Question

d) Why did The East India Company and banks offer huge loans? i) For production of Tea ii) For production of Cotton iii) For production of Opium iv) For production of Indigo​

Answer 1

Answer:

The crisis of 1772, also known as the credit crisis of 1772 or the panic of 1772, was a peacetime financial crisis which originated in London and then spread to other parts of Europe, such as Scotland and the Dutch Republic.[1] In 1770 the Great Bengal famine of 1770, which was exacerbated by the actions of the East India Company, led to massive shortfalls in expected land values for the company. As this information became public, 30 banks across Europe collapsed.[2]

Alexander Fordyce, a partner in the banking house Neale, James, Fordyce and Down in London, had lost £300,000 shorting East India Company stock.[3] On 8 June 1772, Fordyce fled to France to avoid debt repayment, and the resulting collapse of the firm stirred up panic in London.[4] Economic growth at that period was highly dependent on the use of credit, which was largely based upon people’s confidence in the banks. As confidence started ebbing, paralysis of the credit system followed: crowds of people gathered at the banks and requested debt repayment in cash or attempted to withdraw their deposits. As a result, twenty important banking houses went bankrupt or stopped payment by the end of June, and many other firms endured hardships during the crisis.[5] At that time, the Gentleman’s Magazine commented, "No event for 50 years past has been remembered to have given so fatal a blow both to trade and public credit".[6]

Explanation:

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