange control, highly depreciated plant and machinery, a famished and dispossessed
peasantry, a growing food shortage, and a flourishing black market in essential commodities.

29
 BIBLIOGRAPHY

Books
Indian Economy by Uma Kapila.
Indian Economy Since Indpendence by Uma Kapila.

Journal
Manikumar, K. A. (2003). A Colonial Economy in the Great Depression, Madras (1929–
1937).
War Office: Statistics of the Military Effort of the British Empire during the Great War,
1914-1920, London 1919, p. 777.
Singha, Finding Labor 2007.
"Participants from the Indian subcontinent in the First World War". Memorial Gates Trust.
Retrieved 12 September 2009.
Kinzer, p.48
Ford, pp.23–24.
Omissi, David. "India and the Western Front". Retrieved 18 October, 2009.
The Correlates of War Project,J. David Singer,University of Michigan.

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http://www.economicsdiscussion.net/indian-economy/indian-economy-during-the-second-
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https://www.mapsofindia.com/my-india/history/indias-role-in-world-war-ii-and-its-impact.

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