150 years of BSE: 1929 tariff-led boom ends with global market crash

The second of a three-part series on booms and busts looks at a period when protectionism prepared the soil for a bull market in the 1920s, which was eventually ended by the Great Depression

The British government moved towards encouraging Indian industries in the early 1920s by making imports more expensive. It began with a 15-25 per cent tariff for protecting India’s nascent iron and steel industry. The boom in post-war profits for many industrial groups provided the base capital for expansion. All of this prepared the soil for a rally in the stock market. 

Textile, steel, coal and jute companies soared. Tata Steel (ordinary) was up from ₹8 in 1924-25 to ₹88 by 1929 — a ten-bagger, decades before legendary fund-manger Peter Lynch popularised the term. This period of unprecedented boom coincided with labour unrest. There was a major textile strike in May 1928, and then another followed in 1929 in Bombay (now Mumbai) predating the strikes in the 1980s, which eventually caused mills to move out of the city. There were strikes in 1929 in Calcutta's jute mills and a railway strike too. “The strike wave engulfed the mill area, and within a couple of days more than hundred thousand were out and stayed out. The Bombay Mill Owners Association (BMOA) initially refused to negotiate,” according to Georges Kristoffel Lieten’s Strikers and Strike-Breakers Bombay Textile Mills Strike, 1929. 

 

The dispute was said to be around moves by mill owners to reduce wages and other rationalisation efforts. Incidentally, the celebrated writer Premchand’s only foray into the film industry was said to be as the script writer of a film around similar themes about mill workers and exploitative owners. It was later banned by the censor board, a key functionary of which at the time was also a mill owner. Premchand gave up on cinema and moved back to Uttar Pradesh (then called the United Provinces), and no print of his only film is said to have survived. 

Even as the respite from the great textile strike of 1928 was followed by more industrial action in 1929, the global economy took a turn for the worse. The beginning of what became the Great Depression hit the US markets first. The Dow Jones Industrial Average, the stock market index, fell nearly 13 per cent on October 28, 1929, Black Monday. The decline continued until it had lost nearly 89 per cent of its value by 1932. The crash and subsequent liquidity crunch affected countries across the world. For example, it caused unemployment to surge in European countries like Germany (paving the way for popular unrest and Hitler’s rise to power in 1933).   The economic impact on India was not insignificant. Manufacturing output was down around 10 per cent, mining nearly 20 per cent, and jute mill output over 30 per cent. 

A Business Standard analysis of newspaper reports in the 1928-32 period shows the shares of Century falling from around ₹438 to ₹175, Bombay Dyeing from ₹936 to ₹622, and Tata Mills from ₹75 to ₹16 per share. The numbers are based on the share prices available, and may not be adjusted for corporate actions. But broad market indices bear out the decline in large companies. The Indian market fell nearly 42 per cent between 1927-28 and June 1932. After 1932, industrial profits began to rise again. The iron and steel industry in particular did well amid increased demand as nations armed themselves. Some Indian metal stocks rose over 200 per cent between June 1936 and January 1937. The broad market began to show signs of gains. 

This was not the end of the swings in market fortune. A recession was to follow in 1937 and, then two years later, World War II. 

Key sources

  * Vellore Arthi, Markus Lampe, Ashwin R Nair, and Kevin Hjortshøj O’Rourke (May 2020): Deliberate Surrender? The Impact of Interwar Indian Protection

  * Sebi Dharohar (Digital knowledge repository)

  * Colin Simmons (1987): The Great Depression and Indian Industry: Changing Interpretations and Changing Perceptions

  * Georges Kristoffel Lieten (1982): Strikers and Strike-Breakers Bombay Textile Mills Strike, 1929

  * Poonam Saxena (2020): “The Way We Were: Premchand’s lost months in Bombay”, Hindustan Times

  * Newspapers (The Bombay Chronicle, The Times of India)  Next: 1947 & share market