Economic History

In the early 1920s, the British colonial government adopted protectionist economic policies to encourage Indian industries. Import tariffs of 15–25% were introduced, particularly to shield the iron and steel sector from foreign competition.

  • This marked a departure from free trade policies and was aimed at:
    • Reducing the dominance of imported British goods.
    • Promoting swadeshi industries, albeit for British economic benefit.

Industrial Boom and Stock Market Rally (1924–1929)

  • The post-World War I industrial boom led to substantial profits for Indian business houses.
  • With increased capital, there was expansion of industries and a stock market boom.
  • Key sectors: Textiles, steel, coal, and jute.
  • Example: Tata Steel shares rose from ₹8 (1924-25) to ₹88 by 1929 — a "ten-bagger" (10x growth).
  • Early sign of the growth of Indian capital markets.

Labour Unrest and Strikes (1928–1929)

  • The economic boom did not benefit workers, leading to:
    • Wage disputes, poor working conditions, and industrial rationalization.
  • Major strikes:
    • Textile strike in Bombay (May 1928).
    • Another major strike in 1929, affecting over 100,000 workers.
    • Strikes also occurred in Calcutta's jute mills and railways.
  • The Bombay Mill Owners Association (BMOA) resisted negotiations.
  • Demands: Better wages, improved conditions, and resistance to job cuts.

Cultural Intersection – Premchand and Cinema

  • Munshi Premchand, the eminent Hindi-Urdu writer, wrote a script for a film based on the plight of mill workers.
  • The film was banned by the censor board (which had a mill owner as a member).
  • Disillusioned, Premchand left Bombay and returned to writing in the United Provinces.
Economic History

Global Crash and the Great Depression (1929–1932)

  • On October 28, 1929, Black Monday, US markets crashed.
  • Dow Jones fell 13% in one day; overall lost ~89% value by 1932.
  • Global ripple effect:
    • Collapse in global demand.
    • Capital withdrawal from colonies like India.
  • Indian economy hit hard:
    • Manufacturing output ↓ ~10%.
    • Mining ↓ ~20%.
    • Jute mill output ↓ ~30%.
  • Overall, the Indian stock market fell by 42% (1927–1932).

Recovery and Pre-WWII Boom (1932–1937)

  • Post-1932, global recovery and arms build-up in Europe increased demand for iron and steel.
  • Indian metal stocks rose over 200% between June 1936–Jan 1937.
  • However, a recession followed in 1937, and then World War II (1939) caused another shift.

Economic Optimism and Market Rally (Early 1946)

  • Post-WWII economic environment saw optimism in the Indian stock markets.
  • February 1946 Budget triggered hopes of:
    • Cheaper capital availability.
    • Higher dividend expectations.
    • Surplus investible funds.
  • The Economic Advisor's General Index (used by RBI as a stock market proxy) rose 12% between June and August 1946.

Communal Violence and Economic Impact (Late 1946)

  • September 1946: Communal disturbances in several regions triggered a sharp fall in markets.
    • The General Index dropped to 282.
    • Industries like textiles in Amritsar faced:
      • Machinery damage.
      • Labour shortages due to Partition-related dislocation.
    • Added challenges: labour unrest, strikes, and fear of anti-profiteering actions.

 The Controversial Interim Budget of 1947 (Liaquat Ali Khan)

  • Presented on February 28, 1947, by Liaquat Ali Khan (Muslim League leader).
  • Key proposals:
    • Capital gains tax
    • Special tax on super-profits.
    • Increased corporate tax.
    • Doubled export duty on tea.

 Market Fallout and Industrial Opposition

  • The Budget caused panic:
    • Stock markets collapsed.
    • Exchanges in Bombay, Calcutta, and Madras were shut.
  • Indian and British businesses strongly opposed the Budget.
  • Congress tried to distance itself from the Budget proposals.
  • After negotiations:
    • Capital gains tax threshold tripled.
    • Some tax measures are diluted.

Broader Political Consequences and Partition Link

  • March 8, 1947: Congress Working Committee passed the Partition resolution — less than 2 weeks after the Budget.
  • Some historians argue:
    • The Budget deepened mistrust between Congress and Muslim League.
    • Fence-sitters within Congress might have supported Partition to avoid economic policy deadlock.

Continued Market Decline (1947–1949)

  • Persistent downtrend in stock markets due to:
    • Partition and associated uncertainty.
    • Riots and migration.
    • High commodity prices.
    • Rising labour costs.
  • The Economic Adviser's Index was 215.2 by May 1947, continuing downward till July 1949.