The Indian Economy During the Second World War

Abstract

The Second World War had a paradoxical effect on India’s economy. In the short term, it imposed severe strains and restricted freedom. But it paved the way for long-term autonomy, shaping future development models. The war also sharpened and exposed inequalities. Rural areas and commercial towns felt opposite effects: Farmers saw little change in living standards by and large, while businesses gained opportunities even if they also dealt with labor shortages and unrest. There was no general rural crisis, yet Bengal suffered a devastating famine driven by wartime food procurement and a failure of inter-provincial supply chains, possibly worsened by local political conflicts. Amid this turmoil, new institutions emerged. The central bank grew stronger, regulatory offices adapted, and an alliance composed of businessmen and politicians became more vocal about the future shape of economic policy. After the war, members of this alliance, so far mainly tied to cotton textile manufacturing, diversified into machinery, metals, and chemicals, aided by protectionist tariffs, laying the foundations for broad-based industrialization.