Great Depression in India

Indian economy had been largely agricultural before and during the rule of the British. However, during British rule, there was a major shift from the growth of food grains to the cultivation of cash crops. This change was fostered by the colonial government in order to provide material for the textile mills in England, the most important of them being the cotton mills of Manchester and Lancashire which were supplied with raw cotton produced in India. Since 1858, committees were established to investigate the possibility of cotton cultivation in India to provide raw materials for the mills in Lancashire. New technologies and industries were also introduced in India, albeit on a very small scale compared to developed nations of the world. Import duties on British goods were reduced following the 1879 famine. In 1882, apart from those on salt and liquor, all other import duties were abolished. Duties on cotton were revived in 1894 only to be removed once again in 1896. == Problems caused by the gold standard ==

The British government adopted the gold standard in the 1790s. Gold was used to determine the value of the pound sterling throughout the 19th century and the first quarter of the 20th century. The value of the pound sterling depended on the amount of pound sterling needed to purchase a fixed quantity of gold. At the onset of the First World War, the cost of gold was very low and therefore the pound sterling had high value. But during the First World War, the value of the pound fell alarmingly due to rising war expenses (by prompting the government to print more money). At the conclusion of the war, the value of the pound was only a fraction of what it used to be prior to the commencement of the war. It remained low until 1925, when the then Chancellor of the Exchequer of United Kingdom, Winston Churchill, restored it to pre-War levels. As a result, the price of gold fell rapidly. While the rest of Europe purchased large quantities of gold from the United Kingdom, there was little increase in the financial reserves. This dealt a blow to an already deteriorating economy. The British government then began to look to its possessions in India to compensate for the gold that had been sold. :"However, the price of gold in India, on the basis of the exchange rate of the rupee around 1S.6d., was lower than the price prevailing abroad practically throughout; the disparity in prices made the export of the metal profitable, which phenomenon continued for almost a decade. Thus, in 1931-32, there were net exports of 7.7 million ounces, valued at ₹57.98 crores. In the following year, both the quantity and the price rose further, net exports totaling 8.4 million ounces, valued at ₹65.52 crores. In the ten years ended March 1941, total net exports were of the order of 43 million ounces (1337.3 Tons) valued at about ₹375 crores, or an average price of ₹32-12-4 per tola." == India at the onset of the Depression ==

India was one of the foremost suppliers of raw materials during the First World War. India provided large quantities of iron, steel and other material for the manufacture of arms and armaments. Manufacturing units were gradually established and for the first time, the British Raj adopted a policy of industrialization. During the annual fiscal year 1928–29, the total revenue for the Government of India was ₹1,548 million. The total exports were valued at ₹3,390 million while imports were valued at ₹2,630 million. == Impact of the Great Depression ==

India suffered badly due to the Great Depression. The price decline from late 1929 to October 1931 was 36 percent compared to 27 percent in the United Kingdom and 26 percent in the United States. Moreover, imports were severely affected by the Swadeshi movement and the boycott of foreign goods imposed by Indian Freedom Fighters. However, the British Raj rejected the idea. A recommended course of action to increase mobility of cash is rise of government expenditure. However, the Government was less interested in spending than accumulation. There was a decrease of ₹151 million in the railway revenues between 1930 and 1932. The Home charges was made of five components • Interest payable on Indian debt. • Divident to shareholders of East India Company • Interest on the railways • Civil and military charges. • Store purchases in England Due to the drastic collapse of international trade and the very little revenue obtained for it, India could only pay off her home charges by selling off her gold reserves. From 1931–32 to 1934–35, India exported ₹ 2,330 million worth of gold. == Consequences ==

The Great Depression had a devastating impact on Indian farmers. While there was a steady, uninhibited increase in land rent, the value of the agricultural produce had come down to alarming levels. Therefore, having incurred heavy losses, farmers were compelled to sell off gold and silver ornaments in their possession in order to pay the land rent and other taxes. Accordingly, the Reserve Bank of India Act was passed in 1934 and a central bank came into being on April 1, 1935, with Sir Osborne Smith as its first Governor. However, when Osborne Smith tried to function independently and indulged in open confrontation with P. J. Grigg, the finance member of the Viceroy's Council, he was removed from office. == Related events ==

Declaration of independence On December 31, 1929, at a session of the Indian National Congress held on the banks of the river Ravi in Lahore, Jawaharlal Nehru unfurled the tricolor and declared that complete independence from British rule would, henceforth, be the goal of the Congress. This was a remarkable shift of policy for the Indian National Congress as it had, till now, been a staunch advocate of dominion status. This declaration also triggered the Civil Disobedience Movement, which commenced with the Salt Satyagraha. Salt Satyagraha The Salt Satyagraha formed the highpoint of the Civil Disobedience Movement. While the heavy salt tax was always a burden to the poor peasant, the widespread poverty during the Great Depression made it even more difficult for the commoner to procure salt. In response to this tax, between March 12, 1930, and April 5, 1930, Mahatma Gandhi marched with over 30,000 followers to the coastal town of Dandi in Gujarat, where they illegally manufactured salt and defied the Government monopoly on salt. Subsequently, similar satyagrahas were organized at Dharasana and Vedaranyam. The Government responded with a massive roundup, but by then, the march and the media coverage had radically moulded international opinion. == Notes ==