The inter-war period saw a steady change in the direction of trade also. The Commonwealth’s share in imports fell from nearly 2/3 to 54% while that of other countries rose from 35% in the period 1920-25 to 46% during 1935-40.
Among other countries, Japan steadily increased its share even during the depression. Germany made an equal gain while U.S.A., which had earlier increased its share from 5.7% to 9.3% (1923-33), later suffered a decline. Java lost heavily in sugar.
These directional changes were brought about by two factors:
(a) The United Kingdom was often at a comparative disadvantage in meeting India’s increasing demand far raw-materials and capital goods. This led to a diversion of imports from the U.K. to other countries.
(b) The effect of the second factor was conditioned by the regional distribution of India’s trade balances. Before the Depression, India was able to meet its fixed obligations to England out of its trade surplus with Europe, the Far East and America. This was no longer possible with the general restrictive trade policies of the 1930’s.
As soon as the multilateral trading system disintegrated, many countries were unable to pay for their large import surpluses from India. They therefore, tried either to increase their sales to India or turned to other alternative sources of supply in countries which were anxious to buy their goods. India was, therefore, unable to pay for her imports from the U.K. which declined very heavily in consequence.
Unlike imports, exports during the inter-war years went increasingly to the Commonwealth countries and within the Commonwealth to the U.K. Even before the Depression, exports had tended to concentrate on the Commonwealth.
Imperial Preference further strengthened this tendency. As a consequence, the share of the Commonwealth countries in India’s exports went up from 39% during 1920-25 to 50% during 1935-40 whereas the share of other countries came down from 61% to 50%.