We are all businessmen and, therefore, need hardly point out that our interest lies in peace, harmony, goodwill and order throughout the country. We are also nationalists but we may add that our nationalism is not of a narrow type … We submit that the need of the hour is not strong action, but a proper and sympathetic understanding and tactful handling of a grave situation. We feel that in the midst of war political freedom to India could be granted.5
The outbreak of the Quit India revolt resulted in the upheaval that the industrialists feared. Yet the FICCI came out in support of Gandhi and deplored the repression unleashed by the government. Some industrialists, such as the textile magnate Kasturbhai Lalbhai of Ahmedabad, quietly encouraged their workers to go on a prolonged strike.6
Indian business’s support for the Congress led to the airing of some strange ideas in London. Stafford Cripps urged the war cabinet to consider funding a programme of social and economic reform in India. ‘The conditions of the Indian workers, who are today responsible for the output of munitions etc.’, he wrote, ‘is certainly appallingly bad compared to those of the other countries.’ The ‘main obstructions’ to the improvement of their lot were the Indian capitalists, ‘many of whom are the financial backers of Congress. They are not as a rule actual members of Congress but they in fact give Congress its financial backing.’ If the British government could come out in support of workers and peasants by immediate action, ‘the struggle in India would no longer be between Indian and British upon the nationalist basis, but between the classes in India upon an economic basis. There would thus be a good opportunity to rally the mass of Indian Opinion to our side.’7
The Conservatives in the cabinet, especially Churchill, were intrigued by the suggestion from the socialist.8 But Amery was ‘quite clear’ that such a programme would have ‘no effect’. The Indian government warned that the capitalists would describe any such move as an act of ‘death-bed repentance’ and the funds given as ‘conscience money’ to make up the ‘organised loots’ of the past.9 Although Cripps persisted for some months, his plan proved a non-starter.
The long-standing political stalemate, however, limited popular support for the war and constrained the government’s ability to mobilize the economy. The problems were evident during Linlithgow’s last months in office. Yet the viceroy remained impervious to the need to take any serious steps on the political front. With the Congress leadership securely behind bars, neither Delhi nor London showed any interest in breaking the logjam.
At the end of 1942, Gandhi informed Linlithgow that he intended to go on a hunger strike. The government had blamed him for recent violence and expected him to condemn it. ‘Convince me of my error or errors’, he wrote, ‘and I shall make ample amends.’ Linlithgow politely replied that he could not but regard Gandhi as the leader of the Congress and expect him to dissociate himself from the Quit India resolution. Gandhi disagreed, insisting that the government had ‘goaded the people to the point of madness’ and unleashed ‘leonine’ violence on them. His fast would begin on 9 February 1943 and end three weeks later.10
The viceroy and the war cabinet contemplated three options: keep Gandhi in prison until he died; release him when in immediate danger of death; or adopt ‘cat and mouse’ tactics of releasing him at the first sign of danger. The war cabinet initially left it to Linlithgow to make the call. The viceroy conducted a poll among his provincial governors: five out of eleven preferred the first option. His Executive Council, however, unanimously favoured releasing Gandhi for the period of the fast – on the understanding that he would be taken back into custody when the fast ended.11 Just as Linlithgow was leaning towards this option, Churchill convinced the war cabinet not to release Gandhi unless there was imminent danger of his death. ‘This, our hour of triumph everywhere in the world, was not the time to crawl before a miserable little old man who had always been our enemy.’12
Linlithgow staved off prime ministerial pressure and took the position urged by his Executive Council. But Gandhi refused to go on a fast if released from prison. The fast began on 10 February and Linlithgow now toughened his stance. The outpouring of popular sentiment; a resolution of the central legislature; the resignation of three Indian members of the Executive Council: none could persuade or force the viceroy to release Gandhi. After eleven days, Gandhi’s health was precarious. Although the government allowed doctors to attend to him, Gandhi refused intravenous feeding. On the thirteenth day, he sipped a bit of water. It was only on 2 March, however, that he ended his fast. Even thereafter, Linlithgow rebuffed calls from various quarters to release Gandhi.
When Wavell was appointed viceroy in October 1943, Indian politics stood in suspended animation. The new viceroy’s attempt to raise the topic of politics was snubbed by the prime minister. Wavell therefore focused on restoring the relations between his government and the business community to an even keel. Notwithstanding the tension between government and business, Japan’s entry into the war acted as a catalyst for the Indian economy. For one thing, the enormous requirements of turning India into a major Allied base ensured that the government could not do business as usual. For another, the United States began to take a keen interest in the war economy of India.
In late 1941, the Roosevelt administration had designated India as a direct recipient of Lend-Lease, and in early March 1942, the United States sent a technical mission to assess the needs of Indian industry in supporting the war effort. Led by Henry Grady, a former assistant secretary of state, the mission stayed in India for five weeks and produced its report towards the end of May. The report stated that
India is of great strategic importance to the cause of the United Nations [i.e. the Allies] … because India can be utilised as a base for an offensive against the Japanese in Burma, because India and Burma are essential links in the efforts of the United Nations to supply China with war materials, and, finally, because India possesses great natural resources which … must be fully developed for the benefit of the United Nations.13
The remainder of the report was at once a sweeping survey of Indian industry and a sharp indictment of the Indian government. ‘The Government of India and the industries of India, with few exceptions’, the report noted, ‘were not organized on a war basis.’ No single official or group of officials was charged with co-ordinating the entire industrial war effort. A large number of industrial plants were ‘mere jobbing shops’. The seriously congested railways plied goods with ‘little regard for their importance or ultimate use’. Despite a shortage of electric power, no attempt was being made to reduce consumption for non-essential purposes. There was no method for prioritizing projects and allocating resources. Prices were rising but there was no mechanism for their control. The lack of co-ordination and inefficiency in the war economy were epitomized in a ship repair plant in Bombay which produced shoe-nails for the army and railway switch gear, while ‘more than 100 ships waited in the harbor for major and minor repairs’.14
The report made specific recommendations to jump-start all major industries: transportation and communication, petroleum and minerals, iron and steel, shipping and armaments, motor vehicles and machine tools. The mission insisted that Indian workers had the mechanical aptitude to become ‘skilled craftsmen after a short period of training’. In conclusion, the report emphasized ‘India’s great potentialities for industrial production because of its vast natural and human resources’.15
The Grady Mission’s recommendations and plan came with a price tag of $212 million. The US joint chiefs felt, however, that the programme would throw an enormous burden on American shipping, machine tools and raw materials. Economic concerns were overlaid with strategic ones. The Anglophobe Admiral King reacted to the mission’s conclusion that ‘the value … of an India strengthened by a program of this magnitude will be very great’ by scribbling on the margins: ‘especially to England after the war’.16
The Indian government did not take kindly to the tenor of the report. All the same, the vicer
oy accepted the force of its arguments about the need to rationalize war industry and production. The problems were two-fold. First, the government clung to its traditional ideology of non-intervention in the economy. In practice, it was already intervening in many ways, although officials were concerned about ‘our inability to step in and effectively take over inefficient plants’. Second, and more importantly, the government was concerned about the ‘state of political opinion’. The nub of the matter was that the government was unsure, given the prevailing political deadlock, how the people would respond to any attempt to regiment economic life. The problem of war production was as much political as economic.
Still, the demands of the war impelled the government towards greater mobilization of the economy by adopting measures akin to those suggested by the Roger and Grady missions. From early 1942, the Indian economy began moving into a higher gear. GDP in real terms expanded during the war years by 10.6 per cent. In fact, in 1943–44 it expanded by 12.3 per cent before contracting a bit over the next two years. The growth in output was comparable to countries like the Soviet Union and Britain.17
The state played an important role in spurring industrial production, especially after 1941. The various government departments and bodies dealing with war supplies – the Department of War Supply, the War Supply Board, the Defence Council of Supply, the Stores Department, the Directorate of Contracts – began co-ordinating their activities and reducing duplication of effort. An Industrial Planning Organization was set up under the Department of Supply and staffed by experts from various sectors. The department also established links with industry through a plethora of advisory committees and panels that drew on technical expertise and experience. The government began encouraging industrial production by a variety of means. Key industries were provided with raw materials at controlled prices and information asymmetries were reduced by ensuring close contact between requisitioners and suppliers. Types and sizes of stores procured by the government were minimized to achieve standardization. Regular inspections were held to provide technical assistance and ensure quality control.
Source: S. Sivasubramonian, National Income of India in the Twentieth Century (New Delhi: Oxford University Press, 2000), Table 6.10
Figure 2. Real GDP of India, 1938–45
The government also helped industrialists to start new ventures or expand existing ones by providing capital assistance and the promise of protection for those ventures whose post-war prospects seemed uncertain. Capital assistance took the form of factories that were erected partly at government cost: finishing mills, clothing units, tyre retreading and repair, footwear manufacturers, including the famous Bata Shoe factory near Calcutta. Nearly 160 private factories – many of them undertaking heavy engineering – were expanded thanks to government finance.18 In effect, the government was adopting a policy of import-substituting industrialization – one that would be continued in independent India.
The ordnance factories run by the government turned out impressive quantities of arms and ammunition during the war years: 1.73 million small arms and 980 million rounds of ammunition; 8.73 million artillery shells; 4.78 million mortar bombs, grenades and mines; and (starting supply from scratch) 6,250 armoured vehicles.19 The government’s procurement programme led to a large increase in industrial output. The basic industries received a much-needed spurt. The production during the war of steel ingots expanded by 34.4 per cent; of finished steel by 30.7 per cent; of sulphuric acid by 45.5 per cent; and of cement by 42.2 per cent.20 Increases in quantity were accompanied by improvements in quality. For instance, the Tata Iron and Steel Company in Jamshedpur undertook research into the production of special alloys such as ferro-tungsten and ferro-vanadium. In consequence, they were able to develop and supply special alloy steel products for requirements ranging from rail wagon axles to bullet-proof armour plates.21 These developments in turn enabled the growth of another vital industry: machine tools.
Prior to the war there was no established machine-tool industry in India – a problem that was noted by the Chatfield committee, among others. Even simple machine tools like lathes and ordinary milling machines were imported, mainly from Britain and Germany. The shortage of engineering craftsmen was a major handicap in setting up a local machine-tool industry – and the predominance of imports did little to rectify this situation. At the outbreak of war, fewer than 100 basic machine tools were being produced in India – by larger engineering workshops for their own consumption. Only after the fall of France in 1940 did the government wake up to the importance of machine tools for India’s industrial war effort.
The following year, a machine-tool control order was passed, whereby a licence was required for the importation, production and sale of machine tools. A machine-tool controller began liaising with industry to encourage local manufacture of up to 60 per cent of India’s requirements. Five Indian firms were identified as promising entrants into the field and provided with American and British equipment. Among these was Kirloskars – an Indian company that had been producing steel furniture but wanted to branch out into machine tools for a while. The Great Depression, however, had put paid to their plans. With the government’s support, the Kirloskar brothers were able to break into this industry, and after independence Kirloskars would grow into a big conglomerate.22 The government helped firms like Kirloskars with planning and costing, standardization and rationalization of production. And it took over bulk ordering of machine tools and their distribution to users. By 1942–43, over a hundred licensed firms in India were manufacturing machine tools of various types, from drills to special machines for munition production. By 1944–45, the annual production of graded machine tools had shot up to 4,200.23
Source: S. Sivasubramonian, National Income of India in the Twentieth Century (New Delhi: Oxford University Press, 2000), Table 4.27
Figure 3. Net value added in manufacturing industries
The performance of the manufacturing sector was impressive. Real output (net value added) in manufacturing expanded during the war by 61.6 per cent. Yet productivity (net value added per worker in real terms) increased by a mere 1.63 per cent. The increased output was essentially achieved by adding 1.1 million men and women to the industrial workforce. Labour productivity of the economy as a whole lagged much behind. Output per worker increased during the war by 3.3 per cent: even during the peak year of 1943–44 it touched only 7.3 per cent.24 Put differently, the expansion of the Indian economy was due more to the greater use of manpower than higher investment or better machinery. The increased production of textiles in Ahmedabad, to take but one example, was not due to an increase in the number of mills. Production capacity was enhanced by increasing the size of the workforce and by introducing a three-shift system to use the machines more intensively. The number of people working night shifts went up over fourfold during the war.25
Irrespective of the drivers of production, business as a whole did rather well during the war. Aggregate paid-up capital of joint-stock companies in India had already risen by 17.6 per cent in 1942–43 – and this was before industrial output really began accelerating.26 Big business registered spectacular gains. The net profit earned by Sir Shri Ram’s Delhi Cloth Mills in 1945 was almost seven times that of 1939. The operating profit margin – how much it made for each rupee of sale – of the company went from 12.4 per cent in 1938 to 18.4 per cent in 1945.27 In fact, DCM’s figures for the last year of the war understate the profits as demand had declined by then. The operating profit margin of the Kasturbhai group of mills rose from 1.19 per cent in 1939 to a peak of 38.79 per cent in 1943, before coming down to 18.12 per cent in 1945.28
Big business was not the only one to flourish, however. Smaller entrepreneurs too found several new avenues during the war. And nor were they necessarily British- or Indian-owned. Søren Kristian Toubro and Henning Holck-Larsen were young engineers from Denmark working in India for a Danish firm. Just before war broke out, they quit their jobs and decided to form their own ve
nture for supplying capital goods and machinery to Indian companies. Hitler’s occupation of Denmark in 1940 put paid to their plans. Responding to the growing wartime demand for dairy equipment in India, they set up a small workshop in Bombay that began producing butter-churners and unsophisticated pasteurizers. Thereafter, they were pulled into a diverse set of activities, including supplying anti-magnetic cable devices to protect merchant ships, and establishing a small chemical plant to service the Tata industries.
Along with two Jewish refugees from Germany, the Danish engineers floated a company with a paid-up capital of Rs. 120,000. Apart from almost monopolizing the production of celluloid umbrella handles, the company also provided automatic chargers and containers for mortars. In June 1943, the partners launched a new company: a floating workshop to service ships in the crowded Bombay docks. Starting with a share capital of Rs. 300,000, the company showed profits of Rs. 55,000 in the first six months of its existence. Towards the end of the war, the Danish engineers realized their original ambition to supply capital equipment. They struck a deal with the American company Caterpillar, which not only allowed them to market tractors in India but also gave them a sizeable stock of wartime earth-moving equipment imported by the US army.29 In independent India, Larsen & Toubro would rise to become a leading engineering, construction and manufacturing group.
During the war, employment in all factories increased by 59 per cent over the 1939 level. The number of factories, however, increased only by 40 per cent. Government-owned factories rose by a massive 245 per cent and accounted for about 17 per cent of the industrial workforce. At the same time, employment in private factories increased by about 35 per cent. In contrast to countries like Britain, though, the composition of the labour force did not change much. In 1939, women and children accounted for 19.8 per cent of the total workers in factories, mines and plantations. In 1944, they comprised 17.7 per cent of the workforce.30
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