India’s Economic Impact of War

Chennai: As the country celebrates the 25th anniversary of the economic reforms started in 1991, what it fails to acknowledge are the underpinnings of the economy which date back to the world wars, claimed historian, Srinath Raghavan on Wednesday.


Raghavan’s book ‘India’s War: The Making of Modern South Asia’

The Indian war industry prior to the start of the Second World War ,was in a dismal state or practically non-existent, says Raghavan, addressing the audience at a special lecture. “With all of six government ordnance factories, no private armaments industry, no heavy chemicals, no aircraft, no automobile or shipping industry. None of it was produced in India prior to 1940.” The government hence led the charge to gear the economy to the tune of the British needs at war. An interesting trend followed, the period of 1942-43 onwards saw a significant uptake in the overall economic output.

An Indian member was appointed under the then Ministry of Supply to look after industrial proceedings, a major move by the Imperial leaders at the time who did not intervene in matters concerning the economy seeing itself as a laissez-faire capitalist state which intervened only in matters of law and order and contract enforcement. The effort also saw the formation of the Industrial Planning organisation in 1943. “The war really set the template for how the economy is to be managed,” claimed Raghavan in his book ‘India’s War: the Making of Modern South Asia 1939-1945’.


Talking about the massive increase in army personnel during the period of the second world war, Raghavan, a senior fellow at the Centre for Policy Research, also pointed out how a number of private sector companies came to the fore as a part of the huge effort by the government of India on behalf of the British to build a war economy.



The strength of the Indian army was increased to 2.5 million by the end of 1945. The Government’s support to private industries gaining importance as army needs began increasing manifold. The data Raghavan gathered suggest that as many as 160 private factories were either expanded or inaugurated in the period. The government promised the investing capitalists’ protection from the possibility of being swept away by foreign competition in the post- war scenario.

The principal beneficiaries of this were those industries, pre-eminently textiles, where India had a relatively strong resource cost advantage. The Delhi Cloth Mills (DCM) group led by Lala Shri Ramsaw a seven-fold increase in net profit as demands saw a massive increase. “India was literally clothing every soldier of the allied army across the world”, Raghavan writes. The Kasturbhai Group of Mills as well saw a massive increase in operating profit during the period though a part of it was also attributed to Gandhi’s Swadeshi movement.


Capital industries like machine tools and chemicals failed to take off since they needed much higher levels of capital and technology than textile or steel mills. But there were a few companies who came through during the period – Larsen and Toubro also known as L&T, one of the largest engineering and construction companies of the country today, had its first break repairing ships during the Second World War. The Kirloskar Group as well saw a massive boost in production of its motors during the period. Bata, a leather footwear making company too saw an increase in sales. Businessmen like Ghanshyam Das Birla also ventured into the automobile market establishing Hindustan Motors while Walchand Hirachand and two others registered Hindustan Aircraft which was taken over by the government and later named Hindustan Aeronautics Limited (HAL).


The Hindustan Aeronautics G 1 Glider in 1944

India’s financial commitment to the war effort had increased so much during Japan’s invasion of Burma that it had even exceeded that of Britain’s by 27 million pound sterling. Britain’s debt to India reached staggering 1.3 billion pound sterling,which is “Equivalent to 300 billion dollars today which is about the amount of foreign exchange reserve the Reserve Bank of India (RBI) has today”, claimed Raghavan citing the extraordinary sum which India was bearing while famines claimed millions of lives within the country.

Raghavan, in his book, explained, “India is now acknowledged to be an emerging global power-one that could buttress an open and liberal international order. Yet the rise of India was first foretold during the Second World War when a desperately poor country mobilised to an astonishing degree and simultaneously fought for its own freedom and that of the world.” As we ponder India’s emerging role on the global canvas, the story of its role in the Second World War provides the crucial starting point.



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