ABSTRACT

The Second World War initially had the same impact on India as the First World War. Prices rose, industrial equipment was utilised to full capacity, capitalists made enormous profits, and the gap between the rich and the poor widened. This time, however, there was no spurt of economic growth. The First World War had followed a period of worldwide economic expansion, in which India had shared to a modest extent. Industrial capacities installed before the war were then fully utilised, including India’s novel steel plant. The Second World War, however, followed a prolonged depression, from which India had suffered more than the industrial nations of the West. In this period, hardly any new industrial equipment had been installed and the renewal of outdated machinery had been postponed. The utilisation of installed capacity soon reached its limits and thus prices increased as wartime demand grew. Moreover, Great Britain claimed a much greater share of Indian production in the course of this war than in the previous one. This will be discussed in detail below; at this point it may suffice to stress the importance of this fact for the acceleration of wartime inflation: purchasing power was created in terms of industrial wages and profits, but at the same time goods that could have absorbed it were exported in order to aid the war effort. The British government bought goods produced in India on credit and subjected India to a regime of forced saving. This amounted to a kind of compulsory investment in government bonds, but it was not necessary to issue such bonds as the government could freely print money. As more and more money was printed, the sterling currency reserves of the Reserve Bank of India deposited with the Bank of

England in London increased to the same extent. But these reserves could not be touched by India during the war.