The period between the two world wars created a paradoxical scenario in India. Manufacturing and urban services flourished against the backdrop of a stagnant countryside staring at a food, credit, and wage crisis. The population growth rate, which had hovered between 0.5 and 0.8 percent per year in 1881–1921, exceeded 1 percent in the 1920s and accelerated. A few years before this demographic turning point, cultivated land area had stopped growing. In the late 1920s, the world demand forprimary goods collapsed. What the peasants sold to the world market was worth less than it was before in terms of manufactured goods. Manufacturing by and large escaped the worst effects of the turmoil. The Great Depression, however, drove a wedge between the mainly Indian-owned businesses that sold goods in India and the mainly foreign-owned businesses that sold goods in the world market, strengthening the one and weakening the other. In turn, the two groups developed conflicting interests in politics and saw themselves as potential competitors. The imperial umbrella was in tatters. The old mechanism of paying for service imports with export receipts broke down, adding fuel to a nationalistic upsurge.

In this chapter, the fall of the imperial system and the run-up to independence will be described. It is useful to begin with a snapshot of the domestic economy at the conclusion of World War I.