Book III, Chapter 9: History of Tariffs

CHAPTER IX

HISTORY OF TARIFFS

IN a previous chapter we have narrated the history of Indian Tariffs down to 1879, when Lord Lytton sacrificed an important source of Indian revenue in a year of war, famine, and deficit. His successor, the Marquis of Ripon, concluded the Afghan War, established peace, and secured a surplus. And his Finance Minister, Sir Evelyn Baring, now Lord Cromer, abolished the remaining Import Duties in March 1882,—excepting those on salt and liquors.

There was some justification for the abolition of import duties in a year of peace and prosperity. Nevertheless, Lord Ripon and his Finance Minister would have acted more in the interests of the people of India, if they had, in the first instance, withdrawn the Cesses which had been imposed on land, since 1871, in addition to the Land Revenue. While agriculture, the main industry of the people, remained overtaxed, it was not fair to surrender a legitimate revenue derived from customs, which did not operate as a protection.

No fresh import duties were levied for twelve years, between 1882 and 1894, except a small duty on petroleum imposed in 1888. But the steady increase in Military Expenditure which was made after Lord Ripon’s departure from India, the large addition in the army sanctioned by Lord Dufferin, and the mischievous activity of Lord Lansdowne’s Government beyond the frontiers, disturbed the financial equilibrium of India. And the fall of the rupee created difficulties in remitting to England the increasing Home Charges which were paid in pounds sterling. It is remarkable how little of the increase in Indian expenditure, between 1884 and 1894, was due to improved domestic administration, and how much of it was due to extravagant military charges and impoverishing Home Charges. In 1894 the Indian Government found itself face to face with a deficit of over two million sterling.

Lord Herschell’s Committee was appointed to inquire into the possibility of further taxation in India. The Committee came to the conclusion that, “Of all the suggested methods of adding to the revenue, the re-imposition of Import Duties would, according to the evidence before us, excite the least opposition, indeed it is said that it would be popular.” But the Committee took care to add that any attempt to re-impose duties on cotton goods would meet with great opposition.

Accordingly, in March 1894—twelve years after the abolition of Import Duties by Sir Evelyn Baring—they were re-imposed on articles imported into India, other than cotton. A duty of 5 per cent. ad valorem was imposed generally on all articles with a few exceptions. Iron and steel paid 1 per cent.; petroleum, which paid 1d. per gallon; and railway materials, industrial and agricultural machinery, coal, raw materials, grains, books, and miscellaneous articles were duty free. The Bill was vigorously opposed in the Legislative Council, specially on the ground of the omission of cotton from the schedules; and Lord Elgin, in passing the Tariff Act in March 1894, hinted that it was not a final measure.

It was indeed a very temporary measure. For in December 1894 a fresh Tariff Act was passed, including cotton fabrics and yarns, on which a duty of 5 per cent. ad valorem was levied. But the Indian Government thought it wise to propitiate Manchester by imposing a countervailing Excise Duty of 5 per cent. upon yarns produced in Indian mills, which could compete with Lancashire yarns. As a rule, Lancashire manufactures, imported into India, are of the finer classes; and goods, produced at Indian mills, are of the coarser kinds. But in some of the medium yarns, the two supplies—Lancashire and Indian—might overlap; and a 5 per cent. Excise Duty was imposed for these “counts” in which there was an element of competition. The Indian yarns “above twenties,"—i.e. those of which more than 20 bundles of a specific length went to 1 lb.—were excised.

But British manufacturers were not satisfied. A debate took place in the House of Commons on January 21, 1895, and Sir Henry Fowler, Secretary of State for India, made a significant statement: “Her Majesty’s Government would, in concert with the Government of India, consider the matter with a view to carry out loyally the declared intention to avoid protective injustice.”

Six days after he received a deputation from Scotch manufacturers and exporters of dyed cotton goods to India, which specially brought forward two points:—

(1) That they sent cotton yarns of low counts to Burma which had to pay a duty of 5 per cent., while yarns of Number 20 and under from Calcutta and Bombay paid no duty on entering Burma.

(2) That Indian goods paid 5 per cent. excise duty only on the grey yarns from which they were made, while bleached, dyed, woven, and printed British goods paid a 5 per cent. custom duty. Thus bleached, dyed, woven, and printed Indian goods enjoyed a fiscal advantage.

On May 27, 1895, Sir Henry Fowler received another deputation of Lancashire manufacturers and exporters of cotton goods. The deputation was invited to send a statement of facts and arguments. This was duly submitted. But the Liberal Government fell in June 1895, and Lord George Hamilton became Secretary of State for India with the return of the Conservatives to power.

The Conservative party were bound by many pledges and semi-pledges to the Lancashire voters. And they went further in making concessions to the Lancashire demand than the Liberals had done. In September 1895 Lord George Hamilton addressed a letter to the Indian Government, from which we make the following extracts:—

“The Lancashire deputation lay stress on the statement that it is impossible to work fairly, to both the Indian and British manufacturer, an artificial dividing line at 20 s., or at any other count.”

“It would be best for India, as well as for the United Kingdom, that the Indian ports should be free from custom duties, as they practically were from 1882 to 1894. But if the condition of the Indian finances compels the Government to retain the import duties, then it is necessary that the duties should be placed on such a footing as will not infringe pledges that have been given, or afford ground for continued complaint and attack.”¹

Slowly but surely the authorities adopted the fatal policy of putting an excise duty on all Indian woven goods. The line drawn at 20 s. count was to be removed; yarns were to be freed; and all woven goods, including the coarsest Indian manufactures with which Lancashire did not compete, were to be excised.

On January 16, 1896, Lord Elgin wired to the Secretary of State, asking his approval to a new measure imposing a 3½ per cent. duty on all woven goods, and exempting all yarns. Lord George Hamilton wired his approval on the next day; and an Indian Tariff Amendment Bill and a Cotton Duties Bill were introduced in the Governor-General’s Council.

It can be easily imagined that this determination to revise the Tariff Act passed only a year before, and to subject to an iniquitous excise tax the coarse cotton goods of India, which did not compete with any European goods, raised angry protests from members of the Governor-General’s Council — official and non-official, Indian and European. The debate took place on February 3, and covers thirty-six folio pages.² We only make room for a few brief extracts.

Mr. Playfair, representing the European mercantile community of Calcutta, said :—

" Nothing has been produced, therefore, to contradict the views held by honourable members, that competition on the part of Lancashire mills with the production of the coarser fabrics spun and woven in Indian mills does not exist. On the other hand, further examination in India proves that in reality no competition exists in goods made from yarns below 20 s.”

" And after all, what is this Indian trade over which so much contention has unfortunately arisen ? An examination of statistics shows that the powerloom spindles in India amount to 1/25th, and the powerlooms in India to 1/90th of the world’s supply. In relation to Great Britain’s equipment, which represents one-half in spindles and one-third in looms of the world’s supply, India possesses 1/12th part of Great Britain’s spindles and 1/30th part of her looms. May India not have this little ewe lamb ? My lord, I have every sympathy with the depressed condition of Lancashire trade, and for the welfare of England as well as India, everything that can legitimately be done to afford relief should be granted. But, because Lancashire masters may be alarmed and discontented on account of the state of their affairs, I see no reason why they should unjustly attack a separate industry in India. The proposals under these Bills mean a remission of taxation of 51½ lakhs (or 37 per cent.) on Manchester goods, and an increase of 11 lakhs (or 300 per cent.) of taxation on Indian-made goods."

Rao Sahib Balwant Rao spoke on behalf of the Indian manufacturer :—

" No less an authority than Mr. Mill advocates a temporary protection to infant and promising industries. . . . But taking our stand on Free Trade alone, it cannot be made out that in the duties, as they have hitherto been levied, there can be any protection afforded to India. Properly speaking it is only 30 s. and 40 s. of the Indian goods that can enter into direct competition with Manchester."

“If the articles manufactured in India out of the yarns of 20 s. and lower were excised, no advantage is gained by any foreign dealer. . . . But at the same time millions will have to buy their coarse cloth at an unnecessarily higher price, which is sure to tell heavily on their impoverishment. Those who are best able to pay a tax, and that too in proportion to their higher comfort, will have their tax reduced, and the deficit will be filled up by the poorest.”

Mr. Anand Charlu, representing Madras, also pointed out that there was no competition in the coarser goods, and to excise the coarser goods in India would be going beyond the pledges given to Lancashire. He added:—

“I beseech the responsible Ministers who have the power, if they possess the will, to see that our interests are not ruthlessly jeopardised. To them I shall say, also, that they are drifting—let me say unwittingly—beyond even the pledges given by the Secretary of State for India; for that officer has promised relief only against injustice and only against protection.”

Mr. Stevens, afterwards Sir Charles Steevens, representing Bengal, said:—

“I fear it must be owned that the measure has not received the support of the public as a whole. For this there are two main reasons. First, the suspicion existing in some quarters that it has been called for by the exigencies of party politics in England rather than by the wants of India; secondly, that the trade will be disturbed to the disadvantage of important industries and of poor consumers in this country.”

All these protests were in vain. Indian Legislative Councils have no independence. Sir James Westland, the Finance Minister of Lord Elgin, was in charge of the Bills, and had little difficulty in having them passed.

Section 6 of the Cotton Duties Act of 1896 runs thus:—

“There shall be levied and collected at every mill in British India, upon all cotton goods produced in such mill, a duty at the rate of 3½ per centum on the value of such goods.”

The reader will observe that this legislation altogether stands apart from any previous fiscal legislation which had ever taken place in India. In 1879 cotton duties were surrendered. In 1882 all import duties except on salt and liquors were repealed. In 1894 import duties were re-imposed, and an excise duty was imposed on such Indian goods as competed with Lancashire goods. But the surrender of 1896 went further and deeper. It imposed an excise duty on all cotton goods produced in India. It taxed the coarse Indian fabrics with which Manchester had never competed and never could compete. It threw a burden on Indian mills which competed with no mills in Europe. It raised the price of the poor man’s clothing in India without the pretext of - relieving the poor man of Lancashire.

As an instance of fiscal injustice, the Indian Act of 1896 is unexampled in any civilised country in modern times. Most civilised Governments protect their home industries by prohibitive duties on foreign goods. The most thorough of Free Trade Governments do not excise home manufactures when imposing a moderate customs duty on imported goods for the purposes of revenue. In India, where an infant industry required protection, even according to the maxims of John Stuart Mill, no protection has ever been given. Moderate customs, levied for the purposes of revenue only, were sacrificed in 1879 and 1882. Home-manufactured cotton goods, which were supposed to compete with imported goods, were excised in 1894. And home goods, which did not compete with foreign goods, were excised in 1896. Such is the manner in which the interests of an unrepresented nation are sacrificed.

The result of this iniquitous legislation, combined with the recent famines and currency legislation, has been disastrous. The following figures will show how the industry has been checked in the closing years of the century.

New mills are struggling into existence in spite of every check, but the output in yarns and piece goods shows a lamentable decline.

In the fiscal controversy which is going on in England at the present time (1903), Protectionists, Retaliationists, and Free Traders, all appeal the good of the people of Great Britain as the final test. Protectionists urge that Protection secures the interests of the people. Retaliationists argue that it is necessary to point the revolver at the foreigner to secure justice to the people. Free Traders insist that absolute Free Trade is the only possible policy to save the overgrown population of Great Britain from dear-loaf, penury, and starvation. All parties agree in regarding the good of the people as the final aim and end of fiscal legislation; they only differ as to the method by which it can be best secured. Will Englishmen honestly apply this test to India? Will they dare to be just to the Indian manufacturer, and legislate in the interests of the Indian industries and the Indian nation?

Footnotes