How Britain and RBI drained India..

Introduction

The Reserve Bank Of India (RBI) known as the Banker’s Bank or Banker to Govt has an illustrious history. It not only served as the central bank of India but also for Burma(now Myanmar) till 1947 and for Pakistan till 1948 was formed on the recommendations of the Royal Commission on Indian Currency and Finance also Known as Hilton Young Commission (1926). The RBI act of 1934 is known as a response to economic troubles after the First World War but very few know that this was the perfect scheme to drain the country of India of its wealth and the following paragraphs with infographics will put an end to British institutional benevolence.

The context

The 2nd World War has arrived and England is pushed to support its allies and the importance of the Bank Of Britain and Fed is higher than ever. Geoffrey Crowther compares the Bank of England as on June 14, 1939 (Pre-war) to October 15, 1947 (Post war) samples and found “the money supply of the British public, notes, and bank deposits together, increased from ￡2,707 million to ￡6,974 million, The whole burden of providing this increase in money fell on the Bank of England. The required increase in notes it provided directly by printing about ￡900 million in additional notes. The increase in the public’s deposit at Member Banks was made possible by an increase of over ￡200 million in Bankers’ Deposit at the Bank of England; this, serving the Member Banks as cash, enabled them, in their turn, to expand their deposits by some ￡3350 million. The base of the whole structure of over ￡1,000 million in the Bank of England’s assets. And this increase was brought about simply by the Bank’s purchasing of Government securities. In fact, … it acquired well over ￡1,300 million of these securities since, … it handed over its gold to the Government and took securities instead. (Crowther, 1947)”?.

India

Now we compare the money pushed to circulation before the war as on Friday, Dec 9th 1938(Indian Express) and as on Friday, December 21, 1945 (Indian Express).

Total notes issued by RBI increased by 5.83 times and volume of currency in circulation by 6.57 due to a decrease in currency held by RBI which was 0.47 times the initial amount.

But what about England, what happened there?

England

The volume of currency in circulation England also increased in England but compared to British India, it was peanuts.

Now if we compare 1938 to 1945, the notes held by the Bank of England was 0.63 of the original volume, and notes issued only increased 2.38 times whereas 5.83 times in India and also notes in circulation also expanded by 2.56 times whereas in India 6.57 times making India suffer 2.56 times more severe inflationary pressure compared to England. If we compare the USA which played a huge part in 2nd World War only had 3.69 times increase in money in circulation.

The above data is evident the allied forces had gobbled up the resources from the poorest of India without putting much inflationary burden on its own people.

The theft and aftermath

During 1939–40 Indian gold, worth ?34.7 crore, with equivalent blocked sterling marking in effect a forced loan. As the US entered the war against Japan in December 1941, Allied forces started cementing their fortress in Bengal and war spending grew immensely. The category of “recoverable war expenditure” had been created under the 1939 Indo–British financial agreement, which clearly states that the major costs of provisioning and operating Allied forces in India would be met through Indian resources until the end of the war. The RBI would be credited with the sterling equivalent of the rupees spent for the Allies. However, the account would be frozen, no sterling was actually made available for spending, and the account would be activated only at the end of the war. All other spends of war will be met entirely by India. It will be the “recoverable war expenditures” which became a death warrant for three million persons in Bengal. (Patnaik, Profit Inflation, Keynes and the Holocaust in Bengal, 1943–44, 2018).

As RBI and the British government was busy printing money, the price of grains skyrocketed and cyclone damaged the rice harvest, and local administration was busy stockpiling the rice for soldiers and the famine broke out in 1943.

In the period between 1938 to 1945 the purchasing power of the rupee decreased by 57.82% compared to the sovereign. Thus, inflation and the attendant engineered poverty got exported from England into British India, through the RBI. ?To understand this, let us go by numbers. The gold reserves of the Bank on both dates are in terms of millions of Sovereigns and not in millions of rupees. So, the total gold reserve held in India in 1938 was 415.45÷23.94=17.35 million Sovereigns, while in 1945 it was 444.15÷56.75=7.83 million Sovereigns. Thus, there was a depletion in reserve worth 17.35- 7.83=9.52 million Sovereigns or 9.52×56.75=540.26 million rupees at the 1945 conversion rate or more than the value of the remaining reserve itself (540.26÷444.15=1.22 times the value of the remaining reserve at the end of 1945, in terms of million rupees). Now visualize the amount of unabashed loot of Indian coffers.

The fact is that during colonial rule, the RBI remained a handmaiden of the colonial government and a machine for smoother exploitation of the native economy by them. “Its main function in the colonial period remained largely the routine task of enabling smooth remittance to Britain; a task it did ably even during periods of crisis such as during the second world war. Often at great cost to India.”

(Mukherjee, 1992).

Now the studies like this help us fight the aura of the benevolence of British Institutions that built the foundation of India. India what it is today is the hard work of many people who rallied behind the slogan of “Build India for Indians" but we should also not forget where we came from and how and why these institutions were created.

Ref.-The pre and post war RBI, by Rizvi,SM Masood Azhar