Rebuilding a war economy

CHENNAI, NOV 7; “Historians are good at suggesting only two things: First that everything began much earlier and second that everything is more complicated than you think”, said Srinath Raghavan, the author of books on military history. History does bear evidence to his statement that everything in historical literature does have a precedent. Same goes for the Indian war economy during 1942.

The post-independent Indian economy followed a socialist pattern and planned models to resurrect the economy from the colonial rule. The first Five year plan
(FYP) and the Mahalnobis-Nehru second FYP established the same for us. The latter focused more on industrialization which is the second phase of any developing economy. Strategy of the initial plans, notably the first three, was to enhance the trickle-down theory, infuse institutional changes in the different sectors and more involvement of the government in handling the economy so that the benefits reached the poor.

Involvement of a sovereign country’s government in their domestic economies saw its traits in the emergence of Keynesian economics during the years of Second World War and Great Depression. The Great Depression was one of those economic slowdowns when the economists from all around the world realized that erstwhile textbook economic strategies had not done justice to the global economic health . Around that time, John Maynard Keynes, an English economist, otherwise known as the ‘Father of Modern Economics’ suggested the involvement of central banks and governments in spending in their own economies when people were hoarding their money due to recessionary pressure.

Along the same lines, during 1942, India had this sudden urge to build a war economy from scratch. India was drawn into the war because British as at war and as a result of that, India ended up developing the economy and also a strong military power. Srinath mentioned that there was a strong recruitment drive that increased the military strength from 200,000 in 1939 to 2.5 million in 1945. Ratio of British to Indian officers in the Indian army reduced from 10:1 to 4:1. Till 1947, India had an officer class that was able to take care of the Indian army.

army

Raghavan explained that in 1942, the Indian army did not expect to fight the Japanese and the recruitment drive along with huge expenditure from the government was the need of the hour.  The longstanding assumption was that India will be attacked by Russia from the Afghanistan route. The Second World War came to India in 1942 when the Japanese attacked the Indian border. India had to build a war economy from scratch as there were no arms indutries, shipping industry, steel production was minimal and a lot other shortcomings. The war was a gear for the economy.

war-fin

He also mentioned how the growth rate of GDP started kicking in during the war. This happened because of the economic expansion led by the Government during the war. The Second World War compelled the Indian government to intervene in the Indian economy. Conditions that prevailed forced the government to send and construct a war economy.

The trajectory laid down by Srinath offered a vivid picture of the Indian war economy. He said, before 1940, Indian economy did not have industries for the following: arms, shipping, automobiles and heavy chemicals.

The situation called for an increase in production in the military sphere and therefore there was government support to private industry and support for import substitution industrialization. Srinath said that the output had increased by 30 % in steel, 41% in machine tools and in many other sectors. He also talked about the increase in munitions industries and the support meted out by the government to the private industries in these sectors.  Consequently the real GDP grew by more than 3% between 1942-1943 and 1943-1944 after a long period of growth.

real-gdp

Although finding money to finance the war was becoming a problem and there were only 3 ways in which the British Government of India could have gathered some funds: by increasing taxation, borrowing from the capital market and also by printing money.

fin

The British Government of India had to undertake all the three measures in the following proportions: increase in taxation 36.6%, borrowing from capital markets 31.2% and printing money 32.2%.

 

 

 

 

 

 

 

 

 

 

 

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