Great Depression

The Great Depression, spanning from 1929 to the late 1930s, remains one of the most profound economic downturns in modern history. Originating in the United States with the catastrophic fall of stock prices on October 29, 1929, known as Black Tuesday, it rapidly spread across the globe, impacting virtually every nation. In this article, you will learn definition, causes, impacts on India, etc.    

This article will provide key insights for GS Paper-I Indian History of UPSC IAS Exam.

Table of Content

• About Great Depression
• Causes of Great Depression
• Great Depression and India
• End of the Great Depression      
• Conclusion        
• Frequently Asked Questions       
• Reference          

About Great Depression

• The Great Depression spanned from 1929 to the onset of World War II in 1939.
• It stands as the most severe economic downturn in modern times.
• The central issue of the Great Depression was low prices as items like wheat, rice, and cotton were sold for so little that farmers globally cannot get profit from their harvests.
• Many developed countries tried to address this by reforming their economies or by offering financial aid to farmers.

Causes of Great Depression:

• Its origins can be traced to decreasing consumer demand, rising debt levels, reduced industrial output, and the unchecked growth of the U.S. stock market.
• The 1920s, often referred to as the “Roaring Twenties,” saw a rapid expansion of the U.S. economy, with national wealth more than doubling between 1920 and 1929.
• By late 1929, industrial production had already started to decline and unemployment was on the rise, causing stock prices of the U.S.  to be overvalued.
• During this period, low wages, increasing consumer debt, a struggling agricultural sector, and banks with significant unliquidated loans affected the economic situation of the U.S.
• The stock market had collapsed in 1929, setting off an international economic crisis, increased by the interconnectedness of economies via the gold standard.
• Subsequent bank failures in 1930, combined with the Dust Bowl’s devastating impact on agriculture, increased the unemployment.

Great Depression and India:

Condition of farmers:

• The Great Depression led Indian farmers into prolonged hardship and debt, due to reduced demand of raw materials in international market, which was increased by the colonial government’s poor management.
• The central issue of the Great Depression was low prices, as items like wheat, rice, and cotton were sold for so little that farmers globally couldn’t get profit from their harvests.
• Many developed countries addressed this by reforming their economies or offering financial aid to farmers.
• A common approach adopted by the countries were to devalue currencies and to make exports more competitive, a practice that led to a “currency war” in the West.
• However, the Indian government had kept the rupee overvalued, worsening the plight of Indian farmers.
• In 1882, apart from those on salt and liquor, all other import duties were abolished. 
• The colonial government’s primary concern was protecting British investors’ interests in India, where the investors feared that a devalued rupee would hurt their investments.
• Indian farmers faced a triple threat- prices stayed low, credit became scarce, and taxes rose.
• The depression made loans hard to get for planting new crops, while moneylenders demanded repayment of old debts, leading to a cycle of debt for farmers.
• While Western governments took on debt to boost their economies, the Indian government insisted on balanced budgets.
• As the depression reduced the tax base, government raised the tax rates, including the infamous Salt Tax hike, that prompted Gandhi’s Salt March in 1930.
• Struggling with low prices, scarce credit, and high taxes, Indian farmers lost their land and possessions and many sold off jewellery to pay off debts.
• So much gold left the country that India became an exporter of gold during the depression, aiding the British economic recovery.

Condition of industries:

• On the flip side, British policies that hurt Indian farmers had unintentionally helped Indian industry.
• Faced with competition from countries like Japan and Germany, British industrialists demanded protection in India.
• The Indian government imposed high tariffs on all imports except those from Britain, thus protecting Indian industries. This allowed Indian businesses to compete with declining British manufacturers.
• By the late 1930s, Indian industry had grown significantly, laying the foundation for the modern Indian economy.
• Among the beneficiaries were the textile industry, steel and sugar industries, etc.
• However, there were negative impacts on the jute industry, as world demand fell and prices decreased. 

Overall effect of Great Depression on Indian economy:

• The Great Depression had mixed effects on India as while rural areas suffered, urban industries grew.
• While farmers faced rising debt and insolvency, urban areas saw increased imports of luxury goods.
• Despite growth, Indian manufacturing remained primarily domestic due to government bias in favouring British producers.

End of the Great Depression

• The Great Depression ultimately ended with the advent of World War II, as defence manufacturing had increased private-sector jobs, and the attack on Pearl Harbor in 1941 had led U.S. to enter the war.
• This resulted in increased demand of industrial goods and military consumption, reducing unemployment to below pre-Depression levels.
• When the war came to an end, the Montagu-Chelmsford reforms were enacted in India to provide certain concessions to Indians. 
• On the eve of the First World War, India was the British Empire’s single largest market, making up over one-sixth of the country’s total exports.

Conclusion

The Great Depression, which began in 1929 and extended throughout the 1930s, was a profound and pervasive economic downturn that had a significant global impact. It underscored the interconnectedness of national economies and the vulnerability of the world financial system. Key lessons from the Great Depression include the critical importance of regulatory frameworks in maintaining financial stability and the role of government intervention in mitigating economic crises.

Additionally, the era highlighted the need for international cooperation in addressing global challenges, a lesson that remains relevant in today’s globalized economy. Overall, the Great Depression not only reshaped economic policies and institutions but also left an indelible mark on societal norms and the collective consciousness, influencing subsequent generations’ approach to economic management and social welfare.

Ref: Source-1

FAQs (Frequently Asked Question)