Book III, Chapter 13: The Currency

CHAPTER XIII

FINANCE AND THE INDIAN DEBT

“Two conflicting policies prevailed in India,” said Sir Charles Trevelyan in 1873, in his evidence before the Select Committee on Indian Finance. “One, the policy advocated by me, of reduction of expenditure; the other, which was the favourite at Calcutta and in England, increase of taxation.”

After the retirement of Lord Northbrook from India, and of the able and sympathetic Finance Minister, Sir William Muir, in 1876, the policy of increase of taxation prevailed unchecked. The Madras famine of 1877 did not lead Lord Lytton to a reduction of expenditure and a reduction of taxes. On the contrary, under the advice of his new Finance Minister, Sir John Strachey, he imposed new taxes to create a Famine Relief and Insurance Fund. “The simple object was, in fact, to provide so far as possible an annual surplus of one and a half crores, for famine relief in famine insurance expenditure. To the extent to which, in any year, the amount was not spent on relief, it was to be spent solely on reduction of debt, or rather upon avoidance of debt, which is the same thing.”¹ And a pledge was given to the people of India that the proceeds of the taxes would not be expended for any purpose other than that for which they were imposed.

The pledge was broken soon after it was given. In the budget of 1878-79 the grant was made; but in the budget of 1879-80 it was suspended. The famine insurance taxes continued to be levied; but the grant for famine relief and insurance disappeared. There was a strong protest from the public in India. The Finance Minister, Sir John Strachey, argued that whether the public accounts showed surplus, equilibrium, or deficit, the new taxes must prevent debts by the amount they yielded, and therefore fulfilled the conditions under which they were imposed. The public in India considered this argument a disingenuous evasion of a specific pledge. The Secretary of the State for India himself took exception to Sir John Strachey’s argument. It was decided in 1881 that the full grant of 1½ crores of rupees should in future be entered in the budget under the head of Famine Relief and Insurance, with sub-heads for (1) Relief, (2) Protective Works, and (3) Reduction of Debt.

Thus “the original policy of devoting the whole of the grant, less actual cost of famine relief, to reduction or avoidance of debt had been changed by the acceptance of the view that a large part of the grant might be better applied to what are called Famine Protective, as distinct from Productive, Public Works.”²

But even this new and modified purpose of the Famine Grant was not scrupulously adhered to. In the fifteen years ending with 1895-6, the Famine Grant of 1½ crores, or one million sterling a year, would be fifteen millions sterling. But the expenditure in Famine Relief, Protective Works, and Reduction of Debt was less than ten millions sterling, as shown in the following figures.

“Avoidance of Debt” is an ambiguous term. Nothing but positive “Reduction of Debt” should be shown under the last head. But taking the figures as they are given, the total expenditure fell short of the stipulated Famine Grant by over five and a half millions sterling. The Indian Debt should have been reduced by that amount. Instead of that the loss incurred on the Bengal Nagpur and Midland Railways, amounting to £2,389,397 in the fifteen years, was shown as expenditure from the Famine Relief and Insurance Grant.

Then followed six years of almost continuous famines, and famine relief expenditure largely increased. The total expenditure for the twenty-one years, therefore, from 1881-82 to 1901-02 exceeds the total stipulated grant by a million sterling, as shown in the following figures:—

We have excluded the loss on the Bengal Nagpur and Midland Railways, which, in these twenty-one years, amounted to £3,280,334. It should be noted that recent famine relief expenditure has increased the liabilities of India; the original purpose of the famine relief taxes, to keep down such liabilities by reducing the debt in ordinary years, has not been fulfilled.

The total revenues of India, including the Land Revenue, and the total expenditure, including the Home Charges, during twenty-five years, are shown in the following table, compiled from Statistical Abstracts:—

We shall confine ourselves to the figures of the last five years to trace the exact results of the artificial appreciation of the rupee. The rupee had been raised to slightly over 15d. in 1897-98, and to 16d. in 1898-99, at which figure its value has been fixed. We show below the total revenues and the total expenditure of India for these five years in pounds sterling for the convenience of British readers.

These figures disclose the startling fact that taxation in India has been increased by 12 millions sterling in five years mainly by the artificial raising of the value of the rupee. This was precisely the result which was foreseen by the Treasury in 1879, when the Lords of the Treasury condemned in explicit terms the object of the Indian Government “to increase the amount they have to receive from their taxpayers” by increasing the rupee. It was “a benefit to English officers in India at the cost of the Indian taxpayer,” which the Treasury had again foreseen and condemned in 1886. It was a result which was foreseen and deprecated by several witnesses before the Currency Committee in 1899, including the present writer, when he pointed out that the artificial raising of the rupee “means a general increase in taxation.” And this result was deplored by the Hon. Mr. Gokhale from his place in the Governor-General’s Council in March 1902; he condemned, in an able and luminous speech, the continuous raising of the revenue when the country was suffering from prolonged famines and distress unexampled in the previous history of British India.

This policy of fixing the value of the rupee at 16d. has now been permanently accepted; it is not likely to be departed from again. But the people of India may fairly claim relief from those additional taxes which were imposed on them before the value of the rupee was raised. It is a common saying that you cannot burn the candle at both ends. And, as the Government of India have decided to add to the taxation of the country by appreciating the rupee, it is not just or equitable to maintain those added taxes which were imposed before this step was taken. The Indian Budget now shows a surplus, year after year, in spite of the extreme poverty of the people; it is possible to relieve that poverty to some extent by withdrawing those taxes which tell severely on the earnings of the nation.

Nothing presses so severely on an agricultural nation as the numerous Cesses which have been imposed on the land, in addition to the Land Revenue, since 1871. The time and the occasion have come for their repeal. “The question presents itself,” Lord Curzon himself has declared, “whether it is not better, as opportunities occur, to mitigate those imposts which are made to press upon the cultivating classes more severely than the law intended.”³ It will be a real and much-needed relief to the cultivators of India, after years of famine and suffering, if these imposts be now repealed, and the Land Tax be rigidly confined to the limits prescribed by Lord Dalhousie in 1855, and Sir Charles Wood in 1864—one-half the rental on the economic rent.

The Famine Relief and Insurance taxes have also taken the form of additional imposts on the land. To keep these taxes is only to add to the poverty of the people, and the severity of the famines; to repeal them would be to give the agricultural population some relief. For the best insurance against famines is to permanently improve the condition of the cultivators, and to secure them against a multitude of imposts upon the land already severely taxed for the Land Revenue.

Lastly, the Salt Tax might be still further reduced. And the Excise imposed on the manufacture of cotton mills calls loudly for repeal. It is not a tax which the British Government in India can justly maintain on Indian manufactures, when the British Government at home are seeking by every means in their power to encourage and help home manufacture against foreign competition.

It has too often been the case in India that a handsome surplus in the budget has been succeeded by some needless and expensive war on the frontiers. It has also happened that such surplus has been swept away by larger demands from the Imperial Exchequer or the British manufacturer. As soon as the Indian budget showed a surplus under the new currency policy such demands were made. A sum of £786,000 has already been swept away, against the protests of Lord Curzon, for the increased cost of the recruitment of the British Army. Another demand of £400,000 was made for the maintenance of an army in South Africa, and was only given up when officials and the public, in England and in India, combined in a vehement protest. Lancashire manufacturers have once more referred to the Indian surplus, and demanded the repeal of the 3½ per cent. import duty on cotton goods. Complications on the Tibet frontier are arising which create a just alarm that the Indian surplus may end in ambitious and useless military expeditions. The Persian Gulf question also looms in the distance.

All this is perfectly intelligible under the present constitution of the Indian Government. Every great interest, every section of British subjects, can bring pressure to bear on the Indian Government—except only the people of India. The British Cabinet can press its demands through the Secretary of State for India, who is a member of that cabinet. British manufacturers can use their votes and work through their representatives in the House of Commons, to demand and obtain concessions. And military men have an influence in the Viceroy’s council which never ceases to operate. By an irony of fate the only section which has no representation, no voice, no influence in the Indian administration is the people of India. And thus a surplus in the Indian budget, obtained by increase of taxation, is swept away, time after time, without giving the people any relief. The danger at the present moment (1903) is great, the large surplus will not appear much longer. The Indian nation expects and hopes that it will not disappear without giving some real, tangible, and substantial relief to the famine-stricken and unrepresented cultivators of India.

The total debt of India the last twenty-five years is shown in the two tables given below. In the first table the Indian Debt is shown in tens of rupees. In the second table it is converted into pounds sterling as shown in recent numbers of the Statistical Abstract.

There is need for the creation of a sinking fund to reduce this debt in years of peace. There is need for the co-operation of representative Indians in reducing debt and expenditure. There is need for introducing a popular element in the financial administration of India. The Governor-General’s Council consists of able, experienced, and conscientious men, but they represent, nearly all of them, spending departments. They feel the needs of their departments, they urge additional expenditure; there is no counter-influence making for retrenchment. Retrenchment is not possible in India, or in any other country in the world, unless the taxpayers have some voice in the national expenditure.

In no department of the Indian administration are representative Indians better qualified to take a share than in the department of Revenue and Finance. They see and they feel the operation of the Land Tax and of every other tax. They live among their agricultural countrymen, know their troubles and their difficulties, and can voice their wishes and their views. They have a strong and almost a personal interest in effecting retrenchment. They have an inherited and traditional aptitude, excelled by no nation on earth, for accounts and finance. Their entire exclusion from the control of administration has not been attended with happy results. In no department has Indian administration been less successful—owing to this very exclusion of popular influence—than in revenue and finance.

A Finance and Revenue Board, including some Indian members elected by the Legislative Councils of the larger Provinces, could materially help the Finance Member and the Home Member of the Governor-General’s Council in their arduous and difficult work. And the admission of some qualified Indians, appointed by the Government, to the Councils of the Secretary of State and the Governor-General would make the administration better informed and more in touch with the interests of the people. All British interests, all sections of the British community, have influence on the Indian administration. It is just, and it is expedient that the Indian people should have some voice and some share in that administration which concerns them more than any other class of people. In the absence of this popular element in the Indian administration, all the influences at work make for increased taxation and increased expenditure, and for the sacrifice of Indian revenues on objects which are not purely Indian; no influences are at work which make directly for reduction in expenditure and taxes, and for relieving the burdens of our unrepresented population. The evidence of distinguished Englishmen, given before the Expenditure Commission, and quoted in a previous chapter, proves how Indian money is often spent. The facts which we shall lay before our readers in the next chapter will show how such expenditure affects the material condition of the Indian people.

Footnotes