2018 marks the 75th anniversary of the Bengal famine, 1943-44 that led to three million civilian deaths from starvation. The famine was caused by a deliberate policy of raising resources from the Indian people, through an engineered ‘profit inflation’ described by John Maynard Keynes as a practical measure for reducing the consumption of working masses and extracting forced savings to finance abnormal wartime expenditure. Keynes had a four decade long connection with Indian financial affairs starting from his employment in the India Office in London; he published his first book, Indian Currency and Finance in 1913 and advised numerous Indian commissions on finance. In 1940 he became an advisor with special authority on Indian financial and monetary policy, to the British Chancellor of the Exchequer and to the prime minister. Facing strong trade union opposition in Britain to the highly anti-worker policy of profit inflation, he was forced to give it up there, in favour of increased taxation. But in India extreme and deliberate profit inflation was implemented to finance war spending by the Allied forces, leading to the death by starvation of millions in Bengal.
Because demand management policies remain unclear even to the educated elite to this day, this deliberate policy of compressing mass demand to raise forced savings, that ultimately led to three million civilian deaths, could be successfully camouflaged and the famine attributed wrongly to natural phenomena like cyclone, or to food shortage, or to speculation and hoarding, or to not importing food in time, or a combination of these factors. Keynes had argued in his book ‘Treatise on Money’ that since war spending had to be much higher than voluntary savings, forced savings was necessary and this could best be done by deliberately raising output prices faster than wages, which he called a profit inflation. ‘I conclude therefore that to allow prices to rise by permitting a profit inflation, is in time of war, both inevitable and wise.’ This policy could apply equally to a situation where apart from wage-earners, a large part of the working population comprised self-employed petty producers like artisans, fisher-folk, small peasants and so on who had to buy food staples from the market since they produce either no food at all, or not enough to meet their needs.
The movement of Allied troops and air forces into eastern India grew rapidly from end-1941 when the US entered the war against Japan. The construction of air-strips, barracks and factories for producing munitions, chemicals, uniforms, bandages and the like, grew at a feverish pace. The category ‘recoverable war expenditure’ had been created under the 1939 Indo-British financial agreement, specifying 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 would be made available for actual spending, and the account would be activated only at the end of the war, whenever that might be. It was the ‘recoverable war expenditures’ which became a death warrant for three million persons in Bengal.
The table details from the Reserve Bank of India’s 1945-46 Report, the unbelievably rapid growth of government expenditure, not matched in any other country – within three years, a sum amounting to 35 per cent of the pre-war national income of British India was being spent for war purposes, over two-thirds of this by printing money. Total spending by the central government exploded to reach Rs 667 crores (£494 million) by fiscal 1942-43, posting a 7.5 fold increase in three years, over the Rs 88.8 crore (£66 million) annual average from 1937-8 to 1939-40 . The government’s own budget deficit ballooned from zero to reach Rs 112 crore, while a much greater impact resulted from the Rs 260 crore deficit financing annually under ‘recoverable expenditure’ during 1941-2 and 1942-3, amounting to three times the normal budget. The total deficit by 1942-43 reached Rs 438 crores or £324 million, three-quarters of this on account of the ‘recoverable war expenditures’ undertaken for Allied forces.
This exploding deficit was entirely met by printing money, justified by treating Britain’s sterling-denominated entries with the Reserve Bank of India in London, as reserves against which currency issue in India could be made up to two and a half times. That this was dishonest reasoning on the part of the monetary authorities, is clear enough. Assets or reserves as the term itself indicates, are meant to be actually there to be drawn upon in case of need, while these sterling ‘reserves’ were a paper fiction, they did not actually exist since not a penny could be drawn. Nor was there any certainty of their being paid out in future as promised, after the war ended. The non-existent, so-called ‘reserves’ were an accounting device for extracting massive resources from the Indian people. Keynes cautioned against excessive spending, but solely in the interest of limiting Britain’s post-war indebtedness: he showed no interest in the extent of adverse impact on the Indian population – after all, the objective was precisely to reduce their consumption. Can we even imagine today what would happen if by 2021 central government outlays rose to 7.5 times the 2018 level, with three-quarters being met by printing money?
Prices of all necessities started rising: the price of rice quadrupled over the 18 months from the last quarter of 1941 to the middle of 1943. While wholesale prices trebled in India as a whole by 1943, the inflation was much sharper and compressed within a shorter period in Bengal where the bulk of the increased spending and sourcing of food from rural areas, actually took place. As rice prices doubled, quadrupled and rose six-fold, the labourers, artisans, fisher-folk and poor peasantry in Bengal did not know what had hit them. Food stocks physically disappeared as government bought up available supplies through contractors for urban rationed distribution, and as traders held on to stocks anticipating further price rise. Many thousands of rural families, already at subsistence level, sank first into dearth and then into hunger, then into famishment and finally into death. Of those who migrated in search of food to the cities, many in their weakened state, succumbed to disease. The final death toll during 1943-44 was placed after reviewing the evidence, at between 2.7 to 3.1 million by Amartya K Sen , while some authors like R Palme Dutt cite up to 3.5 million taking into account secondary effects of enhanced morbidity.
At Bretton Woods in 1944, Britain argued for writing off a large part of its sterling debt to India, and Keynes scuttled India’s request for involving USA, which could have made some dollar funds available immediately for badly needed food imports, by insisting it was a bilateral matter between India and Britain (even though India had financed Allied force and not Britain alone). The real purchasing power of sterling balances, finally paid up in installments after many years of delay, was reduced by sterling devaluation against the dollar in 1949 and further reduced by the inflationary Korean War boom.
The Communist Party in Bengal was extremely active in working untiringly to alleviate distress, and women formed Mahila Samitis to participate in famine relief; we have sufficient documentation in photographs and literature of the carnage that was the famine. But the analysis of its real economic cause has been extremely inadequate at best. The famine represented nothing less than economic genocide. All that the £1.3 billion extracted from India under ‘recoverable expenditure’ at the cost of three million lives would have required, was additional taxation of only £1 per capita annually in Britain and USA with little hardship to their populations which enjoyed 30 to 40 times India’s per capita income. India needs to demand reparations from the Allies in international courts for the millions of lives wantonly extinguished during 1943-44, in this final, extreme act of colonial oppression.
Table: Central Govt. Total Outlay and Total Deficit, 1937-8
to 1945-6 in Rs. Crore
1 2 3 4
TOTAL BUDGET RECOVER- TOTAL
GOVT DEFICIT ABLE EXP DEFICIT
OUTLAY (DEFICIT) ( 2 + 3 )
1937-38 86.61 0 0 0
1938-39 85.15 -0.63 0 -0.63
1939-40 98.57 0 -4 -4
1940-41 167.18 -6.53 -53 -59.53
1941-42 341.26 -12.69 -194 -206.69
1942-43 667.04 -112.17 -325.48 -437.65
1943-44 857.17 -189.78 -377.87 -567.65
1944-45 970.38 -161.14 -410.84 -571.98
1945-46 894.2 -123.9 -374.54 -498.44
TOTAL 4167.56 -606.84 -1793.73 -2346.6
Source: Reserve Bank of India, Report on Currency and Finance 1945-46, Table 10.