The Great Economic Depression and Rural Credit Relations in Bengal, 1928-1947

Abstract

Indebtedness as a chronic problem had begun to develop from the closing years of the 19th century when man and land ratio declined sharply. By the third decade of the 20th century, it posed as a real threat to the rural economy. The unstable jute market during the first two decades of the twentieth century and depression of 1930s had shattered the rural economy of Bengal. Markets of jute and paddy, the two lifelines of peasant economy, collapsed completely. Prices of these commodities fell far below their production cost. Conversely, the prices of essential non-farm commodities did not fall proportionately. As a result, the peasants had lost purchasing power. As the depression resulted in the contraction of credit, the mortgages were quickly replaced by direct sales of lands. The rich peasants and mahajans availed of the opportunity of the declining prices of agricultural commodities. Every indebted peasant was trying to survive by transferring lands. Under the circumstances of rising indebtedness and deteriorating relations between debtors and creditors, the government had to enact necessary laws to cope with the situation. Series of laws were enacted and while these acts could solve some problems, but at the same time created some new. To overcome the effects of depression the government enacted Bengal Agricultural Debtors Act of 1935. The authority took the amicable settlement of debt through the establishment of local Debt Settlement Board as the only way out to solve the problem of rising indebtedness. This measure had proved to be abortive by making the peasants agricultural wage earners.