Question

what economic impact did the first world war have on india​

Answer 1

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The economic impact of the First World War: (i)The First World War led to a huge rise in the defence expenditure of the Government of India. The government in turn increased taxes on individual incomes and business profits.

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Answer 2

World wars always had deeply affected the Indian Economy be it was WW1 or WW2. The reason people don’t talk much about the India and its economy in First World War is that many assume that India was not attached with it, which is quite the contrary. WW2 had much serious implications because it had curtailed India’s trade policies within the commonwealth of Britain and ended India’s touch with European nations.

The First World War caused India to nearly go bankrupt and also a major loss in casualties. Indian troops as high as 800,000 in numbers fought in every aspect of War and a majority 500,000 Indian people volunteered to fight for the British. Offers of financial and military help were made from all over the country. Hugely wealthy princes offered great sums of money for aiding the British in the war. But soon after the war Great Depression occurred in the European nations which soon had its implication in India.
The Great Depression that occurred in 1929 had a detrimental effect on India which was then ruled by British. To save them from the depression Government of British India ordered for a protective trade policy, which was just in the interest of England but made India suffer by deteriorating its Economy. The sea based trade was drastically reduced while the agricultural sector crippled. The ambiguous policies that were adopted by the British Governance in India and the international recession lead to very high inflation as the prices sky-rocketed for various goods and services. The high prices which would then be subjected to very high taxes laid by the government made Indians suffer heavily. The Great Depression took a huge toll on the farmers as they had to sell their possessions like gold and silver at petty rates just to survive.

In the Second World War had also caused a catastrophic loss to the Indian economy, between the years of 1939-45 external factors influenced the economy majorly which led to huge economic imbalances that prevailed long after peace was attained in India. The root cause of the entire Indian economic problem was Inflation which manifested due to tremendous amount of treasury which was used to finance various military activities. There were four major consequences of Second World War on India and they included high inflation which was on account of war expenditure, the value of Indian currency took a nose dive, economic imbalances due to currencies exchange problems and the development of exchange control.

The biggest cause of Inflation in India could be explained through the Sterling Balance problem that exhibited in India. The British Government used their currency to its advantage, for financing the war the British just transferred sterling bonds to the Government of India’s account which was there in the Bank of England. An agreement was made that upon the end of war the British Government would pay India those bonds in instalments so that it would not affect their economy, also it was agreed that the Sterling balance would be locked and fixed during the term of war. On the basis of blocked currency in England some more paper money was granted to India by the Government of British India, also during trade with various countries India purchased even more Sterling which further increased their Sterling reserves. As much as 1600 crores was held as Sterling securities with the RBI, owing to which even more paper currency was flushed into the market which finally led to uncontrolled Inflation.