Chapter XXIII: Finance and the Economic Drain (1793-1837)

CHAPTER XXIII

FINANCE AND THE ECONOMIC DRAIN (1793-1837)

THE East India Company’s Charter was renewed in 1833 for twenty years, dating from April 1834. The financial arrangements which were effected by this Act deserve our attention in the present chapter.

It was provided that the East India Company should henceforth “discontinue and abstain from all commercial business,” and stand forth only as Administrators and Rulers of India. It was enacted that all the territorial and other debts of the Company “shall be charged and chargeable upon the revenues of the said territories” of India. It was declared that out of the revenues of India there should be paid to the Company “a yearly dividend after the rate of £10, 10s. per annum on their capital stock.” It was further provided that the Company’s dividend should be subject to be redeemed by Parliament after 1874 on payment to the Company of £200 sterling for every £100 of the capital stock." And lastly, it was enacted that if the Company ceased to exist after 1854, or was deprived of the possession and government of India by the authority of Parliament, they would be entitled to demand the redemption of the said dividend within one year, “and provision shall be made for redeeming the said dividend, after the rate aforesaid, within three years after such demand.”

Comments on these arrangements are superfluous. The British nation had spent millions of their own money in acquiring dominions in other parts of the world; but in India an empire had been acquired, wars had been waged, and the administration had been carried on, at the cost of the Indian people; the British nation had not contributed a shilling. The trading Company which had acquired this empire had also drawn their dividends and made their profits out of the revenues of the empire for two generations. When they ceased to be traders in 1834, it was provided that the dividends on their stock should continue to be paid out of the taxes imposed on the Indian people. And when, finally, the Company ceased to exist in 1858, their stock was paid off by loans which were made into an Indian Debt. The empire was thus transferred from the Company to the Crown, but the Indian people paid the purchase money. And the Indian people are thus virtually paying dividends to this day, on the stock of an extinct Company, in the shape of interest on Debt!

It is necessary here to place before the reader the Indian revenue and expenditure of the Company year by year from 1792 to the year of the Queen’s accession.¹

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These long columns of dry figures have a meaning and a significance, if we read in them the political and administrative history of half a century. Every change in the policy of the British Government, every leaning to a policy of war or to a policy of peace and retrenchment, has left its impress on the finances of India. And the figures given above are silent witnesses to the administrative reforms effected in India from the time of Cornwallis and Barlow to the time of Bentinck and Metcalfe.

Lord Cornwallis, when he left India in 1793, had so adjusted the finances as to limit the total expenditure to under seven millions, showing a surplus revenue of a million and a half. Within twelve years from this date the restless and warlike policy of the Marquis of Wellesley had increased the expenditure to fifteen millions, showing a deficit of over two millions. It was this which gave offence to the Court of Directors. That venerable head of a mercantile body looked with indifference on peace or war in India so long as their surplus was safe; the pecuniary returns from their territories was the main standard by which they judged administration; and when the surplus was changed into a deficit they never forgave. They disapproved of the wars of Wellesley because the wars were expensive; and they recalled the great Proconsul from India in disgrace.

All through the fifteen years, from 1795 to 1810, Bengal had showed a surplus, Madras and Bombay had showed deficits. It is not an exaggeration to state that Bengal, with its Permanent Settlement, yielding a steady and unvarying income from the soil, enabled the British nation to build up their Indian Empire. Bengal paid the expenses of ambitious wars and annexations in Northern and Southern India. Madras and Bombay never paid the total cost of their own administration during these years; Great Britain never contributed anything towards the acquisition of India.

On the departure of Lord Wellesley a balance in the finances was restored once more; and between 1810 and 1814 the peaceful administrators of India reduced the annual expenditure to a little above thirteen millions, showing an annual surplus of two to four millions, which delighted the souls of the Directors. But the surplus disappeared under the warlike administration of the Marquis of Hastings; and there was a deficit again in 1818, when the last Mahratta war was concluded. Lord Hastings avoided the wrath of the Directors by showing a surplus of two millions in 1822. Bombay did not yet pay its expenses. It showed a deficit of a million, five years after the dominions of the Peshwa had been annexed; and Bengal showed a surplus of three millions. It may therefore be said with strict truth, that the conquests of Lord Hastings, like the conquests of Lord Wellesley, were made out of resources furnished by Permanently Settled Bengal.

The Burmese war of Lord Amherst once more upset the finances of India, and there was a continuous deficit from 1824 to 1827. The revenues of India had now increased to twenty-two millions, owing to the extension of the Empire and the severity of the Land-Tax; but the expenditure during these years rose to twenty-three or twenty-four millions.

Then were witnessed the striking results of the policy of peace, retrenchment, and reform introduced by Lord William Bentinck. Even as a financial reformer, Lord William Bentinck stands alone among all British administrators ever sent out to India. For financial reforms in India consist, not in hunting after new sources of taxation which do not exist, but in retrenchment. The excessive Land-Tax was reduced everywhere, and fell within six years (1825 to 1831) from thirteen millions to eleven and a half millions: but the reduction in expenditure more than compensated this loss. When Lord William Bentinck arrived in India in 1828, the total expenditure was twenty-four millions, showing a deficit of over a million. When he left India in 1835, the total expenditure was sixteen millions, showing a surplus of four millions.

Happy it were for India if administrators of his type had always succeeded him. But every reduction in expenditure in India affects the privileged classes of that country, and leads to an outcry; and Lord William Bentinck was denounced as no Governor General under the Company’s rule was ever denounced. It is not in human nature that British administrators should brave the wrath of their countrymen to serve the interests of the people of India; and under the present system of government a continuous pressure is exerted for increase in expenditure, while there is none in favour of retrenchment. Expenditure and the public debt have increased by leaps and bounds since the time of Lord William Bentinck; nor is there any possible remedy for this growing evil except to give the people themselves, who are necessarily in favour of retrenchment, some control in the administration of their own concerns. If those who spend have the sole control of the finances, the expenditure necessarily increases; if those who pay the taxes are allowed some control, the expenditure is necessarily restricted. This is the rule all over the world, and India is no exception.

It has been stated above that the whole cost of wars in India and of civil administration was paid out of the resources of India. It is important to note that after paying all these expenses India showed a substantial surplus during the forty-six years ending with the accession of Queen Victoria.

It will be seen from the figures given above, that if there were fourteen years of deficit, there were thirty-two years of surplus; and if the deficit amounted altogether to nearly seventeen millions, the surplus amounted to nearly forty-nine millions. The nett financial results of Indian administration was therefore a surplus of thirty-two millions during forty-six years. But this money was not saved in India, nor devoted to irrigation or other works of improvement. It went as a continuous tribute to England to pay dividends to the Company’s shareholders; and as the flow of the money from India was not sufficient to pay the dividends, there was an increasing debt—called the Public Debt of India—adding to the burdens of the taxpayers who had to pay the interest. This is the saddest episode in the sad financial history of India.

In 1792, the Indian Debt, bearing interest, little exceeded seven millions. In 1799, it had risen to ten millions. In consequence of Lord Wellesley’s wars, it had risen in 1805 to nearly twenty-one millions, and by 1807 to twenty-seven millions. It remained almost stationary at this figure for many years, but in 1829 it had risen to thirty millions. Lord William Bentinck’s beneficent administration had the effect of gradually reducing the debt, and on the 30th April 1836 it amounted to twenty-seven millions.¹

Under an equable arrangement between the two nations, India should have paid for her own administration, and England should have remunerated the Company for building up an empire so beneficial to her trade and her power, and so advantageous to her sons seeking a career in the East. If both nations benefited by the founding of the British Empire in India, both nations should have contributed to the cost— India paying for the administration of India, and Great Britain paying the home charges. But a different policy was pursued from the commencement of the British rule in India, and the result was a continuous Economic Drain from India, which has increased in volume with the lapse of years, and has impoverished an industrious, peaceful, and once prosperous nation. These results were foreseen by thoughtful Englishmen in those early years of which we are speaking in the present chapter.

“This annual drain of £3,000,000 on British India,” wrote Montgomery Martin in 1838, “amounted in thirty years, at 12 per cent. (the usual Indian rate) compound interest to the enormous sum of £723,997,917 sterling; or, at a low rate, as £2,000,000 for fifty years, to £8,400,000,000 sterling! So constant and accumulating a drain even on England would soon impoverish her; how severe then must be its effects on India, where the wages of a labourer is from twopence to threepence a day?”

“For half a century we have gone on draining from two to three and sometimes four million pounds sterling a year from India, which has been remitted to Great Britain to meet the deficiencies of commercial speculations, to pay the interest of debts, to support the home establishment, and to invest on England’s soil the accumulated wealth of those whose lives have been spent in Hindustan. I do not think it possible for human ingenuity to avert entirely the evil effects of a continued drain of three or four million pounds a year from a distant country like India, and which is never returned to it in any shape.“¹

It would fill a volume to quote all that has been written and said on the subject of this annual Economic Drain, which was increased by the exclusion of the people of India from all the higher services. We shall content ourselves therefore with the views of four distinguished administrators who served in the four great provinces of India—Bengal and Madras, Northern India and Bombay.

The Honourable John Shore, bearing a historic name, was one of the best of the Bengal administrators in the thirties; and he recorded the result of his own observations, fully and clearly, in his thoughtful work on India.

“More than seventeen years have elapsed since I first landed in this country; but on my arrival, and during my residence of about a year in Calcutta, I well recollect the quiet, comfortable, and settled conviction, which in those days existed in the minds of the English population, of the blessings conferred on the natives of India by the establishment of the English rule. Our superiority to the Native Governments which we have supplanted; the excellent system for the administration of justice which we had introduced; our moderation; our anxiety to benefit the people — in short, our virtues of every description, were descanted on as so many established truths which it was heresy to controvert. Occasionally I remember to have heard some hints and assertions of a contrary nature from some one who had spent many years in the interior of the country; but the storm which was immediately raised and thundered on the head of the unfortunate individual who should presume to question the established creed was almost sufficient to appal the boldest.”

“I was thus gradually led to an inquiry into the principles and practice of British-Indian administration. Proceeding in this, I soon found myself at no loss to understand the feelings of the people both towards the Government and to ourselves. It would have been astonishing indeed had it been otherwise. The fundamental principle of the English had been to make the whole Indian nation subservient, in every possible way, to the interests and benefits of themselves. They have been taxed to the utmost limit; every successive Province, as it has fallen into our possession, has been made a field for higher exaction; and it has always been our boast how greatly we have raised the revenue above that which the native rulers were able to extort. The Indians have been excluded from every honour, dignity, or office which the lowest Englishman could be prevailed upon to accept.“¹

Elsewhere, in referring to the drain of wealth from India, Shore wrote: “The halcyon days of India are over; she has been drained of a large proportion of the wealth she once possessed; and her energies have been cramped by a sordid system of misrule to which the interests of millions have been sacrificed for the benefit of the few.”

John Sullivan went out to India as early as 1804, and retired from that country in 1841, after holding responsible posts as Resident at Mysore, as Collector of Coimbatur, as Member of the Madras Board, and as Member of the Madras Council. He was examined on the occasion of the renewal of the Company’s charter in 1833, and he spoke feelingly on the exclusion of the people of India from all high appointments in the country.

“503. What are the disadvantages under which the natives at present feel themselves to labour with respect to the British Government?

“Their exclusion from all offices of trust and emolument, and from that position in the administration of the country, civil and military, which they occupied under their own princes.”

“509. . . . Does not the system which the natives have always enjoyed under the British Government compensate to them in a very large degree, if not entirely, for their loss of the exclusive possession of offices, to which, under the Native Government, they considered themselves to be entitled?

“I should say that nothing can compensate them under such exclusion.”

The same witness was examined again, twenty years after, when the charter of the Company came up for renewal in 1853: and on that occasion he gave his evidence still more emphatically.

“4866. Do you suppose that they [the people of India] have traditions among them which tell them that the economic condition of the population was better in former times under their native rulers than it is now ?

“I think, generally speaking, history tells us that it was; they have been in a state of the greatest prosperity from the earliest time, as far as history tells us.”

“4869. How do you account for the superior economic state of the people, and for their ability to lay out the money which they did in canals and irrigation and tanks, if they were wasting more wealth, and sacrificing more lives in wars, than we do now, specially seeing that the wars were carried on very much upon their own territories, instead of being beyond their limits ?

“We have an expensive element which they were free from, which is the European element, civil and military, which swallows up so much of the revenue; from that cause our administration is so much more expensive; that, I think, is the great reason.”

John Sullivan did not shrink from the logical conclusion of his opinions, when he was asked if he would restore British territory to native rule, keeping the military control of the Empire in British hands.

“4890. You would restore a great deal of territory to native rulers upon principles of justice ?

“Yes.

“Because we have become possessed of them by violence or by other means without any just right or title ?

“I would do so upon principles of justice and upon principles of financial economy.”¹

Few of John Sullivan’s contemporaries went so far as he did, but most of them knew and felt the injustice of the entire exclusion of the people of India from the control of their own affairs.

Holt Mackenzie, whose distinguished work in the land revenue settlement of Northern India has been referred to in Chapter XI. of this work, recorded the following remarks in his Minute on the Revenue and the Judicial Administration of India in 1830; and this Minute was embodied in the Report of the Select Committee of the House of Commons in 1833.

“Nothing can be more striking than the scorn with which the people have been practically treated at the hands of even those who were actuated by the most benevolent motives; for, since the world began, there is probably no example of a Government carrying the principle of absolutism so completely through the civil administration of the country, if that can be called civil which is in its spirit so military; nay, which sets the people aside in the management of their own concerns much more than the Sepoy in the government of the army. The principle pervades every act, from the highest exercise of legislative power to the appointment of the meanest public officer. . . It seems to be vain to think that we can by any legislative provision secure the community from extortion and vexation, if we once allow or require the Government officers to interfere perpetually in the minute details of the people’s business. We have, unfortunately, acted on an opposite principle, interfering in almost everything, neglecting popular institutions where they exist, and never attempting to create them when wanting.” [1]

But the man who spoke with the greatest authority before the Select Committee of the House of Commons in 1832 was Sir John Malcolm, whose name is connected with those of Munro and Elphinstone as builders of the British Indian Empire, and the most able and sympathetic rulers of the people in the first half of the nineteenth century. He had distinguished himself in two Mahratta wars by his success and valour; he had won the confidence of the Indian soldiery as well as of the civil population by his courtesy and kindness; and after the meritorious service of over a quarter of a century he had succeeded Elphinstone in the high post of Governor of Bombay in 1827. When, therefore, he was examined as a witness before the House of Commons in 1832, he spoke, on the condition of the people of India under British rule, with a knowledge and authority which few Englishmen of his or any later time equalled, and which none ever surpassed.

" 278. In your opinion, was the substitution of our government for the misrule of the native princes the cause of greater prosperity to the agricultural and commercial part of the population?

" I cannot answer this in every Province of India, but I shall as far as my experience enables me. I do not think the change has benefited, or could benefit, either the commercial, the monied, or the agricultural classes of many of the native States, though it may be of others. It has not happened to me ever to see countries better cultivated, and so abounding in all produce of the soil, as well as commercial wealth, than the Southern Mahratta Districts, when I accompanied the present Duke of Wellington to that country in the year 1803; I particularly here allude to those large tracts near the borders of the Krishna. Poona, the capital of the Peshwa, was a very wealthy and thriving commercial town, and there was as much cultivation in the Daccan as it was possible so arid and unfruitful a country could admit….

" With respect to Malwa… I had ample means afforded me, as the person appointed to occupy that territory and to conduct its civil, military, and political administration, to learn all that the records of the Government could teach, and to obtain from other sources full information of this country; and I certainly entered upon my duties with the complete conviction that commerce would be unknown, and that credit could not exist. . . . I found, to my surprise, that in correspondence with the first commercial and monied men of Rajputana, Bundelkhand, and Hindustan [Northern India], as well as with those of Gujrat, dealings in money to a large amount had continuously taken place at Ujjain and other cities, where Soucars or bankers of character and credit were in a flourishing state, and that goods to a great amount had not only continuously passed through the Province, but that the insurance offices which exist throughout all that part of India, and include the principal monied men, had never stopped their operations, though premiums rose at a period of danger to a high amount. . . . And I do not believe that in that country the introduction of our direct rule could have contributed more, nor indeed so much, to the prosperity of the commercial and agricultural interests as the establishment of the efficient rule of its former princes and chiefs. . . .

“With respect to the Southern Mahratta Districts, of whose prosperity I have before spoken . . . I must unhesitatingly state that the provinces belonging to the family of Putwarden and some other chiefs on the banks of the Krishna present a greater agricultural and commercial prosperity than almost any I know in India. I refer this to the system of administration, which, though there may be at periods exactions, is on the whole mild and paternal; to few changes; to the complete knowledge and almost devotion of Hindus to all agricultural pursuits; to their better understanding, or at least better practice than us in many parts of the administration, particularly in raising towns and villages to prosperity; from the encouragement given to monied men and to the introduction of capital; and above all to the Jaegirdars residing on their estates, and those Provinces being administered by men of rank who live and die on the soil, and are usually succeeded in office by their sons or near relatives. If these men exact money at times in an arbitrary manner, all their expenditure as well as all they receive is limited to their own provinces; but above all causes which promote prosperity is the invariable support given to the village and other native institutions, and to the employment, far beyond what our system admits, of all classes of the population.”

The evils which were thus pointed out to the Select Committee by Sir John Malcolm and other eminent witnesses were, principally, the exclusion of the people of India from all the higher services in their own country, and the remittance of a large portion of the Indian revenues out of India year after year. The natural remedies were those which had been suggested by Bishop Heber a few years before, viz., a larger employment of the people in the administration of their own concerns, and the spending of Indian revenues in India. On the first point, Munro, Elphinstone, and Bentinck had already given some relief; and the British Parliament, in renewing the Company’s charter in 1833, enacted a famous clause which will be referred to in the next chapter, declaring the people of India to be eligible to all posts without distinction of race or creed. On the second point, Parliament gave no relief to the people of India. On the contrary, although they stopped the Company’s trade from April 1834, they provided for the payment of interest on the Company’s stock out of the revenues of India at 10 1/2 per cent., as has been stated before. It was an act of injustice to India, against which a strong protest was made once more by another distinguished Englishman, when the Empire passed from the Company to the Crown in 1858.

Sir George Wingate had distinguished himself in the land revenue settlements of Bombay, as we have seen in Chapter XXI. He had worked under a bad system, but had worked it with his natural kindness and consideration, and had made it a success. He had laboured for some thirty years among the people of India, and had retired to his native country ripe with the knowledge and experience of Indian affairs, honoured by the Government, and recognised popularly as the Father of the Bombay Revenue System. But the financial relations between India and England caused him solicitude and pain; and when the administration of the Empire passed to the Crown, he appealed to his countrymen for a more just and equitable treatment of India under the new arrangements which were then made.

“If, then, we have governed India not merely for the natives of India but for ourselves, we are clearly blamable in the sight of God and man for having contributed nothing towards defraying the cost of that government. Our fair share, represented by the degree in which British interests have decided our Indian policy, be it great or small, should have been duly paid; but this has never been done, and now there is a heavy debt which has been running up against us for many years to be settled. England was powerful and India at her feet, and little chance had the weak of enforcing payment from the strong.”

“With reference to its economical effects upon the condition of India, the tribute paid to Great Britain is by far the most objectionable feature in our existing policy. Taxes spent in the country from which they are raised are totally different in their effects from taxes raised in one country and spent in another. In the former case the taxes collected from the population at large are paid away to the portion of the population engaged in the service of Government, through whose expenditure they are again returned to the industrious classes. They occasion a different distribution, but no loss of national income; and hence it is that in countries advanced in civilisation, in which the productive powers of men are augmented by mechanical contrivances and a judicious use of the powers of nature, an enormous taxation may be realised with singularly little pressure upon the community. But the case is wholly different when the taxes are not spent in the country from which they are raised. In this case they constitute no mere transfer of a portion of the national income from one set of citizens to another, but an absolute loss and extinction of the whole amount withdrawn from the taxed country. As regards its effects on national production, the whole amount might as well be thrown into the sea as transferred to another country, for no portion of it will return from the latter to the taxed country in any shape whatsoever. Such is the nature of the tribute we have so long exacted from India.”

“The Indian tribute, whether weighed in the scales of justice or viewed in the light of our true interest, will be found to be at variance with humanity, with common sense, and with the received maxims of economical science. It would be true wisdom, then, to provide for the future payment of such of the home charges of the Indian Government as really form the tribute out of the Imperial Exchequer. These charges would probably be found to be the dividends on East India Stock, interest on Home Debt, the salaries of officers and establishments and cost of buildings connected with the Home Department of the Indian Government, furlough and retired pay to members of the Indian Military and Civil Services when at home, charges of all descriptions paid in this country connected with British troops serving in India, and a portion of the cost of transporting British troops to and from India.”

“Were India to be relieved of this cruel burden of tribute and the whole of the taxes raised in India to be spent in India, the revenue of that country would soon acquire a degree of elasticity of which we have at present no expectation.”

The appeal was made in vain. The home charges, which amounted to three millions when Queen Victoria ascended the throne, had risen to sixteen millions when the Great Empress passed away. So great an Economic Drain out of the resources of a land would impoverish the most prosperous countries on earth; it has reduced India to a land of famines more frequent, more widespread, and more fatal, than any known before in the history of India, or of the world.

Footnotes

¹ Returns of the Gross Revenue, &c., in India since 1792. Ordered by the House of Commons to be printed, 22nd June 1855.

¹ Montgomery Martin’s Eastern India, London, 1838. Introductions to vols. i. and iii.

¹ Honourable F. J. Shore’s Notes on Indian Affairs, London 1837, vol. ii. p. 516.

¹ Third Report of the Select Committee, 1853, pp. 19 and 20.