NCERT · Class 10 · Social Science · History: The Making of a Global WorldExplain the causes of the Great Depression of 1929 and analyze its impact on the Indian economy.

Introduction\nThe Great Depression began around 1929 and lasted till the mid-1930s. During this period, most parts of the world experienced catastrophic declines in production, employment, incomes, and trade.

Causes of the Great Depression

• Agricultural Overproduction: Agricultural overproduction remained a major problem. As agricultural prices slumped, farmers tried to expand production and bring a larger volume of produce to the market to maintain their overall income. This worsened the glut in the market, pushing prices even lower. Farm produce rotted for lack of buyers.
• Withdrawal of US Loans: In the mid-1920s, many countries financed their investments through loans from the US. While it was extremely easy to raise loans in the US when the going was good, US lenders panicked at the first sign of trouble. In the first half of 1928, US overseas loans amounted to over $1 billion. A year later it was one-quarter of that amount. Countries that depended crucially on US loans now faced an acute crisis.

Impact on the Indian Economy

• Contraction of Trade: India’s exports and imports nearly halved between 1928 and 1934. As international prices crashed, prices in India also plunged. Between 1928 and 1934, wheat prices in India fell by 50 percent.
• Peasant Distress: Although agricultural prices fell sharply, the colonial government refused to reduce revenue demands. Peasants producing for the world market were the worst hit. For example, Bengal jute growers who processed raw jute saw their incomes crash by more than 60 percent, leading them deep into debt.
• Export of Gold: To survive the crisis, Indian peasants sold their precious metals, notably gold. India became a net exporter of precious metals, particularly gold. This famous gold export helped speed up British economic recovery but did little for the Indian peasantry.
• Urban Contrast: The depression proved less grim for urban India. Landowners who received fixed rents and salaried employees found themselves better off because everything cost less.