eOJg;HELL UNIVERSmf LIBRARY n^ACA, N. Y. 14853 South Asia CoUecttoH KROCHUBRAKY CORNELL UNIVERSITY LIBRARY 3 1924 073 796 017 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924073796017 In compliance with current copyright law, Cornell University Library produced this replacement volume on paper that meets the ANSI Standard Z39. ^8-1784 to replace the irreparably deteriorated original. 1992 THE FINANCES AND PUBLIC WORKS OF INDIA THE FINANCES AND PUBLIC WORKS OF INDIA FROM 1869 TO 1881 BY Sm JOHN STRACHEY, G.C.S.I. AND LT.-GEN. EICHAED STRACHEY, R.E., F.R.S. LONDON KEGAN PAUL, TRENCH, & 00., 1 PATERNOSTER SQUARE 1882 i'l'he rights of transJation and of rejtroctuction are reserved') TO THE PUBLIC SERVANTS OF ALL CLASSES THE RESULTS OF WHOSE LABOTJRS FOR THE PEOPLE OF INDIA ARE HEREIN RECORDED THIS VOLUME IS INSCRIBED BY THEIR FELLOW-WORKERS THE AUTHORS PEEFACE. This book is the joint production of my brother and myself. For many years we have taken part, often in close association, in the Government of India, and it would be a false affectation of humihty to profess that this part has not been an important one. Thei-e is hardly a great office of the State, from that of Lieu- tenant-Governor or Member of Council downwards, which one or other of us has not held, and there is hardly a great department of the administration for the management of which, at some time, one or other of us has not been responsible. If we have not gained wisdom, we have at least had rare opportunities for obtaining knowledge and experience. We have written this book in the hope that what- ever hght we can throw on the origin and operation of the important financial measures adopted in British India during the last ten or twelve years, may be useful to those who follow us in its government. via PREFACE. When a man Las been constantly, through a long series of years, writing and speaking on subjects like these, there must be much about which he can say nothing new. Strings of quotations from one's own speeches and minutes and reports do not look pleasant, and therefore the authors have not scrupled to repeat without acknowledgment, and with as little or as much change of expression as seemed desirable, anything which they have said in the past, and which they cannot say better now. As Mr. John Morley has observed, in somewhat similar circumstances, ' these borrowings from my former self the reader will per- haps be wilHng to excuse, on the old Greek principle, that a man may once say a thing as he would have it said, 8ts Se ovk ei'Sej^erai — he may not say it twice.' It is not worth while to attempt to explain the shares in this book which belong respectively to my brother and to myself. The opinions we hold on the subjects discussed are so much in unison, and have been so constantly formed in close personal communi- cation, that for our OAvn part distinctions are super- fluous. When the first person is used, it may mean either the one or the other of the authors. We feel that this work, treating as it does only of matters directly connected with the finances and pubhc works of India, is necessarily incomplete. The progress made in the last twenty years is not confined to the improvement of the financial administration, and to the PREFACE. IX construction of the great public works by which the material interests of the country have been so largely promoted ; it is seen in every branch of the administra- tion, and in the whole condition of the people, and these beneficial changes are so intimately bound up with one another, that a book which contains, so to speak, only a single chapter of a most remarkable history, can give no adequate representation even of those facts with which it immediately deals. Besides the reforms more particularly described in this book, which have served to lighten the burdens pressing upon the people, to give them greater means of material progress, new markets for their produce, cheaper salt and cheaper clothing, the country has at the same time obtained better laws and better ad- ministration : a first step has been taken by the State in recognising its duties towards agriculture, the most important of Indian industries ; municipal institutions have been created, the foundations of a true national education have been laid, the health and comfort of our soldiers has been greatly promoted, and improve- ments made in a hundred other matters. A complete history of recent Indian progress remains to be written. Such a history would contain the record of the work in which Englishmen in India have been the greatest. Viceroys, governors, and councillors have done much, but soldiers and civilians, whose names have hardlj^ been heard in England, have done more X PREPACE. in silently building up the splendid fabric of our eastern empire. The every-day work of administration is that whereby the real foundations of our power are main- tained and strengthened, and the well-being of the country is secured. It is, indeed, the part of an Indian official's life to which even those who, like ourselves, have been actively concerned in the central govern- ment, commonly look back with the greatest interest ; and they, whose hves have been spent in the daily discharge of these duties among the people, may fairly claim to be associated with the great results to which their hardly recognised labours have contributed. The authors of this book may be forgiven if they take some pride in adding that they themselves belong to the third generation of their family whose hves have been devoted to working for great objects in this magnifi- cent country. That I have been able to do something in pre- serving for future generations great works of art, hke the Taj and the tomb of Akbar, I may reckon as a personal satisfaction, and not among the least of those to which I can look back in my career. In writing the following pages it has been our desire to assume as far as possible an impersonal atti- tude, and to avoid expressions of praise or blame. But it would be inconsistent with what is due to the memories of Lord Lawrence and Lord Mayo, not to record in emphatic language our deep sense of what PEEFACE. XI India owes to these statesiiien for their share in intro- ducing the chief measures of which this volume is designed to supply the history — namely, the prosecution of irrigation works and railways with borrowed funds, the decentralisation of the financial administration, the establishment of true Provincial responsibility, and the equalisation of the Salt duties. Those only who know how heavy is the burden placed on the Viceroy of India will properly appreciate the great results pro- duced in Lord Mayo's too short tenure of office. And with these names must be associated that of Lord Lytton, to whom India is greatly indebted for the further development of these measures, and for having taken the first steps towards introducing a policy of complete free trade. One further acknowledgment has to be made. This work would not have been undertaken if Mr. Chapman, lately Secretary to the Government of India in the Department of Finance and Commerce, had not given me his active co-operation and help in the preparation of its materials. Withoiit this some of the chapters could hardly have been written. The book is, I hope, a record of progress, and no one deserves honour for that progress more than Mr. Chapman. He has done so much, during the last ten years, to render the financial administration more enhghtened, progressive, and efficient, that he may almost be said to have created it ; and there is hardly one of the great Xll PREFACE. measures described in this book, with which I have been personally concerned, to the successful prosecution of which he has not largely contributed. The authors have also received from Mr. George Batten much assistance in the revision of the book, and many valuable suggestions for its improvement. JOHN STRA.CHEY. Villa Spixola, Florence, October, 1881. CONTENTS CHAPTER I. JN'XRODTTCIORY. Great changes in India in recent years — Demand for administrative and material improvements — Expansion of revenues and expen- diture — Growth of import and export trade — Outlay on rail- ways and irrigation works — General progiess of the country in ■wealth and good government ....... CHAPTER II. PR08RESS AND PRESENT CONDITION OF THE REVENUES AND EXPENBITTTEE. Public income of India largely derived from sources other than taxation — Land revenue and forests — Tributes — Opium — Ad- ministrative services — Public works — Other receipts — Taxation proper — Excise — Customs — Salt — Stamps — Direct taxes — Pro- vincial rates — Incidence of taxation on people — Local taxation — Changes in forms of account — Difficulties in way of compari- sons between past and present 13 CHAPTER III. PROSRESS AND PRESENT CONDITION OF THE REVENUES AND EXPENDnuRE — con tinned. Land revenue — Tributes from native states — Forests — Opium — Miscellaneous receipts — ^Total receipts other than taxation- Excise — Salt — Stamps — Customs — Capitation tax in Burma — License tax — Provincial rates or cesses — Total receipt* from taxa- tion — Total revenues ......... XIV CONTENTS. CHAPTER IV. rUOGEESS AND PRESENT CONDITION OF THE KEVENUES AND EXPENDlTtTEE — Continued. FAGR Charges under land revenue include cost of internal administration — Administration and minor departments — ^Total charges for effective civil services — Non-effective civil charges — Intei-est on debt — Public works charges — Guaranteed railways — Pro- ductive public works — Ordinary public works — Loss by exchange — Army — Increase of military charges and necessity for reduc- tions — Provincial surplus and deficit — Explanation of these entries — General conclusions as to growth of expenditure ... 38 CHAPTER V. PROGRESS AND PRESENT CONDITION OJF THI! REVENUES AND EXPENDITURE — Continued. Reasons for excluding charges for famine and war from review of revenues and expenditure — General results of past twelve years — Amount of surplus excluding famine and war — Correc- tions to be applied to ensure proper comparisons — Effect of famine and war expenditure on the balance of ordinary reveniie and charges — Statement of ultimate deficit — Measures taken to meet future famine outlay — How far successful — Influence of expendi- ture of bon'owed money on public worlts on financial position — Present normal surplus sufiicient. to admit of further fiscal reform 64 CHAPTER VI. THE HOME CHARGES. The Home Treasury how replenished — The disbursements classified — Interest on debt — Charges for civil admhiistration — Army — Non-effective — Effective — Stores — Guaranteed railways — General results — Increase how accounted for — Largely due to railway transactions — Secretary of State's bills — Their amount — Means of reducing the home charges — Reduction of debt — Transformation of sterling into rupee liabilities — Summary of con- clusions ..... .... G8 CHAPTER VII. PEODUCrlVB PUBLIC WORKS. Expenditure on public works before 1867- 68 — Borrowing authorised in 1864 to carry on irrigation works — Extraordinary public works — Extension of sy.sfem in 1870 tn rjiilways — Principle.^! CONTENTS. XV PAGE adopted and precautions taken — Forecasts of expenditure — Changes of system subsequently introduced — Productive public works — Policy considered by Committee of the House of Commons and conclusions adopted — Comparison of actual results ■with forecasts — Great improvement in consequent financial position — Practical utility and value of works — Guaranteed and State railways — Irrigation works — Their present position and prospects — General conclusions — Complete success of the policy . 86 CHAPTER VIII. THE PUBLIC DEBT OF INDIA. The true criterion of policy of borrowing for public works how to be found — Investments ia reproductive works should be dis- tinguished from ordinary debt — ^Review of increase of debt and its present amount and constituents — Ordinary debt and charge for interest greatly reduced — Interest on public works investments how far covered by net income — General position of debt and public works capital — E«turns from these invest- ments — Discharge of debt how far desirable — Sterling debt — Its large increase — Importance of preventing its growth — Diffi- culties in way of its reduction — Rupee debt — Expediency of establishing a sinking fund for discharge of debt incun-ed for public works — Market price of securities indicates complete maintenance of credit of Indian Government notwithstanding increase of debt. — Guaranteed railway capital — The obligations it creates — Importance of exercising powers of purchase — Results of purchase of East Indian Railway 115 CHAPTER IX. DECENTRALISATION OP FINANCIAL ADMINISTBATION AND EXTENSION OP THE POWERS AND KBSPONSIBILITIES OF LOCAL SOVIIRNMENTS. Great extent of India — ^Differences among its provinces — Formation of separate administrative governments — But without financial power — Necessity for such powers recognised — Difficulties caused by its absence — Measures for its introductiou suggested — Carried out by Lord Mayo in 1871 — His measures described — First applied to expenditure — Their effect — Theii- deficiencies — Ex- tended in 1877 by including revenue — The scope of these exten- sions — Further extensions contemplated — General results of policy of decentralisation — Should be applied to management of productive public works — Sir A. Eden's opinion on results of policy in Bengal — These measures very different from proposals made by Mr. Bright 132 XVI CONTIONTS. 01IAPT1',K X. PIKAXCIAI, JIBASURHS FOR JlHEl'ING FAMIXE LTABILIflES. Famine liabilities must be' met from revenues — Their heavy amount — Lord Salisbury's opinion of necessity for localising — Danger of meeting by borrowing — Provincial revenues of Bengal made liable for charges arising from works to give protection against famine — Similar steps in North- Western Provinces — Lord Nortli- brook's views — Probable amomit of famine expenditure estimated at one-and-a-half million yearly — Decision to obtain special yearly sm-plus of revenue of this amount — To be applied directly or indirectly in reduction of charge for debt — Fresh taxation how far needed — Actual receipts from new taxes — Miscon- ceptions' as to famine insurance — Creation of a fund not pro- posed — Plan necessarily inoperative in absence of real surplus — Changes of policy made by Home Government — Substantial realisation of reduction of charge for debt by growth of public ■works income .......... 1.55 CHAPTER XI. MEASUEES FOB GIVING PEOTECIION AGAINSI PAMIXE. Recurrence of famine still unavoidable — Measures of alleviation and prevention possiblcr-Necessity for applying them — Loi-d Northbrooks opinion — Extension of railways and irrigation required — Insufficiency of measures actually taken — Lord Lytton's programme — Emigration not applicable — Importance of early extension of cheap railwaj's — Value of irrigation — Co- operation of local governments to be secured — Steady supply of funds essential — Plans frustrated by orders for reduction of outlay on productive works — Other restrictions imposed — Application of half of famine surplus to uuremiraerative works proposed — Objections stated to arrangements made for doing this . 168 CHAPTER XII. TAXATION IMPOSED IN 1877 AND 1878. Taxation for famine relief should be general — Keimposition of in- come tax impracticable — Classes specially liable — Traders hitherto unduly exempt from taxation — License tax proposed — Additional rates on land in Bengal — In Northern India — Amount raised from land — Incidence of license tax — Its extension to officials and professions — Direct taxation how far now applicable and desbable Frequent changes in past arrangements most mischievous — Necessity for retention of cesses in Bengal and license tax on traders for proper adjustment of burdens — Reduction of taxation where first needed 194. CONTENTS XVU CHAPTER XIII. THE SAM AKB SUGAR BTJTIES. PAGE Sources of salt supply in various provinces — System of raising duties — Origin of duties — Abolition of internal customs duties — Salt and sugar excepted — Rates of duty varied in different provinces — Pre- ventive line across India — ^Resolution in 1869 to equalise duties and abolish customs line — Lord Mayo's measures — Further steps taken in 1878 — Duties partially equalised — Raised in Bombay and Madras — Reduced in Northern India and Bengal — Final reduction to 2 rs. 8 ans. except in Bengal — Arrangements with native states in Rajputana — Sindh — Abolition of customs line in 1879 — General results on price — Consumption and revenue — Possible further reduction of duty- — Salt in Burma — Adminis- tration of salt department — Sugar duties — Their abolition in 1878 215 CHAPTER XIV. OPITJII. Opium revenue how raised — Manufacture in Bengal — Export duty at Bombay — Mistaken idea of uncertainty of revenue — Causes of fluctuations — Great variations in sales before 1867 — True prin- ciples — Regularity in supply and sale — Formation of reser^'e — Present variations arise in charges which vary with crop and season — Income steady and increasing — Actual charge of year not properly debited to quantity sold — Excess represents value of reserve — Corrected net income — Further apparent uncertainty caused by deliberate under-estimate ordered by Secretary of State — ^This in present year one-and-a-half million — Real risks attend- ing opium revenue arise from English opinion that trade is immoral — True position of China in relation to opium — Sir Thomas Wade's testimony — Account from Shanghai — ^Facts do not justify Interference — Probable effect of substituting excise for monopoly — Relative fiscal results from Bengal and Malwa systems — Equivalent duty corresponding to price — Importance of maintaining reserve — Possible further extension of cultivation — An advantage to Bengal agriculture — Objections to reduced sale —Importance of avoiding changes of policy in administration . 241 CHAPTER XV. CUSTOMS. General rates of duty before 1875 — Reductions made by Lord North- brook — Public opinion in India indifferent or unfavourable to free trade — Lord Salisbury's orders for removal of iicport duties a XVIU CONTENTS. FAGK on cotton goods — Declaration of principles by Lord Lytton's Government in 1878 — Special importance of free trade to India — Difficulty of framing an unobjectionable customs tariff — ^Further exemptions from import and export duties— Duty on rice alone remains among exports — Lord Salisbury's arguments for removal of cotton duties — His orders repeatedly confirmed by House of Commons — First step taken by exemption of goods with which Indian mills could compete — Further exemptions in 1879 — Their effect — Enormous increase of imports of duty-free goods — In- creased prosperity of Indian mills — Necessity for early extension of remissions to all grey goods — After which complete exemp- tion should follow — -Remaimng customs duties then of small importance — All Indian ports should be thrown open . . . 274 CHAPTER XVI. FOREIGN TKADE. Value of Indian trade since 1534 — Comparison with England — Excess of exports explained — Analogy with United States — Evidence of prosperity rather than reverse — Total trade in relation to popular tion — Compared with States of Europe — Increase since 1840 — Recent increase gi-eatly due to extension of railways — ^Results of cheap transpoil — Combined with reduction of customs duties — Interests of trade demand fuither remissions — Necessary growth of railway revenue with increased trade — Loss of customs duties probably at once compensated thus — Expansion of import and export trade extends to all classes of goods— Proof of general increased prosperity — Mutual interest of England and India to remove obstructions to trade caused by customs duties . . 312 CHAPTER XVIL OCTEOI DUTIES. Octroi duties for municipal purposes — Orders in 1868 to prevent abuses — Relaxed in 1871 — Legislation proposed in 1879 — Its ob- jects — Abuses pointed out by Bombay Chamber of Commerce — Extreme case of Karachi — Decision not to legislate — Necessity for future vigilance 329 CHAPTER XVIIL WEIGHTS AND MEASURES. Reform of weights and measures needed in interest of trade — Question has long engaged attention — Inquiry in 1867 — Its results — Condition of weights and measures in various pro- vinces — Total absence of uniformitv or doliuite standards — CONTENTS XIX PAGE Remedies proposed — Adoption of English pound as unit of weight rejected — Reasons for preferring Idlogramme — ^Nearly equal to ordinary Indian seer — Convenience for foreign trade — Conclusion accepted by Secretary of State — Act passed in 1870 to establish metrical standards — ^Modified in 1871 so as to extend only to weights and measures of capacity — Act not brought into operation but still in force — Serious objections to present absence of proper standards 339 CHAPTER XIX, POSSIBLE SOURCES OF NEW TAXATION. Productive taxes few — New sources of revenue may be found— Rates on land — In Bengal — The permanent settlement— Its serious evils — In other provinces — ^Income tax — Registration — Exten- sion of present system desirable — Succession tax — Difficulties in its adoption — Tobacco tax— Objections to it — Sugar duty — More practicable — House tax — ^Not recommended — On marriages — Railway traffic — Others — Conclusions — ^Note on Durbhunga . 35o CHAPTER XX. CUESENCT AND EXCHANGE. Metallic currency of India — Gold coin not^current — Paper cuirency — Imports of bullion and coinage — Competition between Secretary of State's bills and silver as a means of remittance — Exchange value of rupee depends on market price of silver — Relation be- tween excess of exports and Secretary of State's bills — Combina- tion of sterling and rupee expenditure in public accounts — Adop- tion of conventional rate of exchange — Objections to this — ^Reasons for retaining it — Amount of loss by exchange — How far real — Adjustment of accounts between India and England — Arrangement with British Government — Guaranteed railway transactions — EvUs caused by fall in relative value of silver to gold — Effects on foreign trade of India— Difference of standards of value in India and England the real cause of all the difficulties — Necessity for obtaining uniformity — Complete remedy only attainable by inter- national agreement — Failing bimetallism the adoption of gold standard by India essential . 380 CHAPTER XXI. PUTUKE EEaUIEESTENIS OF PUBLIC WORKS AND FINANCE. Further extension of railways essential — Present policy of government to favour private entei'prise — Objections to state action considered XX CONTENTS. PAOB — Mr. Mill's opinion — Its application to India — Importance of esta- blishing local and national ownership of railways — Regulation of monopolies— Agency of companies how far expedient — Objections to system of guarantee — State working not desirable — Local management important — Objections to borrowing for public works — Their inconclusive nature — Reasons for not throwing entire cost on revenues — Considerations which should determiue dis- charge of debt — ^Necessity for economical construction — Needless complication of existing rules for undertaking public works — Economy not secured by restrictions only — Provincial responsi- bility desirable — ^Importance to revenue of income from railways — Check of public opinion on provincial financial administration suggested — Necessity for more equitable adjustment of taxation — Risk of reaction against recent measures — Importance of remission of imposts on commerce — Conclusion 401 APPENDIX. Tabular statements of the principal elements of the public revenue, expenditure, and debt, from 1869-70 to 1880-81 . . . .431 INDEX 453 THE FINANCES AND PUBLIC WOEKS OF INDIA. CHAPTER I. INTRODUCTORY. SRBAT CHANGES IK INDIA Df EECEITI YEARS — DEMAND FOE ADMINTS'JCEATITE AND MATERIAl IMPEOVEStENTS — ^EXPANSION OF RBVENtrBS AND BXPEN- DITUEE — GEOWTH OF DEPOET AND EXPORT TRADE — OtTTLAT ON EAIL- WATS AND lEEIGATION WORKS — GENEEAL PROGEESS OF THE COTJNTEY TN WEALTH AJfD GOOD GOVERNMENT. The changes wliich India has undergone during the last thirty or forty years have been so great, that it is often very difficult to deduce useful inferences from the comparison of its present and past condition. This is especially true in regard to matters of finance. Comparisons between the revenue, the expenditure, the debt, or the trade of India now and India as she was, though highly interesting in some points of view, have Uttle financial significance, so numerous and profound have been the changes in the condition of the country, its available resources, and its requirements for necessary administrative and material progress. The territorial extension of the Empire during the last forty years has been enormous. Five great pro- vinces have been added to it, with an area ahnost equal B 2 FIIfANCES AND PUBLIC WORKS OF INDIA. to that of France and the German Empire put to- gether, and with a population of more than forty miUions. This fact is alone sufficient to show how easily we may be misled by general comparisons ; but other changes still more important have occurred, and they have been hardly less remarkable in the older pro- vinces than in the new. Forty years ago there was in India, comparatively speaking, Uttle of what we now think the first neces- sities of a civilised administration. When I went from Calcutta to my first station in the North-Western Provinces, I was carried about a thousand miles in a box — for a palanquin is nothing better — on men's shoulders, and it took some three weeks to toil through a journey which is now accomphshed in two days ; there were no other means of travelhng through the richest and most civihsed parts of India. Speaking generally, roads and bridges had only begun to appear ; railways were not thought of; the value of irrigation as a means of afibrding protection to the people from de- struction by famine had hardly been recognised ; there were few barracks in which Enghsh soldiers could Uve with tolerable health and comfort ; there were few jails in which a sentence of imprisonment did not carry with it a serious probabihty that it would prove a sentence of death. But the country at that time was entering on a phase of rapid change. The energies of the Government and its officers, which had at first been unable to do more than seciu'e the bare existence of British power in India, by degrees rendered that power paramount. Then they were apphed to its consohdation, and to the evolution of an organised system of administration out of the chaos bequeathed to us by the old rulers of the country. The GREAT CHANGES IN RECENT YEARS. 3 firm establishment of order was followed by improvemeuts in all directions. A vigorous impulse was given to material progress, and among the most active causes of the great changes which were beginning must be ranked the introduction of new and rapid means of communi- cation. These not only directly developed the resources of the country, increased the wealth of the people, and profoundly altered the conditions of Ufe, but they stimu- lated the vitahty of every branch of the administration ; they brought the various provinces of the Empire closer together, and England closer to India ; Enghsh influence became stronger and stronger, and all classes set before themselves new and higher standards, as they were more frequently and immediately brought into contact with European habits and civilisation. Even before the mutinies of 1857 this process of change had made great progress. After that revolution, which for a time nearly swept away our Government through a large part of India, the change went on with enormously accelerated speed. Thou- sands of Englishmen, not only soldiers, but Englishmen of almost every class, poured into India. Ten thou- sand things were demanded which India had not got, but which it was felt must be provided. The country must be covered with railways and telegraphs, and roads and bridges. Irrigation canals must be made to preserve the people from starvation. Barracks must be built for a great European army, and every sort of sanitary arrangement which could benefit the troops must be carried out, for we did not choose to let our soldiers go on dying like sheep in the old fashion. In fact, the whole paraphernaha of a great civUised administration, according to the modern notions of what that means, had to be provided. » 3 4 FIXANCES AND PUBLIC WOEKS OF INDIA. This was true not only in regard to matters of imperial concern. Demands for improvement, similar to those which fell upon the central Government, cropped up in every city and in every district of the country. Compare, for instance, what Calcutta was twenty years ago, and what it is now. This city, the capital of British India, supphes an excellent type of what has been everywhere going on. The filth of the city used to rot away in the midst of the population in horrible pestilential ditches, or was thrown into the Hooghly, there to float backwards and forwards with every change of tide. To nine- tenths of the inhabitants clean water was unknown. They drank either the filthy water of the river, polluted with every conceivable abomination, or the still filthier contents of the shallow tanks. The river, which was the main source of supply to thousands of people, was not only the receptacle for ordinary filth ; it was the great graveyard of the city. I forget how many thousand corpses were thrown into it every year. I forget how many hundred corpses were thrown into it from the Government hospitals and jails, for these practices were by no means confined to the poor and ignorant ; they were followed or allowed, as a matter of course, by the ofiicers of the Govern- ment and of the municipaHty. I remember the sights which were to be seen in Calcutta in those days, in the hospitals, and jails, and markets, and slaughterhouses, and pubhc streets. The place was declared, in official reports by the Sanitary -Commission in 1864, in lan- guage which was not, and could not be, stronger than the truth required, to be hardly fit for civihsed men to five in. There are now few cities in Europe with which the better quarters of Calcutta need fear comparison, DEMANDS FOR MATERIAL IMPROVEMENTS. 5 and there is hardly a city in the world which has made more extraordinary progress. I do not mean to say that Indian cities generally were so bad as Calcutta. This was far from being the case, but Calcutta affords, not the less, a good illustra- tion of what has been and stiU is going on in India. Illustrations of the same sort might easily be multiphed. Fifteen years ago, for instance, in the great city of Eangoon, containing more than 100,000 people, with half a miUion tons of shipping, there was not a single pubhc lamp, no supply of wholesome water, not a single drain except the surface drains at the sides of the streets, and no means of removing the night-soU and filth out of the town. About the same time, the Koyal Commission for inquiring into the sanitary state of the army in India declared that thousands of the lives of our soldiers had been and were still being sacrificed in consequence of bad and insufficient bar- rack accommodation, and neglect of every sanitary pre- caution. So again, the Government was told, and in many parts of India it was certainly true, that, in con- sequence of the insufficiency of jail accommodation, the prisoners were dying at a rate frightful to think of, and that the necessary proceedings of the courts of justice involved consequences repugnant to humanity. Thus arose demands for the requirements of civihsed life and of modern administration, which had to be pro- vided, and to a great extent for the first time, within the space of a few years. This was true not only of ma- terial apphances, of roads, and railways, and canals, and barracks, and city improvements, and so forth ; for the demand for improved administration became so strong, that it is not too much to say that the whole of the pubhc services have been reorganised. Thus, for example, the 6 FIKAXCES AND PUBLIC WORKS OF INDIA. police, which was in a shameful condition throughout India, has been placed on a completely new footing. The changes in the judicial service, and in the laws which it ad- ministers, have been as great ; Lord Lawrence, when he was Viceroy, declared that the inadequacy of the pay given to the native judges, and to the chief ministerial officers of the courts, was a pubhc scandal ; many of these officers receiving salaries less than the wages earned in most parts of India by the better class of bricklayers and carpenters. No honest or satisfactory administration of justice was, under such conditions, possible. The demands for every sort of pubUc improvement, moral and material, which thus sprung up, could not be resisted. Whatever might be the cost, remedies had to be provided in the most complete way, and in the shortest time possible. There were doubtless those who thought and said that as these demands involved the expenditure of millions, compUance with them Avas impracticable or would be ruinous. Happily the Government of India decided otherwise. It might perhaps have been better, in regard to some of the reforms which have been carried out, if the work of improvement had been more gradual. But the fault has been on the right side. A greater or more admirable work was never conceived in any country than that which has been undertaken, and in a great degree accompHshed, byEnghshmen in India during the last twenty-five years, and which is stiU going on. That mistakes should have been made in dealing with a country as large and as populous as the whole of civilised Europe was inevitable, and no doubt money has sometimes been needlessly or wastefuUy expended. Nevertheless, the work has been excellently done, and with this further MAGNITUDE OF WOEK ACCOMPLISHED. 7 merit, that there has been httle talk about it. For all this the credit is not due to the initiative of the Govern- ment alone. India has indeed been fortunate in her Viceroys, but still more fortunate in the possession of a most admirable and hardworking body of pubhc servants, to whose intelhgence, devotion to their duties, and wself- sacrifice, the results actually obtained are greatly due. The magnitude of the work that has been accom- plished is extraordinary. The England of Queen Anne was hardly more different from the England of to-day, than the Lidia of Lord EUenborough from the India of Lord Eipon. The country has been covered with roads, her almost impassable rivers have been bridged, 9,000 miles of railway and 20,000 miles of tele- graph hues have been constructed, 8,000,000 acres of land have been irrigated, and we have spent on these works, in Httle more than twenty years, some 150,000,000Z. Our soldiers' barracks are now beyond comparison the finest in the world ; quarters which twenty years ago had a reputation Httle better than that of pest-houses are now among the healthiest in the British Empire, and the rate of mortahty among the troops is not one-half what it was. The improve- ment in the jails and in the health of the prisoners has been hardly less remarkable. The cities and towns are totaUy different places from what they were. Simultaneously with the progress of all these and a thousand other material improvements, with the in- crease of trade, the creation of new industries, and a vast development of wealth, there has gone on an equaUy remarkable change in every branch of the pubHc administration. The laws have been codified, and im- proved, and simpHfied, until they have become the ad- miration of the world. The courts of justice and the 8 FINANCES AND PUBLIC WORKS OP INDIA. police have been revolutionised, and, however far they may stUl be from perfection, India has obtained, to a degree unheard of and unthought of before, protection for hfe and property, and an honest administration of justice. All over India we have been buUding schools, and hospitals, and dispensaries. The natives of India have been admitted to a far larger share in the government of their own country. Municipal institutions, the first practical step in pohtical education, have been estab- Ushed in all considerable towns in British India, and more than 12,000,000 of people Hve within their hmits. It is needless to continue this catalogue of the changes that have taken place ; but it is not the least remarkable part of the story that the accomphshment of all this work, and the expenditure of all this money, which have increased to an extent absolutely incal- culable the wealth and comfort of the people of India, have added nothing to the actual burden of their, taxation. It will be plain that in the circumstances which have been described, comparisons between the statistics of Indian revenue and expenditure at the present time with the statistics of thirty or forty years ago have little financial meaning, but they will illustrate forcibly the immense change which has taken place in the con- dition of the country and the position of its government. Thus, for instance, the gross revenues of India, which were 21,000,000^. in 1840, were 40,000,000^. in 1860, and 65,000,000/. in 1878.^ The total expenditure, which was 23,000,000/. in 1840, was 50,000,000/. in 1860, and 63,000,000/. in 1878. The public debtwas 30,000,000/. in ^ These and tlie figures immediately following are not strictly compai-able, because many clianges have been made in the system of accounts, and for other reasons ; but for my present purpose, which is one of illustration only, they require no correction. GEOWTH OP REVENUES AND TRADE. 9 1840, 90,000,000^. in 1860, andisnowl60,000,000^. The increase in all these cases has been enormous, yet it would be a complete mistake to suppose that growth of the re- venue has been due to increased taxation, or that the real burden of the debt has become heavier. The land re- venue,for instance, was 12,500,000/:. in 1840, 18,700,000/. in 1860, and it is now about 22,000,000Z. ; but there is no province in India in which, measured by its incidence on the area actually assessed, the land revenue is not, where it has been altered at all, hghter than it was. The gross salt revenue was 4,600,000Z. in 1860, and it now exceeds 7,000,000Z. ; yet in the greater part of India the rate of duty was higher in 1860 than it is now. In 1860, the customs revenue was 3,200,000Z., and there was hardly a single article of the import or export trade of India which was not heavily taxed ; the customs now yield a miUion less, and it will be shown further on how great have been the remissions and reductions of duty, and how great the rehef to the people and to trade. The income tax in 1861-62 yielded a revenue of nearly 2,000,000Z., and it was levied on every description of income and property without exception. The present license taxes and the new land cesses put together yield about half the revenue yielded by the income tax of twenty years ago ; they afiect a far smaller number of people, and they are levied at less than one-third the rate. This is not the place to pursue these comparisons, but it is a fact not open to question, that although the revenues have enormously increased, the burden of taxation is now Hghter than it was twenty-five years ago. Other statistics illustrate in a remarkable way the changes that have occurred in India. In 1840, the total value of all the imports into 10 FINANCES AND PUBLIC WORKS OF INDIA. British India was about 8,000,000Z.; in 1880 it exceeded 50,000,000/. In 1840, the total value of the exports was about 11,000,000/. ; in 1880, it was nearly 70,000,000/. The trade of India is as great now as that of England was some forty years ago. In 1854, the first year for which any figures are forthcoming, the number of letters passing through the Post Office was 19,000,000, whHe in 1879 it was 132,000,000. It might be stated how many milhons of people and how many milhons of tons of goods are now carried on the railways, and how many telegraphic messages are despatched ; but as twenty years ago railways and telegraphs in India had only begun to exist, there would be no comparison to make. In the last thirty years more than 150,000,000/. has been spent on railways, irrigation works, and other permanently useful objects, from which a gross yearly income of more than 15,000,000/. is now earned, and, as wiU be sho-wii in the sequel, not only without causing any present appreciable burden on the finances, but concurrently with a large virtual reduction of the charge for debt. The intention of the present volume is not to describe in detail the progress of British India during the last thu'ty or forty years, but to supply information as to the actual condition of the finances ; and the growth of the revenues and expenditure during the last twelve years will be fully discussed further on. The foregoing figures are therefore given as illustrations merely of the fact that India is a totally different country now from what it was. And this imphes no disparagement of the work of our predecessors. On the contrary, great as, with the aids of modern science and capital, our own progress has been, it is hardly doubtful that each successive period since our countrymen first established them- GENERAL PEOGRESS OF COUNTRY. 11 selves as the dominant power in Southern Asia, would, when viewed in relation to the circumstances of the time, yield in one direction or another results as great as those here recorded. How great they have been, and how vastly beneficial to the people we have taken under our rule, may best be seen by a comparison of the neighbouring Asiatic countries with British India, which has not only been rescued from the incessant sequence of foreign conquest, plunder, and anarchy which marked its past history, but has in Httle more than a century acquired a position of peace, good government, and wealth, which will compare favour- ably with many of the older States of Europe. There have always been, and perhaps always will be, people who, according to the unfortunate Enghsh fashion of decrying the great achievements of their coun- trymen, endeavour honestly and persistently to show that, in consequence of the wickedness or stupidity of our Government, India is in a state bordering on bank- ruptcy ; that its people are becoming poorer and poorer, more and more miserable, more and more exposed to ruin and death by famine ; that crushing taxation goes on constantly increasing ; that an enormous and ruinous tribute is exacted from India to be spent in England, and I know not what else. I have neither the time nor the inchnation to reply to statements of this sort. ' I know,' said the wisest of Enghsh statesmen, ' the ob- stinacy of unbeUef in those perverted minds which have no delight but in contemplating the supposed distress, and predicting the immediate ruin of their country. These birds of evU presage at all times have grated our ears with their melancholy song ; and, by some strange fatahty or other, it has generally happened that they have poured forth their loudest and deepest 12 FINAXCES AND PUBLIC WORKS OP INDIA. lamentations at the periods of our most abundant pros- perity.' ^ It is not pretended that, unlike any other country, the social, material, and political conditions of India now leave no room for improvement. Defects of many sorts can readily be pointed out. But it is through the very progress made that these become known. In the arts of administration, as in all other applications of knowledge, our views widen with each successive step we take ; and the emphatic recognition that much yet remains to be done for the people of India, neither dims the lustre of what has been accomplished nor should cool the ardour of those who there continue the strife with human misfortune, weakness, or ignorance. That India has gone on, with a speed hardly sur- passed in any country, steadily increasing in know- ledge, in wealth, and in all the elements of progress, that every branch of the pubhc administration has con- stantly improved in honesty and efficiency, and that of all the things for which England deserves honour in the world, her government of India is the greatest and best — these are to me facts not requiring to be argued about. It is, broadly speaking, these facts which ex- plain the enormous increase which has taken place in the revenue and expenditure and trade of India, and which have brought about such extraordinary changes in the condition of the people. • Burke's Third Letter on a Regicide Peace, CHAPTEE n. PROGEESS AMD PRESENT CONDITION OP THE REVENUES AND EXPENDITURE. Preliminai-y Explanations. PtTBLIC INCOME OE INDIA IiAKGELT BEBIVED FEOM SOURCES OIHER THAN TAXATION — ^LAND KEVBNUB AND POEESIS — TRIBUTES — OPIUM — ADMINIS- TRATIVE SERVICES — PUBLIC WORKS — OTHER RECEIPTS — TAXATION PROPER — EXCISE — CUSTOMS SAXT — STAMPS DIRECT TAXES PROVINCIAL RATES — ^INCIDENCE OP TAXATION ON PEOPLE — LOCAL TAXATION CHANGES IN FORMS OP ACCOUNT — DIPEICULTIES IN WAT OP COMPARISONS BETWEEN PAST AND PRESENT. The gross annual revenues of British India at the present time exceed 68,000,000^., but the larger part of this great income is derived from sources independent of taxation. This fact cannot be too clearly stated or steadily remembered, for, if it be forgotten, no accurate conception of the Indian finances, or of the incidence of the pubhc burdens, is possible. We hear a great deal that is undeniably true regarding the poverty of the people of India and their inabiUty to bear heavy taxation ; and to persons accustomed to judge by an English standard it seems a terrible thing that this poor country should be forced to raise every year a revenue exceeded only by that of two or three of the greatest and richest of European nations. The truth is, how- ever, that the pubUc burdens in India are light to a degree absolutely without precedent, because the State 14 FINANCES AND PUBLIC WORKS OP INDIA. has reserved to itself resources which in other coun- tries belong to individuals, and possesses sources of revenue which render it in a great measure independent of taxation. The most important of these resources is the land revenue, a rent-charge in favour of the public, a portion of the rent of land reserved by the State from time immemorial for its own purposes. The State in India has always possessed, both in theory and in practice, the greater share of the pro- perty in land, and has been entitled to receive from the occupier such portion of the surplus profit after defray- ing the expenses of cultivation as it has appeared pos- sible or expedient to take. The land revenue of India is this portion of this surplus. It has been the poUcy of the British Government to encourage the growth of private property in land, and even to create such pro- perty when no private rights of ownership could be found, and it has been an essential part of that poHcy to hmit, either for a term of years or in perpetuity, the share of the rent or profit which the State is to receive. The remainder is private property. The rights of the State and of the private proprietor are identical in their nature, both being founded on long established custom. The object of our so-called settlements of the land revenue is to define the portions of the rent Avhich the State and private proprietors shall respectively receive, and to give security to the latter that improvements made by them on their estates shall not lead to an increased demand on the part of the Government. A settlement of the land revenue has nothing to do, except indirectly, with questions of taxation, although the determination of the share of the rent which the private proprietor is to retain has of course the greatest possible efiect in NATURE OF LAND KEVENUE. 15 determining the value of liis property, and affects im- mensely his capacity of meeting taxation. These facts have been clearly explained by Mr. Fawcett.^ The Government in India, he says, exercises over a great portion of the soil ' the same rights of property as those which an Enghsh landlord exer- cises over his own estate. The Government in India takes the place of individual landlords, and the culti- vators of the soil rent their land from the Government instead of from private landowners. ... As far as the cultivators of the soil are concerned, it can be a matter of no consequence whatever to them whether they pay a land tax to the Government, or whether they pay rent to private landowners. Hence a land tax is no harder upon the cultivator, nor does this impost cause •any loss to the rest of the community. It therefore follows that a land tax, as long as it does not exceed a rack-rent, cannot increase the price of products raised from the land, for those who grow the products would not sell them cheaper if they paid rent to a private landlord instead of paying the same amount to the Government in the form of a land tax. A land tax consequently differs from all other taxes, for it possesses the excellent quality of providing a large revenue for the State without diminishing the wealth of any class of the community. Those, therefore, are completely in error who quote the aggregate amount of taxation which is raised in India in order to prove how heavily the people of that country are taxed. At least 20,000,000Z. per annum is obtained in India by the land tax ; but it would be as unreasonable to consider this amount as a burden laid upon the people as it would be to consider that the whole rent which is paid 1 Manual of Political Economy, 6th edit. p. 568. 16 FINANCES AND PUBLIC WOEKS OF INDIA. to English landlords in this country is an impost levied upon the cultivators of the soil.' If, indeed, as Mr. Fawcett goes on to show, the land tax should exceed a rack-rent in amount, the effect would be to increase the price of agricultural produce, and there would be a tendency to throw land out of cultivation. It has never been pretended that any such results have followed from the very moderate assess- ments of the land revenue which now prevail in India. Their moderation, even hi those provinces where settle- ments have been made for a term of years and not in perpetuity, is shown by the enormous increase that has taken place in the area under cultivation, and by the great and rapid increase of the selhng price of land.^ Under the native governments the right of the State to the whole of the surplus profits of the land, leaving to the occupier no more than was sufficient for his subsistence and for the expenses of cultivation, was and still is frequently exercised. The British Government never takes more than a fixed share, varying in different parts of India from four to eight per cent, of the gross value of the produce, and for many years past the ten- dency has been to diminish the share of the State, and to leave a larger share to the private co-proprietor. Although the gross land revenue has increased from 12,500,000^. in 1840 to 22,000,000Z. in 1880, there is no province of India in which its incidence is not lighter now than it was forty years ago. This increase, says Mr. Cunningham, ' is omng partly to the addition of 36,000,000 of people, or twenty-five per cent., and 242,000 square miles of territory, with a land revenue of more than 6,000,000/., partly to an increase of fifty to a lumdred per cent, in the area of cultivation, partly ' Report of the Indian Famine Commisaimi, 1880, part ii. p. 125. INCIDENCE OF LAND EE^TINUE. 17 to the increase in the price of agricultural produce, and in no instance to the enlargement of the share claimed by Government in the profits of the soil. In Madras, for instance, the area assessed has increased from 9,750,000 acres in 1850 to 20,000,000 in 1875-76, and though the land revenue is 1,000,000^. sterUng higher, its incidence per acre is reduced by 4irf. on dry land, and 5^. on irrigated land. Similarly, in Bombay, the assessed area has increased from 12,500,000 acres in 1856 to 20,300,000 in 1875-76, and an increase of three-quarters of a million in the land revenue has resulted, notwithstand- ing an average reduction of A^d. per acre in the assess- ment.^ In the same manner in the North-Western Pro- vinces, where the land revenue is calculated on the sup- posed value of the rental, there is no doubt that the share of the rent claimed by the Government has much de- creased. Originally the theory was that the Government took eighty-five or ninety per cent, of the net rental, leaving the landowner only fifteen or ten per cent, for his own enjoyment. Under the settlements made by the British from 1833 to 1843, the Government proportion was reduced to two-thirds of the existing rental, the pro- prietors being further left, in enjoyment of any increment which might occur during the thirty years of the settle- ment. Wlien the period of the settlement expired, this 1 The following figures are giTen by Mr. Cunningham in explanation of these results. 1852-63 1875-76 Acres 9,780,000 20,021,000 Madras. Laud Revenue. £ 2,502,000 3,436,000 Average rate per Acre. Dry Land. Irrigated Loud. R. A. P. E. A. p. 13 11 1011 7011 4 8 11 Bombay. 1856-57 1875-76 Assessed Area. Acres 12,550,000 20,340,000 Land Revenue. £ 1,647,000 2,330,000 Average rate per Acre R. A. p. I 15 4 12 4 18 FINANCES AND PUBLIC WORKS OF INDIA. proportion was again reduced, and was fixed at fifty per cent. ; but notwithstanding this reduction in the share claimed by the Government, the result of the general prosperity of the province and the increased out-turn of the crops has been to raise the land revenue from 3,680,000^. to over 4,000,000/. In the Punjab it is noto- rious that the land revenue is infinitely lighter than that in any previous period, and the fact is corroborated by the enormous increase in the price of land since it passed under our rule from the cruel rack-renting of the Sikh Government. In Bengal the land revenue has neces- sarily remained unchanged, notwithstanding the in- crease of the landlord's share of the rental from a few hundred thousand pounds to more than 10,000,000/. sterhng.' ^ The truth is that there has been a tendency of late to take too little rather than too much as land revenue, and to forget that, at any rate in a country like India, this is the best of all possible sources of public income, and better than taxation in eiu.j shape. A lamentable mistake of this sort (I refer of course to the permanent settlement) has led in Bengal not only to the sacrifice by the State of several millions of revenue a year, but to the still worse result of impoverishing the agricultural population of the most productive province in the Empire. The gross amount brought to credit under the head of Land revenue in 1879-80 (including that due to irriga- tion) was 22,463,548/., of which, however, 283,326/. was Capitation tax levied in British Burma, leaving 22,180,222/. Land revenue proper. Besides this sum, the Indian Government derives a gross income of nearly 26,500,000/. from other sources ' British India and its Rulers, 1881, pp. 141-142. REVENUES NOT DERIVED PROM TAXES. 19 altogether distinct from taxation. The foUomng table shows these receipts for 1879-80 : — Tributes and contributions from native £ states .... , , 702,451 Forests (sale of timber and other pro- ducts, &c.) .... , , 676,234 Opium ..... . 10,319,162 Services : — £ Minor departments 99,282 Mint .... 230,669 Post office 1,004,372 Telegraph. 605,662 Law and justice (fines and receipts from convict labour, &c.) 658,902 Police ; . . . 227,657 Marine .... 268,187 Education. 139,414 Medical .... 56.329 Stationery and printing . 56,019 3,236,283 Public works (railways, canals, and other works) .... . 8,540,439 Eeceipts in aid of superannuation, re- tired and compassionate allowances . . 525,141 Miscellaneous .... « 337,370 Ajmy (excluding £60,499 due to the Afghan war) .... . 1,029,483 Gain by exchange . 320,580 Interest on investments of the Paper Currency Department, loans to native states, municipalities, &c. * 748,050 Total . £26,435,193 Further details will be given subsequently of some of the more important of these sources of income ; in this place it is only necessary to point out the fact that out of the whole gross revenue of 68,484,666Z. received by the Government of India in 1879-80, more than 48,500,000Z. was derived from sources other than taxa- tion, and that less than 20,000,000^. was raised by taxation properly so-called. This latter sum was dis- tributed as follows : — c 2 20 FINANCES AND PUBLIC WORKS OF INDIA. Excise 2,838,021 Capitation tax in British Burma 283,326 Assessed taxes 785,318 Provincial rates 2,882,125 Customs 2,280,793 Salt .... 7,266,413 Stamps (judicial and commercial) 3,193,739 Re^tration . 269,239 Total ;£19,798,974 The taxes levied under the heads of Assessed Taxes, Provincial Eates, Customs, and Salt will be fully dis- cussed hereafter -, and it ■^viU be shown how, with the exception of assessed taxes and provincial rates, the policy of the Government has been of late years to reduce, and not to increase, the rate of their incidence. With regard to the other items in the list of taxes properly so called, the Excise duties, yielding more than 2,800,000^., are mainly paid by the lower classes to whom the consumption of drugs and spirits is for the most part confined. Stamps produce more than 3,000,000Z., two-thirds of which falls on Htigation and one-third on commercial documents. The in- cidence of the Excise duties is 3^rf. per head ; that of the Stamp duties is about 3|rf. per head. The incidence of the Customs duties is about %\d., and of the Salt duty 6f ^. per head. The total incidence of taxation on the 185,000,000 persons constituting the population of British India, is 2s. per head. Adding the land revenue, the total burdens are about 4s. per head. Distributing the several items of taxation amonor the difierent classes of the population, according to theh' probable incidence, the folio-wing results have been arrived at. The land- owning classes pay about hs. 6d. per head, or excluding the Land revenue, Is. Qd. The agricultural labourer may pay in the shape of taxes on liquor and salt Is. 6d. IirCIDENCB OP TAXATION. 21 a head, or for each family a fortnight's wages in the year. The artisan may pay 2s., or the earnings of five working days. Traders pay 3s. Sd.^ ' The landowner,' writes Mr. H. S. Cunningham, 'pays for land revenue a sum ranging between 3 per cent, and 7 per cent, on the gross produce of his lands, and a further fraction by way of provincial rates. If he goes to law, he may contribute something to stamps ; if he drinks, to ex- cise ; and, if he prefers Enghsli to native cloth, to customs ; but when he has paid his land revenue, his only impe- rative tax is 7d. for salt. He is probably the most lightly taxed subject in the world, except the owner of personal property in India — money in the funds, &c. — who, though a millionaire, may under hke conditions of abstinence from the luxuries of drink, litigation, and Enghsh cloth, contribute nothing but 7d. to the expenses of the State ; such a man is obviously absurdly under- taxed. The artisan's position is the same ; the trader when he has paid 7d. on salt, and, if his gains are over 50Z. per annum, his hcense tax, may go free of further taxation ; the only imperative tax on the agri- cultural labourer is the annual 7d. which he pays for salt. He is no doubt a very poor man, but his poverty can scarcely be said to be grievously enhanced by the exactions of the State.' ^ There is another point of importance to be noticed. In all civilised countries heavy taxes are raised for local purposes, in addition to those collected for the purposes of the central government, and the two ac- counts are ordinarily quite distinct from each other. In India this is not the case ; the receipts from aU provincial and local taxation, excepting that raised in * Report of the Famine Commissioners, part ii. pp. 91 , 92. ' British India and its Rulers, 1881, p. 149. 22 FINANCES AND PUBLIC WORKS OF INDIA. municipalities for the service of the towns/ are in- corporated in the imperial accounts, which show there- fore nearly the whole of the burdens imposed for all purposes on the country. Although, for the reasons before explained, attempts to compare the revenues and expenditure of British India at the present time with those of many years ago are likely to mislead, yet the same difficulties will not attend the examination of the variations which have occurred during the last twelve years, the period to which the present review is intended specially to refer. There have been in this period no important terri- torial changes, and during it the existing system of financial administration has been more or less in force. The pohcy of constructing productive public works with borrowed money first took a practical shape in 1868-69, the year immediately preceding the selected period, and in 1870 it was decided that the construc- tion of railways should be undertaken directly by the State. The year 1869-70 also was that immediately preceding the great fresh departure in Indian finance, which was taken by the introduction of the measures of decentralisation, which will be described further on. The gradual development of these measures has produced financial and administrative results of extreme importance, and the time of theii" introduction forms a convenient landmark. An examination into the. state of the finances between 1869-70 and the present time will enable the reader to form an accurate conception of the changes for good or evil that have occurred in the interval. Attempts have often been made to compare the ' There were, in 1878-79, 868 municipalities in British Lidia, with an income of 1,305,442/., of which l,022,402i. was derived from taxation. CHANGES IN FORM OF ACCOUNTS. 23 financial condition of India at various periods, and the results have been very variously stated. The . fact is that, for many years past, there has been going on a constant process of improvement in the pubhshed abstracts of the accounts, and a constantly increasing amount of information and of detail has been given. Heads of accounts which used to be lumped together have been separated, whUe others have been consoli- dated, and instead of merely the net result of the dif- ferences between revenue and expenditure being shown, the actual revenue and expenditure have been entered on the two sides of the account. For example, in Mr. Wilson's Budget statement in 1860, there were only six revenue heads. The first was ' land revenue, sayer, and abkaree,' and it included land, forest, and excise revenue, aU lumped together ; then came, separately, ' customs,' ' salt,' and ■. opium ; ' then ' miscellaneous,' a large item of more than 4,000,000Z. ; and lastly ' receipts from railway companies,' which at that time were only 330,000Z. On the expenditure side the charges on account of collecting the revenue from land, forest, excise, customs, salt, opium, post- office and stamps, and on account of pohtical pensions, allowances, assignments, and charitable grants, were aU included under one head ; the remaining heads were ' interest on debt in India,' ' mihtary charges,' ' marine,' ' civil charges ' (which included aU pohtical, judicial, and police estabUshments, and all public works, except military and marine), ' miscellaneous,' and ' guaranteed interest on railway capital.' The charges incurred in England were not classified at all. From that time the published abstracts of the accounts have been, from year to year, amphfied and improved. The changes have been considerable, in- 24 FINANCES AND PUBLIC WORKS OP INDIA. volving the entry of large gross amounts on each side of the account, which were previously shown net on one side only. For instance, until recently, the excess of the guaranteed interest on railway capital over the net earnings of the railways, was shown in one entry on the expenditure side, instead of the net earnings being entered on the revenue side, and the full guaranteed interest on the expenditure side. This obvious improve- ment has caused an addition to each side of the account of some 6,000,000^. So, again, the provincial revenue and expenditure is now entered in the gross, under the appropriate heads, instead of net on one side only of the account. This has added about 1,000,000Z. to both sides. Finally, local revenue and expenditure, which, although as nuich public transactions as any other, used to be excluded altogether from the finan- cial statements, have now been included, adding more than 2,500,000Z. to each side of the account. Thus, under these three heads alone, the totals of the accounts of revenue and expenditure have been increased by about 8,500,000^., without any addition whatever to the revenue or expenditure. Changes of this kind of course afiect in no way the actual financial position of the country, or alter the surplus or deficit of the year. Even now, the form of the published abstracts is not perfect, but it gives im- mensely more information than it was possible to obtain from the abstracts as formerly framed. But it cannot be reasonably contended that the difiiculties which changes of this kind throw in the way of persons who wish to make comparisons, whatever they be, ought to have deterred the Government, or should in future deter it, from rendering the published accounts as perfect and comprehensive in form as possible, or that, because our COMPABISONS AVITH PAST YEARS. 25 published statements were incomplete ten or twenty- years ago, they ought to have remained incomplete for ever. It should be added that the Government, having in view the great importance of trustworthy comparisons of the revenues and expenditure from year to year, has recently caused the accounts of the series of years from 1869-70 to the present time to be revised and brought into a properly comparable form, and a sum- mary of them has recently been made pubhc as a Par- hamentary paper. The results thus obtained constitute the basis of the discussions contained in this volume, and it is beheved that the figures, which have been obtained at the expense of great labour and atten- tion in the office of the Comptroller-General (of Indian accounts) at Calcutta, may be fully rehed upon. Ab- stracts of these accounts will be found, with other illustrative statements, in the Appendix. It is further necessary to explain that in proceeding to discuss the progress of the revenues and expenditure it has been thought best, when treating of the main heads of revenue, to deal with the net income after setting off" all necessary charges of collection and the like ; and in hke manner, when treating of the main heads of expenditure, to deal with the net charge after setting off" all contingent receipts. The net charges under those heads of the administration which commonly cost more than they yield are classed as net expenditure, though it may be an essential condition of the service rendered that it shall be paid for, as in the case of the Mint, the Post Office, or the Telegraph. It is also to be remembered that the two foUo-wing Chapters, HE. and IV., treat only of the ordinary revenues and recurring expenditure, on the due balance 26 FINANCES AND PUBLIC WORKS OF INDIA. of which the equilibrium of the finances primarily depends ; and that in them such extraordinary and disturbing causes of outlay as famine relief or war have been excluded from consideration, though their serious importance and influence on the general financial position wlU receive full attention afterwards. CHAPTER m. PKOGRESS AND PEESENT CONDITION OF THE EEVENUES AND EXPENDITURE. The Revenues from 1869 to 1881. LAND KEVBNTIE — TErBTJTES FKOM NATIVE STATES — POKESTS — OPrUlt — MISCED- UJiTEOUS RECBIPIS — TOTAL KEOEIPTS 0THI;R THAN TAXATION — ^EXCISE — SALT — STA3EPS — CUSTOMS — CAPITATION TAX IN BTTRMA — LICENCE TAX — PROTINCIAI BATES OB, CESSES — TOTAL EECEIPTS TmOTH TAXATION — TOTAL IffiVBNtrES. In this Chapter I proceed to show the progress of each of the great branches of revenue during the last twelve years, and their present condition. For reasons before explained the revenues will be arranged in two groups, those which are not, and those which are, derived from taxation properly so called. The Land revenue (a) recorded in 1869-70 was, after deducting the capitation tax, 20,811,905Z., but this included an accidental credit of 408,764?., the accumu- lated sale price of waste lands. The normal land revenue at that time did not exceed 20,400,000?. The amount of land revenue collected between 1876-77 and 1879-80 was so greatly disturbed by remissions or postpone- ments of the demand made in consequence of famine that no comparisons can usefully be made between the figures for particular years. The amount realised in 1879-80 was 22,125,807?., of which 338,657?. was on account of arrears in Madras due to past famine. The 28 FINANCES AND PUBLIC WOEKS OF INDIA. regular estimate for 1880-81 gives 21,414,000^, in- cluding 65,200/. famine arrears, but the collections for the year have been retarded owing to the census opera- tions, and the receipts are thereby diminished by about 445,000Z. The normal land revenue, exclusive of the capitation tax, is now at least 21,750,000/. a year, or 1,350,000/. more than it was twelve years ago. I have already explained the causes to which this great in- crease is due, and have shown that not only has there been no enhancement of the assessments, but that the demand of the State, in relation to the value and extent of the culturable area, has diminished, and continues to diminish. The Tributes and contributions from native states (b) do not vary much from year to year. In the last twelve years they have never been lower than 675,120/., or higher than 768,544/. The contributions are chiefly for the maintenance of local troops. The Govern- ment of India preserves peace throughout the native states under its protection, which have an area of more than 575,000 square miles, and a population of about 50,000,000. The sums paid by these states to the Government of India are insignificant compared to the benefits which they receive. The net Forest revenue (c), which is almost entirely derived from the sale of timber and other forest pro- duce, the property of the Government, was 158,854/. in 1869-70, and 223,000/. in 1880-81, and it has only once exceeded 287,000/., namely, in 1875-76, when it reached 274,551/. The stationary condition of the net forest revenue has been rather a matter for satisfaction than otherwise. The forest administration, which is of comparatively recent creation, looks to the future interests of the community more than to present profit, REVENUES NOT DERIVED PROM TAXES. 29 and is more occupied in the preservation and improve- ment of the State forests than in reahsing an imme- diate large revenue. The gross revenue is now, however, close on 700,000/. The net Opium revenue {d) has grown from 6,132,387/. in 1869-70 to 8,466,000/. in 1880-81, an increase of 2,333,613/. The annual average for the first period of four years from 1869-70 to 1872-73 was 6,672,766/. ; from 1873-74 to 1876-77 it was 6,267,746/. ; and from 1877-78 to 1880-81 it was 7,734,044/. The greater part of the increase has taken place in the last three years. Evidence will be adduced further on to show that this increase in the opium revenue has been neither tempoi'ary nor accidental, and that it is hkely to con- tinue. There are many other branches of the administra- tion which, though they yield a revenue, cost more than they yield, and they will therefore be discussed under the head of expenditure. It may here, however, be mentioned that the Mint, although not administered with that object, frequently yields a small surplus. Recently the Telegraph has also begun to do so, and the Post Office may perhaps do so before long, while the Productive Public works are rapidly approaching the time when they also wUl not only cover the entire amount expended on them — that is, their working ex- penses and the interest on the capital invested in their construction — but when they will yield a surplus revenue to the State. There are certain small items of revenue and expen- diture which do not belong to any of the main heads of account, and are therefore recorded as Miscellmieous (e). The average net revenue yielded by them for the last four years has been 21,532/. 30 FINANCES AND PUBLIC WORKS OF INDIA. The total net receipts from sources other than taxa- tion, namely, Land revenue, Tributes, Forest, Opium, and Miscellaneous, were in 1869-70 28,009,878/., and in 1880-81 they were 30,885,000/. Theii' average amount from 1869-70 to 1872-73 was 28,127,152/. ; from 1873-74 to 1876-77 it was 28,113,932/. ; and from 1878-79 to 1880-81 it was 30,020,036/. The receipts derived from taxation proper will next be considered. The net Excise revenue (/) has grown from 1,991,039/. in 1869-70 to 2,967,000/. in 1880-81, an increase of nearly 1,000,000/. The average receipts from 1869-70 to 1872-73 were 2,122,783/. ; from 1873-74 to 1876-77 they were 2,317,999/. ; and from 1877-78 to 1880-81 they were 2,640,766/. This increase of 50 per cent, in the last twelve years is not to be attributed to the increase of intemperance, but to improvement in the condition of the people, and, still more, to better administration. For obvious reasons it has everywhere been the pohcy of the Government to increase the rates of excise duty on spirits and drugs, as far as possible, consistently with avoiding the risk of illicit traffic. The Capitation tax [g) in British Burma, which in the accounts is incorrectly credited under the head Land Revenue, gradually increases -with the population, and has risen from 201,395/. in 1869-70 to 266,000/. in 1880-81. This tax is indefensible in principle, and being a direct tax is vexatious in the method of levy. It falls at the rate of 5 rupees on every married, and 2 rupees 8 annas on every unmarried man. Eeference will again be made to this tax in connection with the salt duties. Under the head Assessed taxes (h) the net revenue from income tax was 1,026,400/. in 1869-70, and the TAXATION PROPER. 31 licence tax yielded 497,000/. in 1880-81 ; a decrease of 529,400Z. The net amount levied under this head in 1870-71 was 1,988,023Z. In 1861-62 it was 1,850,897/. In the first period of four years, from 1869-70 to 1872 -73, the average annual receipts were 1,098,341/. ; and in the last period, from 1877-78 to 1880-81, they were 531,965Z. In the second period, from 1873-74 to 1876 -77, neither income tax nor hcence tax were levied, excepting some trifling arrears. The largest net amount yielded in any year by the licence tax was 837,312/. in 1878-79. The net receipts under the head of Provincial rates (^) were 1,235,496/. in 1869-70, and 2,731,000/. in 1880 -81 ; an increase of 1,495,504/. In the four years from 1869-70 to 1872-73, their average annual amount was 1,484,330/. ; in the next four years, from 1873-74 to 1876-77, it was 1,788,422/. ; in the last four years, from 1877-78 to 1880-81, it was 2,576,856/. About 500,000/. of this increase was caused by the new rates imposed, for famine purposes, in 1877 and 1878. The remaining increase, amounting in the twelve years to nearly 1,000,000/., has partly arisen from the natural growth of the older local revenues, but it has been chiefly due to increased local taxation, between 1869 and 1871. In Bengal, in 1871, rates yielding 340,000/. were imposed for the construction and maintenance of district roads and communications. In the Punjab, in 1871, rates yielding 137,000/. were imposed for local roads, education, hospitals, wells, and other useful pur- poses. In the same year the old rates, which had long been levied for similar objects in the North-Western Provinces, were placed on a legal basis, and shghtly increased in amount, and rates yielding 35,000/. were imposed in Oudh. The local taxation in Madras and 32 FINANCES AND PUBLIC WORKS OF INDIA. Bombay was also increased to the extent of about 500,000Z. by acts of the local legislatures passed in 1869 and 1871. In some of these cases the new rates took the place of various so-called voluntary and ir- regular cesses, which were not brought to account at aU, and the change rather gave rehef than otherwise. With the single exception of the rates levied for the protection of the country against famine, yielding 510,000Z. a year, the whole increase of taxation under this head has been for local purposes, of the kind just stated, not on account of the central government. It must also be explained that under this head of Provincial rates are included receipts from rates on land, to the amount of about 500,000/. appHed to pay- ments for village services, such as in the greater part of India are not brought to account at all, although they are assessed and collected with the land revenue ; they are therefore not in the nature of taxation. Ex- cluding this sum, the total amount of taxation, pro- perly so called, levied under the designation of Provin- cial rates, is about 2,200,000/., of which about 1,700,000/. is wholly appropriated to provincial and local purposes. The Ucence tax and the additional rates imposed on the land made up together, as will be explained else- where, the so-called famine taxation of 1877 and 1878, and they then yielded together 1,109,200/. The whole of the famine taxation yielded in 1880-81 about the same amount as that yielded by the income tax in 1869 -70 ; and about one-half the sum yielded by that tax in 1861-62, and in 1870-71. In 1870-71 the income tax was levied at the rate of 3^ per cent, or 7^d. in the pound. The present average rate of the licence tax is about 1^ per cent, or 3frf. in the pound, and it affects immensely fewer people than the income tax. CUSTOMS DUTIES. 33 The net amount derived from Ciistoms (J) exclusive of the import duties on salt, which are under a separate head of account, shows little change. It was 2,167,797/. in 1869-70, and 2,269,000/. in 1880-81. The average for the first period of four years from 1869-70, was 2,316,284/. ; for the second four years it was 2,371,656/. ; and for the last four years it was 2,176,287/. In no year has the net revenue been so low as 2,000,000/., or so high as 2,500,000/. Although the variations in the amount of the customs revenue have been so small, the changes made during the last twelve years have been numerous and important. Further details will be given hereafter on this subject, but it may here be noticed that all the changes have been for the relief of the taxpayer. Before 1867, the law regulating the customs tariff imposed a general rate of duty on every article im- ported into or exported from British India. Such articles as were fi-ee, or were subject to special duties, were enumerated. The general rate from 1859-60 to 1863-64, was on imports 10 per cent, and on exports 3 per cent. The special duties were for a time on some large and important classes of goods as high as 20 per cent. In April 1864 the general import rate was lowered to 7^ per cent. The Act passed at the com- mencement of 1867-68 changed the plan on which aU former tariff Acts had been drawn, and specified all the dutiable articles, leaving everything else free. The rate on imports, however, remained generally at 7^ per cent., and on six classes of articles the export duty con- tinued to be 3 per cent., on two it was 4 per cent., while indigo and grain were subject to fixed duties. In 1870 shawls, in 1873 wheat, and in 1874 lac dye, were freed from export duty. In 1875 the general D 34 FINANCES AND TUBLIC WOEKS OF INDIA. rate of the import duties was reduced from Ti per cent, to 5 per cent. ; and cotton manufactures, oils, seeds, spices, and all grains except rice, were exempted from export duty. In 1878 twenty-nine out of the sixty-two major heads of the list of articles on the import tariff, including some of the coarser kinds of cotton goods, were altogether exempted from duty, and in the same year the inland customs duties on sugar, which had yielded an annual revenue of 150,000^., were abohshed. In 1879 the whole of the coarser grey cotton goods were exempted from import duty with a sacrifice of 300,000Z., and the export duties on indigo and lac were removed, leaving nothing except rice subject to export duty. Not-withstanding these reductions, amounting altogether to nearly a million,-^ the revenue was, in consequence of the great increase of trade and prosperity, larger in 1880-81 than it was twelve years before. The net Salt revenue {k) has increased from 5,462,501^. in 1869-70, to 6,573,000/. in 1881, or more than 1,000,000Z. In the four years, from 1869-70 to 1872-73, the annual average net receipts from salt were 5,-562,064Z. ; from 1873-74 to 1876-77 they were 5,717,465/. ; and from 1877-78 to 1880-81 they were 6,461,454/. Although the increase has been more rapid during the last four years, it has gone on steadily through the whole period, since 1869-70 ; and, as will be shown further on, this has been accompanied by a reduc- ' 1875-76. Import and export duties removed, and general rate of imports reduced . . JJ308,0O0 1878-79. Import duties and inland sugar duties removed ..... 232,000 1879-80. Import and export duties removed . 351,000 Total . . £891,000 besides remissions of dut}' previous to 1875 on shawls, wheat, and lac dye exported, and on various articles importod. INCREASE OF REVENUES. 35 tion of duty, and of the price of salt in the greater part of India. The net revenue from StamjJS and Registration {I) has increased from 2,280,670^. in 1869-70 to 3,243,000Z. in 1880-81, an increase of nearly 1,000,000^. The growth of these branches of revenue has been steady. They yielded an average sum of 2,400,733?. from 1869-70 to 1872-73 ; 2,695,655Z. from 1873-74 to 1876-77 ; and 3,098,359/. from 1877-78 to 1880-81. The stamps are both judicial and commercial. Before 1879-80 registration was included in the accounts under the head Law and Justice^ but lor the past two years a separate head has been specially made for this branch of the administration, the net revenue from which is expected to increase. In 1880-81 it amounted to 112,000/. The total net sum received from all kinds of taxation Ijroperly so called was 14,365,298/. in 1869-70, and 18,546,000/. in 1880-81 ; an increase of 4,180,702/. From 1869-70 to 1872-73, the average annual receipts were 15,189,588/. ; fi'om 1873-74 to 1876-77 they were 15,137,106/. ; fi'om 1877-78 to 1880-81 they were 37,740,792/. Thus the whole increase has taken place in the last period of five years. With the exception of the famine taxation, however, no fresh taxes have been imposed in India during the last ten years, and although the old taxes have become greatly more productive, this has been the result of in- creased prosperity and improved administration, and not of any enhancement of their rates. The truth is that although there has been some redistribution of the pubhc burdens, with the object of making their inci- dence more equitable, the total weight of taxation has not been increased, but reduced during the last twenty D 2 36 FINANCES AND PUBLIC "WORKS OF INDIA. years. The remissions of Customs duties alone, in tlie last five years, have nearly equalled in amount the whole sum now yielded by the licence tax and the famine rates put together. Taking together all sources of revenue, the net receipts have risen from 42,375,176/. in 1869-70 to 49,431,000Z. in 1880-81. This increase of 7,055,824/. has been spread in the most satisfactory way over all the great branches of the revenue. There is every sign that this will continue, but whatever may happen here- after, we may, at least for the present, dismiss as erroneous all statements regarding the absence of elasticity in the revenues of India. If they have not shown themselves to be elastic it is difficult to conceive what elasticity means. 00 00 CO 00 1—1 o SI H o o o o o o o o o o o o o o o o o o o o o o o o o o o o oo o o CO OD o o o o o o o o o o o o o o C5 c3 1 M ■o t* CO t^ rH O CO CO CD i—T * CO ■^r^ CM -*_ X 02 jq Tf( t^ (M »« rM lO ^. 41) « r-T OO" o" CM oa CM CO CO oo" Oi i (M CO •^ U3 CD Tjl t» CO 00 o> lo o CO r^ 1-1 o 00 CD C3 ^ o n lo CO o IS. CO Oi o o:> Oi o r^ o> IS t- O5_rH_00^CO_CD_ 00 o CO '^ -^ IS *o CO CM r— 1 s (i eo i-r>o'oif C^Ti-T ^T-ICD U3 CO -^ oT rH rH CD lO IS (M O lo »o s 53 o (33 O CM CO CO CO 00 CD IS OO 00 I>» 1-1 1-1 1-1 o_ OJ CM O CM rH ■* CM CO co_ O" CO oo" 1-1 1-1 i-l (M >0 CM ^ * -^ Oi CM 00 CO CO O CD "I 'X) lO lO Oi CM ^ o_cr;__co_^o_»o^ o IS 1-1 C3 00 CM -* CO IS 00 ^i ^ >o O O CO 0 o CO ■S 00 CO CD C^ O 03_ <33 O 00 -* CD -* CO 1-1 o_ 1 V -i (w Oi 00 CO t^ ■>? ** ■>? (M O CD CO co" t^ t^ 00 00 rH IS lO IN. i-T o t~^ T-1 I-l (M r-1 00 IS 1-1 CJ CO »o 93 s CD C^ -l O "5 ®» ^ i.t> Oi 1>» ■<}■ "3 00 >0 ^ CO 00 CD CO 00 ^ t^ t— ) r^ o CO CO CM o IS "O IS J; &1 IN- a ■« I>. 0 00 -* CO 'M O Oi CD i CM CM O C3i 00 r-t CD O 00 I— 1 OO CD IS. 1-1 CO rH rH (M O -^^CO^iO '^^^ I-l CO o" co" oo" C>f ,-rt-rcM""i"cM" •o CO CM ca t— 1 ^ «... 03 m i M o -ij oj > g -*J "H c^ gl ,J3 ■■i E . . • a) o ID j: 3 .■S 9 a c c c < u g . . . 60 O 2 ■■*2 II • • • CD and drugs tration . i -3 £ O c enue, ex and con eous . "o Excise on spirits Capitation tax Assessed taxes Provincial rates Customs . Salt Stamps and regis -»3 o EH O Land revi Tributes ^Forests Opium Miscellan e S^'t?'^ 'm' Q CSjr^ C^CiS^O >_^N_^X_/^^^^ ^_/^_^V_^» 00 (N" i-T 4^ o w It o £ IS 5 M CD 0) IS g pi C3 03 • 2 1 1 1 1 g .a <^ 60 '3 ■c3 J pi . 1 C3 Cm ll rl 1 g ■ 1 ■ ■*^ . no . — 1 m 03 1 m 1 1 ^ ■ t a • & . o § • :| O g CD K ^^ t3 I m E 2 CHAPTEK VI. THE HOME CHARGES. THE HOMB TBEA.SITRT HOW EEPLEIflSHED — THE DISBTJKSEMBNTS CLASSIFIED INTERBST ON BEBI CHARaBS FOR CIVIL ABMIiriSIRATIOlf — AEMT IfON-EFFBCnVB — EFFECtlVE — STOKES — GTTARAHTEBD RAILWAYS SEtfEEAL -RESULTS — INCREASE HOW ACCOUNTED FOB — LAKGELT DUB TO RAILWAY TRANSACTIONS — SECRETARY OB STATE'S BILLS — THEIR AMOUNT — MEANS OP REDUdNS THE HOME CHAE9ES — REDUCTION OP DEBT — TRANSFORMA- TION OF STERLING INTO KUPEE LIABILITIES — SUJQIAEY OP CONCLUSIONS. Although the review that has been given of the past and present expenditure of India includes the whole of the Home charges, the special interest attaching to this part of the public outlay will justify a more detailed examination into its character and amount. Besides a natural and reasonable jealousy in regard to the apphcation of the revenues of India outside the country, a strong additional argument for the reduction of such outlay to a minimum has of late years been suppHed, by the heavy charges brought on the revenues through the Loss by Exchange on the remittances made from India to supply the Home trea- sury. To this loss reference has abeady been made, and it wiU call for further separate discussion. Besides the remittances obtained by the sale of the Secretary of State's BiUs on India, the ordinary receipts of the Home treasury include repayments of advances made in India on account of the British Government ; miscellaneous receipts of comparatively small import- DISBURSEMENTS OF HOME TREASUKY. 69 ance ; large deposits of the capital funds of the gua- ranteed railway companies ; and lastly money borrowed in England. Excluding from consideration transactions which arise from the discharge of debt accompanied by simul- taneous re-borroAving, and from the similar disburse- ments and receipts consequent on the discharge and renewal of railway debentures, the total amount of the home disbursements has since 1868-69 never fallen below 15,500,000^., and has often exceeded 17,000,000^. For the purpose of the present discussion, it is neces- sary to consider not only the final charges against the revenues of the several years, technically spoken of as ' expenditure,' but also all other payments for which provision has to be made by the Secretary of State. In this view the disbursements may conveniently be grouped as follows: 1. Literest on Debt; 2. Charges for the Civil Administration; 3. Army; 4. Stores; 5. Guaranteed Eailways and Madras Irrigation Company. The charge under 'Interest on Debt' has risen from about 2,209,000Z. in 1869-70 to 2,685,000Z. in 1880-81, a result which apart from its causes is very satisfactory, considering that the sterhng debt, on which interest is payable in London, excluding that due to the purchase of the East Indian Railway, has meanwhile increased by not less than 26,500,000^. The whole question of debt wlU be discussed hereafter ; in this place the only points that arise are the direct consequences involved in the shape of interest charge. The charges under ' Civil Administration,' which represent the payments for all services in all the civil departments, have increased during the same period, excluding certain exceptional payments for Pubhc Works, from about 2,800,000Z. to 3,300,000Z. The cost 70 FINANCES AND PUBLIC WORKS OF INBIA. of the 'India Office' has remained steadily at about 220,000Z. The charge for ' Furlough Allowances ' of all civil departments is now about 300,000^. ; before 1873-74 it did not exceed 180,000?., but the increase is apparent rather than real, being chiefly due to the inclusion of the allowances of mihtary officers in civil employ, which had previously been shown under ' Army.' The charge for ' Superannuation and Pensions ' of all sorts paid in England has grown from 1,000,000/. to 1,400,000/. ; it is under this head that nearly the whole increase under ' Civil Administration ' has occurred, and it has been due to the gradual increase of the European esta- bhshments in India. The outlay for miscellaneous ser- vices connected with 'Indian Departments' has fallen from 500,000/. to 360,000/. The charges under 'PubHc Works,' include some large payments for the purchase of the Calcutta and South-Eastem Eailway, and the Orissa • Irrigation Works, but apart from these, and without the cost of stores, which is separately shown, the outlay under this head only amounts to about 40,000/., chiefly for Cooper's Hill coUege (which, how- ever, shows a set-ofi" of about 17,000/. income), and the special stafi" for the provision and inspection of stores for the State Eailways. Certain charges have been shown in the statements in the Appendix under the head ' Civil Administration ' which in the pubhshed accounts appear as ' Remit- tances.' They are payments made in England, either in consideration of sums paid into the public treasuries in India, or for services the accounts of which are kept and settled by transfer payments in India. The chief heads are ' Postage ' due by India to England, 100,000/. ; ' Family Remittances,' allowed under a long-established custom to officers and men in the army, varying from CIVIL ADMINISTKATION AND AKMY. 71 about 400,000Z. to 700,000Z. ; and ' Miscellaneous ' amounting to about 200,000Z., of which more than half is usually the price of stores ultimately paid for in India from local funds. The aggregate of the 'Kemittance' heads is about 1,000,000^., and has not varied much. The next main head, ' Army,' shows an increase from 2,627,000Z. in 1869-70 to 3,416,000Z. in 1880-81, excluding stores ; or, including stores, the amounts would be 3,505,000Z. and 4,200,000Z. Separating the army charges into ' Effective ' and ' Non-effective,' it is found that there has been since 1869-70 a small reduction under the former head, with an increase of rather more than a million under the latter. This increase is, to the extent of 600,000^., due to payments in the shape of pensions, or their capitahsed value, to the officers of the old Indian army to induce the supernumerary field officers to retire ; the remain- ing 400,000Z. arises from the charges for retired pay and pensions of the British troops that have served in India. Under ' Effective ' the ' Furlough Allowances ' have stood at about 200,000^. since 1873-74, when the allowances to officers in civil employ were transferred to the Civil head, and they do not exhibit any tendency to grow. The charges under ' Pay,' being the con- tribution for the British troops, were at a minimum in 1875-76, standing at 474,000Z., since which they have risen to about 750,000^. The payments for some years past, however, have been made vdthout any fixed principle of apportionment between India and England, and little more can be said on the subject than that it is not probable that the settlement when made will lead to a reduction of this element of charge. The charges 72 FINANCES AND PUBLIC WORKS OF INDIA. under ' Transport ' have remained without much varia- tion between 300,000^. and 350,000Z. The large in- crease under ' Stores ' (mihtary) between 1874 and 1878, averaging about 250,000Z. yearly in excess of the preceding four years, was due to the cost of the new arms and ordnance supplied to India during those years, and this head of charge has again fallen to its former rate. The Afghan war has not led to any material addition under these heads, the charges falling almost entirely on the Indian accounts. The fourth head, ' Stores,' has been dealt with in the aggregate, in order to show clearly the magni- tude and nature of the transactions it embraces. The charge is of necessity Uable to vary greatly, and has increased from about 1,500,000Z. as it stood in 1869 -70 to 2,600,000^. in those years in which the supply of railway materials has been on a large scale. Ex- cluding this last class of stores, there has been a decided tendency to diminish the outlay under this head, a result to a considerable extent due to the constant efforts of the Government to prevent demands being made on England for stores which can be procured in India. The details of the outlay under the chief departmental heads will be seen in the Appendix, on which a few comments may be useful. The reduc- tion under ' Army Commissariat ' is largely due to the consumption of beer brewed in India in place of imported EngHsh beer. Under ' Marine ' the charges are chiefly for coals and for vessels of various descrip- tions required for service in Indian waters. Under ' Stationery ' are included printing materials. The growth of the charge under this head is considerable, and is probably unavoidable. Under 'Stamps,' the increased use of stamps for fiscal purposes accounts STORES AND RAILWAYS. 78 for the growth of the outlay, and there are obvious advantages of economy and security in conducting their manufacture in England. Under ' Miscellaneous ' is included the cost of postage stamps, envelopes, and cards, all of which have to be procured in England. Under ' Pubhc "Works ' the largest outlay was in 1880-81, when it rose to 1,266,000Z., chiefly for rail- way materials ; in the three previous years the charge had sUghtly exceeded one million, and the average for fourteen years has been about 700,000Z. The last main head of the Home charges, that of ' Guaranteed EaUways,' is a most important one. The first entry under it is ' Interest.' The charge under this head has risen steadily from 4,138,000^. in 1869-70 to 4,787,000/.^ in 1879-80, the capital under guarantee having increased in the same time from 86,500,000^. to 98,000,000Z. The next item of railway charge is the supply of funds to the companies for their Enghsh expenditure, whether for capital or revenue account. This outlay is met from the corresponding deposits of capital. In the earlier years of railway construction these deposits, which included the whole paid-up capital of the companies, largely exceeded the sums required for expenditure in England, and the surplus was available for supplying the Home treasury ; funds were advanced for the railway expenditure in India by the Government there, and a corresponding amount was treated as a remittance from the funds in England. During the years between 1868 and 1874 there remained a floating surplus balance of railway capital in the hands of the Government amounting to rather more than 3,000,000^. ; since that time the drawings ' These charges include, in both cases, a sum of 50,000^. yearly, guaran- teed interest, paid to the Madras Irrigation Company. 74 FINANCES AND PUBLIC "WOEKS OP INDIA. have exceeded the deposits, and the average yearly balance is now not more than 750,000Z. Previous to 1865 the balances of capital, after meeting the demands of the companies, sufficed to meet the charge for guaranteed interest, which had not then exceeded about 2,500,000/. yearly. The subsequent rapid growth of the interest and the gradual falling oiF in the balances led to a great change, and since 1869-70 there has been a large permanent excess of the aggregate dis- bursements on account of the capital and revenue expenditure in England, and of the guaranteed interest, over the receipts on account of guaranteed railways. Since 1874-75 the -withdrawals from the Home trea- sury for the capital and revenue accounts, irrespective of interest, have always been in excess of the deposits, so that the old position is now entirely inverted, and the Secretary of State, instead of being reheved of a considerable part of his habihties by help of the railway transactions, is now charged by reason of them with a considerable sum, varying from 500,000Z. to 1,500,000/. yearly, in addition to the largely increased payments for guaranteed interest, which now amount to 4,750,000Z. The combined charge for interest and capital and revenue purposes, in excess of all receipts from the companies, has in this way grown from about 2,250,000Z. in 1869-70 to about 5,500,000/. at the present time ; and thus the burden caused by the guaranteed railways is now about one-half of the whole charge for administrative purposes, or one-third of the entire home disbursements. The general result of this discussion is to show that the total outlay classed as administrative (excluding certain exceptional payments for public works) has risen from 9,000,000/. in 1869-70 to 10,450,000/. in CAUSES OP INCREASED DISBURSEMENTS. 75 1880-81. The increase of 1,450,000^. is accounted for as follows : — £ Interest on debt . . more . . 500,000 Civil — superannuations , „ . . 500,000 Army — non-effective . ,, . . 800,000 Stores . , . less . . 350,000 Total . . £1,450,000 Excluding the cost of railway stores, the total administrative charge remained, with very small variation, a Uttle above 9,000,000Z. (9,150,000Z.) from 1869-70 to 1875-76. From the last-named year to 1880-81 the charge has varied between 10,000,000/. and 10,500,000/. (average 10,300,000/.). These figures indicate a careful management of the details of the administrative expenditure, and leave no possible doubt that the chief cause of the large in- crease of the home charges in recent years has been the guaranteed railway habihties. The combined rail- way requirements, which in 1868-69 left a surplus of railway capital in the Home treasury amounting to 194,000/., led in the next year to a net charge of 2,241,000/., and this has gradually increased till in 1881-82 the charge had become 5,603,000/. Altogether, therefore, comparing the first and last years of the series, the demands to be met by the Home treasury are greater in the last year by 5,000,000/. ; of this one-fourth is due to actual increase of admin- istrative expenditure, and three-fourths to habihties caused by the guaranteed railways, which, however, do not involve ultimate increased charge on the re- venues of India, but only increased disbursements in England. The sources from which the Home treasury has been supplied have next to be examined. The years 1867, 76 FINANCES AND PUBLIC WORKS OF INDIA. 1868, and 1869 were rendered abnormal by large re- payments of advances on account of the Abyssinian war. These repayments led to a reduction of the amount of the Secretary of State's Bills, which had, since 1861, averaged about 6,000,000^. yearly. After 1869-70, when the Bills were about 7,000,000^., they were gradually increased in amount, tiU 1872-73, when they were about 14,000,000Z. The financial pressure caused by the heavy famine expenditure in 1873-74 and subsequent years, and by the great loss by exchange, led to a considerable contraction of the Bills after that year, and, as a consequence, to the necessity for supplementing the Secretary of State's funds by borrowing in London. In 1878-79 the sale of Bills was again pressed to the full extent thought practicable ; they then yielded about 15,500,000^, and they have since been kept at about the same amount. From these causes hardly a single year has passed since 1869-70 without considerable additions to the sterhng debt, the aggregate increase to the end of 1880-81 (excluding that caused by the purchase of the East India Eailway) being rather less than 26,000,000Z. net, of which about half was incurred before 1875-76. The miscellaneous receipts hardly amount on the average to 500,000^. a year, and, as already shown, the rail- way capital has altogether ceased to be a source of supply. It is apparent from these facts that the normal yearly charge to be met by the Home treasury cannot at the present time be reckoned at a smaller sum than 17,500,000Z. or 18,000,000Z., without making any allowance for extraordinary demands, or providing for the discharge of debt. Further, since the miscellaneous receipts, including railway capital, cannot now be POSSIBILITY OF REDUCING HOME CHARGES. 77 reckoned to produce more than one-half or three-quar- ters of a million, it is obvious that unless the full amount to meet the home disbursements be obtained by the sale of Bills on India the necessary result will be an addition to the home debt to make good the defi- ciency, with a stUl further increase to the permanent home charges. It will hkewise be readily perceived that there are only two directions in which any reaUy important reduction of the amount of these home charges can be sought — first, through diminishing the charge for interest on debt, and second, through obtaining rehef in some way from the obhgations arising from the guaranteed railways. As to the interest charges, such relief as has hitherto been obtained has rather been by the reduction of the rate of interest on the capital of the debt, than by any actual discharge of the debt itself. In the present condition of the currency of India, which virtually precludes bulUon remittances from that country, and of the exchange with England, which is essentially depen- dent on the varying value of silver in the London market, it would manifestly be extremely difficult, if not impossible, to make any sensible impression on the home debt, by remitting surplus revenue from India for its discharge. The addition of even 2,000,000/. or 3,000,000/. yearly to the sum to be remitted through the sale of the Secretary of State's Bills would at present be an operation of very questionable expediency. Any pressure on the exchanges would be viewed with great alarm by the commercial community, and in present circumstances could hardly be justified. Nor is it pro- bable that the operation could be carried out on a scale to give results commensurate with the risk and 78 FINANCES AND PUBLIC WORKS OF INDIA. discontent that would attend it. It is plain that with interest at 4 per cent, the remittance of 2,500,000/. yearly would only serve to extinguish 100,000Z. of the home charges ; operations such as this would aggravate the evil they were designed to mitigate, and instead of giving rehef would add to the practical difficulties of the situation. If, then, the home debt is to be reduced, it must be accomphshed otherwise. The recent announcement that it is the intention of the Secretary of State to apply the sum received from England as a contribution to the cost of the Afghan war, to the extinction of sterhng debt, is no doubt a right step ; but the two milhons first given as a loan have already been disposed of, and the rest of the grant will be spread over so many years, that the practical effect produced wiU be insignificant. The extent to which the Secretary of State's Bills could be increased in amount without bad results de- pends mainly on the condition of the trade of India, and the subject cannot be conveniently discussed in this place. But it may be affirmed, without risk of con- tradiction, that so long as the currency of India remains as it now is, in relation to the currency of England and continental nations, no reduction of the sterUng debt can be hoped for through remittances by the Secretary of State's BiUs, in the face of the risk of still further forcing doAvn the Exchanges, and of the cer- tain additional burden which would be thrown on the revenues of India by such transactions. Nor indeed is it likely that in any future improved condition of the Exchanges it would be expedient to adopt this means of providing for the extinction of the sterling debt. There seems no room for doubt that in the event of the Exchanges assuming a character of REDUCTION OP STERLING DEBT. 79 tolerable stability, the best, if not the only practicable, method of dealing with the matter would be to raise the money required to discharge sterhng debt by the sale in Europe of Eupee securities ; to operate in short by transforming the sterhng into Eupee debt, and then to carry out in India and not in England all possible mea- sures for the reduction of the debt. The Eupee paper enfaced for the issue in London of interest Bills payable in India now amounts to nearly 20,000,000^., having increased since 1874 from 14,000,000^. It is probable that by extending the issue of debentures or stock with attached coupons, an amount of Eupee securities could without difficulty be placed on the European market sufficient to replace the whole of the sterhng debt hkely to be redeemable for many years to come. Such coupons would form a convenient means of remit- tance in place of that portion of the Secretary of State's Bills which would be set free by the discharge of the sterhng debt, and by the consequent cessation of the payment of interest upon it. It would, however, be difficult to carry out opera- tions such as these with success, unless some fundamental change takes place in the relations of the currencies of India and England, and in some way or other a com- mon standard of value be estabhshed between the two countries, which shall insure fair stability in the ex- changes. It would be out of place here to dwell more on this aspect of the subject. But it is desirable to direct attention to the great importance to India of enabhng her to estabhsh a free and unrestricted market in Europe for her securities, so that she may be in a position to obtain in the future the aid of European capitalists without incurring the objectionable liabHity of having to discharge her debts in a currency other 80 FINANCES AND PUBLIC WORKS OF INDIA. than her own. There is no reason why India should not acquire this position, and when she does so there will be an end, once for all, to the ever-recurring diffi- culties which now attend the financial operations of the Secretary of State in London. That relief must in some shape be obtained from the constantly growing burden placed on the Home treasury by the Guaranteed EaUways is a truth so obvious, and of such urgency, that it is surprising how Httle attention has been paid to it. The obhgations which the Secretary of State has incurred towards the companies must no doubt be faithfully discharged in every particular, but so far as this condition -will admit, every possible step should be taken, not only to prevent the further accretion of sterhng Habilities, but to trans- form those that exist into Eupee charges to be paid in India. It must of course be recognised that there are Hkely to be difficulties in accomplishing either of these results, and in any case it must be a work of time before the Secretary of State, consistently with the terms of the contracts with the companies, can acquire the powers without which no remedy could be effectually appHed. It may probably happen in deahng with the EaUways, as with the sterling debt, that the transformation of the existing sterling payments in London into Eupee pay- ments in India, will not be possible Avithout some addi- tion to the immediate charge. But the difficulty to be overcome does not to any important degree consist in the actual amount of the burden on the revenues of India. It lies essentially in the form of the charge, and in the extreme inconvenience of its incessant and insidious growth. In the nature of the case the rail- way capital must continue to expand, and, so long as a REVIEW OP HOME CHARGES. 81 guarantee of interest continues, the charge for interest must expand also. The actual growth of capital has not hitherto been such as would justify a complaint that it has been excessive, and its further growth at a somewhat similar rate cannot be avoided. It is essen- tial, therefore, that protection should be afforded to the Home treasury against the increase of disbursements which, however necessary in some form, may certainly be otherwise met, and this protection will be well worth whatever additional charge may be necessary in trans- ferring the payment from England to India. In what has gone before, all questions as to the policy which has given rise to the various elements of the home charges have been intentionally set aside as appertaining to a set of ideas different from those before us. It has been simply assumed that certain charges have to be met, and their nature and incidence have been examined and explained. There are, however, a few points to which attention may properly be drawn. First may be noticed the comparatively moderate and stationary charge for the India Office establish- ments ; it amounts to about 1^ per cent, on the net home disbursements, while the total charge for admin- istration in the combined home and Indian accounts is about 2^ per cent, on the total expenditure. Next may be observed the growth of the charges under civil superannuations and pensions ; this indicates the finan- cial consequences of the expansion of the European administrative staff in India, a subject which on other grounds has of late years most properly received in- creased attention, and which manifestly demands cautious procedure in the future. Another marked feature is the heavy cost of the changes of military system ; these have involved a large increase in the G 82 FINANCES AND PUBLIC WORKS OF INDIA. non-effective charges of the army, through the necessity for getting rid of the superfluous officers of the old local army, and the great expense which has followed the in- troduction of the short service system of the British army. However important may have been the increase of efl[iciency consequent on this change, the necessity is none the less but the more urgent for adopting every reasonable measure for reducing the cost of the army, and for removing all elements of charge which are not directly conducive to efficiency, but are relics of a con- dition of things belonging to the past. The transactions under the head of ' Stores ' show that apart from the requirements of the railways, the outlay has a tendency rather to diminish than to increase. There is every reason to believe that the cost of agency, including all contingent charges, but little exceeds 2 per cent., and is considerably less than would be incurred if the purchases were arranged through private trade in India. The quahty of the supphes is decidedly better than could at present be ensured under any other system, and notwith- standing occasional shortcomings, many serious causes of failure and loss are avoided, the risk of which would indeed in some cases render reliance on ordinary trade impossible. At the same time it is indisputable that every pos- sible encouragement should be given to extending the local supply of stores for Government purposes, whether produced in India or obtained from England, in sub- stitution for the present system of supply through the India office. With this object it may even be expedient for the present to pay a somewhat higher price for articles locally supplied. The correct rules would seem to be, that purchases should always be made locally GUAEANTEED RAILWAYS AXD DEBT. 8S when suitable articles, at reasonable prices, can be obtained in the local market ; and that no payments should be made till after dehvery and approval of the supply. Stores which must be manufactured under inspection in England should be procured through the India Office. These principles have been accepted by the Government, though their practical apphcation is still incomplete. The Guaranteed Eailway charges show the results of a policy which, while its benefits to India have been extremely great, has placed a burden on the home finan- cial administration of India that could hai'dly have been anticipated ; the true character of which has too long been overlooked, and which now demands earnest and immediate attention. There is no reason to think that insurmountable difficulties would arise in dealincr ^vith O this matter, but its gravity increases year by year, and the importance of removing or alleviating this con- stantly growing burden cannot be exaggerated. It may also be noticed that the growth of the Home debt has fortunately not been accompanied by corresponding growth of the interest charge. Eeduc- tions in the rate of interest have secured this result ; it has been the more acceptable as it was obtained during the period in which India lay under the load of an enormous expenditure for famine rehef, and in which a disturbance of the gold value of her currency increased in a few years the annual expenditure by sums varying from 2,000,000/. to nearly 3,000,000/. sterhng, without securing any increased advantage to the State. Though the actual results of the large addi- tion to the debt, which has taken place since 1869-70, are less serious than might have been anticipated, the fact must be steadily borne in mind that there are many 2 84 FINANCES AND PUBLIC WORKS OF INDIA. great difficulties in the way of redeeming debt incurred in England ; the lessons of the past should be read as inculcating the importance of avoiding all borrowing in sterling, imless as an inevitable necessity, and of meeting the home requirements of every year as they arise by the sale of Bills on India, or (when borrowing is un- avoidable) of Eupee securities, the payment of interest on which would be made in India. Lastly, the important fact must be remembered, that although the Loss by exchange appears in the public accounts as a Eupee payment in India, it is in reality a contingency of the Home expenditure, and might not improperly be regarded as an addition to those charges. The average amount of this item for the last two years has been about 2,750,000/., and if distributed proportionally it would lead to the following additions to the main heads of the Home expenditure : — To interest on debt 400,000 „ administration . 1,250,000 „ guaranteed railways . . 900,000 „ productive public works 200,000 This subject will be more fully considered in a sub- sequent chapter. 00 00 o Oi to 00 o tn In n s o W w 00 iiS8 g oooo Oooo O O C5_0_ O O O 8 8 o o g 1 ^ m Q Qoo i> 10'0'CD~10~ C£f CO CD*" >o GO on 00 CTrHOJ >o o CO Ol g OS CD_N -^.O^ ^ CD oq CO u r-t oi'io" 00 ofco'M'rH'' o lO rH t-T O. t-i r-i rH r-n .|A S S |S|§ Q III! o o o Q a o g o o. Q O o o 3 PE< 'k OA ^ 00 O 00 *H ^ CD 00 CO O 05->JI «>•* rn" ca ■>* 00 O »0 on rH -* CO rH CO l-HlOCtJlO (M 0-1 t-CD ■* S rH TH ^H i-Tioeo" of of on" of rH o on" -n of ^H oooo ooSo g OOOO 8.8,88, o, o. 3 CO q,o_oc>. 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SO s 114 FINANCES AND PUBLIC WORKS OF INDIA. Note to Chapter VII. In the Accounts of the last two j'ears the manner of treating the guaranteed railway receipts has been changed, so that the figures are not properly comparable with those of the earlier years. The net traffic receipts now appear without modification, in the conventional currency of 10 rupees to \l., instead of being converted into sterling at the contract rates of exchange. The new procedure is no doubt more correct. Its effect is to make the railway receipts appear larger, as they now include the amount which was before shown as ' Grain by exchange,' and treated as a deduction from the ' Loss by exchange ; ' this last head being now to the same extent increased. To bring the years before 1879-80 into harmony with the two last years, an addition of rather more than 200,OOOZ. should be made to the net traffic receipts for each year from 1869 to 1872, of about 300,OOOL for the next three years, and of 400,000i. for the next three. It has been thought better to deal with the figures as they appear in the published accounts, making this explanation, rather than to alter them in what might appear a somewhat arbitrary manner. Complications of the accounts are unavoidable in dealing with the adjustment of the rupee and sterling currencies, and the guaranteed railway transactions. The figures in this chapter will not be found to agree with those given in Mr. J. Danvers' reports on Indian railways, those reports stating the traffic receipts and expenditure at the con- tract rates of exchange, and not in rupee currency, and being also for the calendar and not for the financial year. Further, it should be noticed that in the table on the preceding page, and in this chapter generally, the amounts of interest on debt are those shown in the published accounts, without the corrections explained at pages 118 to 120. CHAPTER Vm. THE PUBLIC DEBT OF INDIA. THB TRUE CEITERION OF TEE POLICY OF BOEEOWTXG FOE PUBLIC WOEKS — INVESTMENTS ON EEPEODUCTIVE WOEKS SHOULD BE DISTINGUISHED FEOM OEDINAET DEBT — EBVIEW OF INCEEASE OF DEBT AND ITS PRESENT AMOUNT AND CONSTITUIENIS — OEDINAEY DEBT AND CHAEGE FOE IN- lEEEST GREATLY EEDUCED — INIEEE8T ON PUBLIC WORKS INVESTMENTS HOW FAE COVEEED BY NET INCOME — GENERAL POSITION OF DEBT AND PUBLIC WORKS CAPITAL EBXUENS FEOM THESE INVESTMENTS — DISCHAEGE OF DEBT HOW FAE DESIBABKE — STEELING DEBT — ITS LAEGE INCEEASE — IMPORTANCE OF PREVENTING ITS GROWTH — DLFFICULTIBS IN WAY OF ITS EEDUOTION — RUPEE DEBT — EXPEDIENCY OF ESTABLISHING A SINKING FUND FOR DISCHAEGE OF DEBT INCURRED FOE PUBLIC WORKS — MARKET PRICE OF SECURITIES INDICATES COMPLETE MAINTENANCE OF CREDIT — GUARANTEED RAILWAY CAPITAL THE OBLIGATIONS II CREATES — IMPOE- TANCE OF EXERCISING POWERS OF PURCHASE — RESULTS OF PURCHASE OP EAST INDIAN RAILWAY. It has already been remarked that the true criterion of the financial success of the policy of borrowing money for the prosecution of pubhc works, and the true test of how far provision has been made for future expenditure on famine rehef by present reduction of debt, will be found in the actual burden caused from time to time by the public works and debt taken toge- ther. It is, of course, true that many other causes besides the two just referred to operate in determining the amount of debt incurred or discharged, and of the interest charge arising from the debt ; but if it be found that the charge on account of debt is not in- creased, and, a fortiori, if it is directly reduced, it may be unhesitatingly affirmed that the measures of the 116 FINANCES AND PUBLIC WORKS OF INDIA. Government have been successful, in proportion to the value to the country of the works provided for its material improvement and protection against famine. Though the evidence already adduced in proof of the success of these measures, and of the wisdom which dictated their adoption, might be considered sufficient, yet it is desirable that every possible light should be thrown on so important a subject, and the more so because it has been freely asserted that the increase of late years in the public debt of India has become a great danger, and that, whatever be the importance of the objects aimed at by those who advised bor- rowing to extend public works, this course ought altogether to be abandoned. It is a manifest misuse of language to speak of out- lay on works of permanent utility, which, as a whole, already meet all the expenses arising from them, and yield a surplus after paying the ordinary rate of inte- rest on the capital laid out on them, as though such investments, if provided for by borrowing, were un- distinguishable, or rather ought not to be distin- guished, from debt for which no return can either be obtained or hoped for. The debt which has been in- curred for the productive public works of India, viewed as a whole, is debt which involves neither the obliga- tion of reimbursement nor a charge for interest, but which brings a direct profit to the debtor ; and it would be as little rational to describe the capital outlay on the railways of Great Britain as a grievous burden on this country, as to speak of the similar investments in India as a danger or an evil. It is no doubt a fair question for discussion whether the Government, in adopting the system of constructing these works directly through its own agency, did what was best in the actual circumstances, and this will be PRESENT POSITION OP INDIAN DEBT 117 more fully considered subsequently. But the point more immediately in view is to ascertain the actual re- sults of the course that has been pursued. Statements wiU be found in the Appendix which show the position of the debt of India since 1868-69. The total amount of the permanent debt appearing in the accounts has increased from 97,379,000/. at the end of that year to 157,149,000/. at the end of 1880 -81, or in all by about 60,000,000/. The above amounts include the debt incurred for productive public works, which has increased from 1,241,000/. to 39,656,000/., or by 38,415,000/.; and the sum raised in part payment for the East Indian Eailway and for subsequent capital outlay, amounting to 10,208,000/. Allowance must also be made, as a set-off against ■ the addition to the debt, on account of the loans and advances to municipahties, pubhc trusts. Native States, and others which, in the first-named year, were little more than 680,000/., but in the last exceeded 8,000,000/. These loans and advances are covered by correspond- ing payments of interest, and, as no ultimate Habihty or charge on the revenues can arise from them, they create no permanent burden. In the last year of the series a sum of 5,306,000/. was transferred from the ordinary debt to the productive pubhc works debt (under the rules that have been before explained), to cover the capital outlay from revenue on the pro- ductive pubhc works which have been aided by bor- rowed money. Consequently the whole debt in the last year, stated in round numbers, may be thus divided — ordinary debt, 93,839,000/. ; productive pubhc works, 44,962,000/.; East Indian Eailway, 10,208,000/. ; loans and advances, 8,140,000/. ; total, 157,149,000/. To make a proper comparison between the first and 118 FINANCES AND PUBLIC WORKS OP INDIA. last years of the series, it becomes necessary, however, to point out that in 1874 a sum of 4,579,416/. was added to the debt to complete the sum required for the discharge of the East India Company's stock in that year, the capital amount of which was not entered in the account as debt. The residue of the sum, about 7,500,000Z., was obtained by the investment of the guarantee fund formed in 1834, which was dealt with altogether outside of the public accounts. Conse- quently, for a proper comparison, the sum of 4,579,416/. should be looked on as having formed part of the public debt in 1868-69, instead of having been in- curred only in 1874. Further, the sum of 5,306,000/. transferred from the ordinary to the productive public works debt in 1880-81, was, in fact, spent in a long series of years, commencing before 1868-69. It is not now possible to say how much of this amount is due to the earher period, and for purposes of the present comparison it will be best to omit the transfer entirely, thereby assuming that no reduction of the ordinary debt has taken place from this cause since 1868-69, which is a view unduly unfavourable to the period after that year. Making these allowances, it will appear that the ordinary debt in 1868-69 stood at 100,033,000/., and in 1880-81 at 99,145,000/., or was reduced by nearly 1,000,000/., and this reduction mil be an effective one if the interest on the rest of the debt is adequately covered by corresponding receipts. To ascertain how this is we must turn to the interest charges. In deahug with the interest charges, that item of interest which is paid on service and other funds and deposits must be excluded from consideration, as it represents payments of a totally diffex'ent character COMPARISON OF PKESENT AND PAST BURDKN. 119 from that of interest on the debt proper ; the former being more or less optional in their nature, and in no "way representing liabilities caused by borrowing to meet the financial exigencies of the State. The gross interest on debt proper (with which is included in the accounts, till 1874, the payment of 630,000Z. yearly to the proprietors of India stock) was a little in excess of 5,000,000/. in 1868-69, and rose to 6,096,000Z. in 1880-81, the average rate (excluding the payment on India stock, the capital of which is not included with debt) having, at the same time, fallen from 4"6 per cent, to 3-8 per cent. The net interest rose from 4,814,000/. to 5,251,000/., or only by 437,000/. ; the net rate paid (excluding the loans and advances on which interest is charged by Government to its debtors) being 4-3 per cent, in the first year, and 3-2 per cent, in the last. For purposes of comparison a correction of the inte- rest charge, similar to that above, made in the account of the capital debt, will be needed. Of the 630,000/. entered in the earher years for the payment to pro- prietors of India stock, 450,000/. may be properly regarded as the sum which was covered by the ac- cumulated guaranteed fund, and 180,000/. as the true interest charge corresponding to the capital sum of 4,579,416/. added to the debt in 1874, as before ex- plained. In like manner the interest on the capital amount of 5,306,000/., transferred to productive public works in 1880-81, amounting to 238,000/., should follow the capital debt, and be deducted from the inte- rest charge on the ordinary debt in 1868-69. Making these corrections the net interest charge in 1868-69 on ordinary debt will be 4,097,000/., and in 1880-81, 2,896,000/., showing a reduction of 1,201,000/. yearly. 120 FINANCES AND PUBLIC WORKS OP INDIA. The interest charge on productive works (exchiding the guaranteed interest) will in like manner be 267,000/. in 1868-69, and (excluding also 344,000Z. on account of the East Indian EaUway) 2,011,000Z. in 1880-81, show- ing an increase of 1,744,000/. It remains to be seen how far the receipts cover this charge. The net income of productive public works, ex- cluding the guaranteed railways and canals, rose from 199,000Z. in the first year to 1,534,000/. in the last, an improvement of 1,335,000/., leaving, therefore, a net increase of charge of 409,000/. in 1880-81 for interest not covered, and reducing the improvement under ordinary debt, from 1,201,000/. to 792,000/. As, however, the policy contemplated the inclusion of the guaranteed railways and canals in the general category of productive works, the charge or income, as the case may be, due to them must also be considered. The net charge for the guaranteed works in 1868-69 was 1,961,000/. while there is in 1880-81 a net receipt of 626,000/., making (after deducting 344,000/. for interest on account of the East Indian Eailway Avhich appears as a charge under interest on debt) an improve- ment of 2,243,000/. ; this, combined with the net im- provement of 792,000/. before arrived at, produces a total reduction of 3,035,000/. of net yearly charge for interest and productive works together. On the whole, therefore, it is not only true that the capital of the ordinary debt may be regarded as having been reduced in 1880-81 by 1,000,000/. below what it was in 1868-69, and the interest on it by about 1,200,000/. yearly ; but besides this, after paying the whole interest on the money actually borrowed for productive works, and on 5,250,000/. spent from re- venue, and meeting the whole charge arising from the PRESENT FINANCIAL POSITION OP DEBT AND WORKS. 121 guaranteed railways, the net income of the works is such that there now remains only the small deficiency of 195,000Z. as compared to a deficiency of 1,791,000/. in 1868-69, and of 2,269,000Z. in 1872-73. That the full significance of these results may be felt, it must be repeated that during the eight years 1873-74 to 1880-81 there has been spent, as before said, from the revenues, on famine rehef the sum of 14,700,000?., and in the three years 1878-79 to 1880 -81 on the Afghan war 18,350,000/. So that it has been possible in this period of thirteen years to meet the entire charge arising from the most disastrous series of famines on record, and to provide an increase of the capital laid out on productive works and other useful objects of no less than 68,000,000/., with an absolute reduction of debt instead of any increase, after having paid upwards of 18,000,000/. of war charges. Looking to the actual position in 1880-81 we find it to be as follows : — Total amount of ordinary debt Net interest thereon . Total guaranteed railway capital, including the East Indian Railway . Gross receipts therefrom Net receipts .... Net Government receipts, after payment of all in terest .... Total State railway capital . Gross receipts therefrom Net „ ,, . . Net charge after payment of interest ou capi Total irrigation capital (excluding Madras Company) Gross receipts therefrom Net „ „ ... Net income after payment of interest on capital Total capital .... Gross receipts .... Net „ . Net State charge after paying all interest :e93,839,000 2,898,000 £97,728,000 12,065,000 5,495,000 337,000 26,689,000 2,175,000 602,000 608,000 17,806,000 1,357,000 927,000 76,000 £142,223,000 15,697,000 7,024,000 195,000 122 FINANCES AND PUBLIC WORKS OP INDIA. Viewing the aggregate public debt and guaranteed railway capital as investments for the benefit of India, we shall find that the whole amount stood in 1868-69 at 176,547,000^., and at 244,669,000^. in 1880-81, with a corresponding charge on the revenues of India in the former year of 6,576,000Z., being at the rate of 3-8 per cent., and of 3,106,000Z. in the last, being at the rate of 1'3 per cent. ; thus, with an increase of 40 per cent, in the amount of the investment, the charge on the pubhc has been reduced to one-third of its original rate. The sums paid yearly as interest on debt and as the interest and surplus profits of the guaranteed railways, which constitute the return upon the invest- ments of the capitahsts who have furnished the amount above mentioned, have increased from 8,984,000Z. to rather more than 11,000,000/. in the year 1877-78 and those following it. Setting aside the 3,000,000Z. which is, so to speak, the burden placed on India for its un- profitable debt, there remains a sum of 8,000,000Z. which, therefore, represents the yearly profits on the capital invested in the great public works ; profits, moreover, obtained without causing any burden on India, India, on the contrary, obtaining the vast advantages of the works with no payment excepting that which is volun- tarily made for the conveniences supplied in return. Such results show conclusively how httle foundation there is for the allegation, on the one side, that the recent public works policy of the Government of India has been leading to consequences of an alarming nature, from the burden they are throAving on the country ; and on the other, that this policy has proved a bar to the profitable investment of capital in India. In closing this part of the discussion, it maji- be well to indicate more precisely what has been the amount REDUCTION OP EFFECTIVE DEBT. 123 of the burden which has actually been placed on the revenues during this series of years, and which it was from the outset foreseen would be a necessary conse- quence of the measures adopted. It may easily be calculated that the accumulated net charge due to the productive pubUc works, guaranteed railways. State railways, and irrigation works from 1868-69 to the end of 1880-81, with compound interest yearly at 4 per cent., would amount to rather more than 22,000,000/. If the whole of this sum had been borrowed, and no charge whatever had been thrown on the revenues by the payment of interest, the present result would be that the net yearly interest charge for productive works would be increased from 195,000/. to 1,037,000/. Hence, in such an event, the aggregate net charge for productive works, together with all interest, including that on the ordinary debt, would have been increased from 3,091,000/., as it now is, to 3,933,000/. Com- paring this •with, the total charge in 1868-69, viz. 6,576,000/., we should still find an improvement of more than 2,500,000/. yearly, so that from this point of view also the result remains thoroughly satisfactory. Further, it becomes obvious that so far from Lord Lytton's Government having failed to make pro- vision for the future possibilities of heavy charges for famine by the present reduction of debt and of net in- terest, to secure which the measures of so-called famine insurance were designed, as will be subsequently ex- plained, such has been the elasticity of the revenues that the ordinary debt is less now than it was in 1877 -^78 by 6,000,000/., and the net charge for interest less by 1,000,000/., wliile the net charge for productive public works of all sorts, including all interest on capi- tal, has virtually disappeared. That this has been 124 FIXAjS'CES AXD public works of INDIA. accomplished in the midst of a time of extreme financial pressure, consequent on the war in Afghanistan, and immediately following the recent years of most severe droughts, has doubtless been mainly due to the rapid increase of the wealth of India during this period ; but the success is complete, and those by whose action and whose counsels the way has been opened for it may confidently abide by the verdict which facts have thus already pronounced. The foregoing statements supply a firm ground on which to rest the consideration of the policy which India may best adopt in future in relation to its public debt. It is not necessary here to reproduce the well- known truisms which are so often repeated as to the importance of paying ofif debt from surplus income. The practical question which needs attention is how best to secure a. reasonable diminution without inter- fering with the progress of the country, and with- out placing undue burdens upon the revenues for pro- viding works of permanent utihty by which posterity will benefit even more than the present generation of taxpayers. Attention has elsewhere been directed to the increase of the home charges which has attended the growth of the Sterling debt and of the guaranteed railway lia- bihties, and an opinion has been expressed that every- thing possible should be done to reduce this branch of the expenditure. The sterling debt has increased fi'om 31,698,000Z. in 1868-69 to 71,335,000^. in 1880-81, that is, by 39,637,000Z. If from this be deducted the 4,579,000/. required to complete the discharge of the sum due to the proprietors of India stock, and the 9,576,000Z. raised in connection with the East India Railway purchase, there will remain nearly 25,500,000/. DISCHARGE OF DEBT. 125 as the addition to the sterling debt caused by the financial exigencies of the period, and it is difficult to avoid the conclusion that this is the one serious blot on the administration of Indian finance in this period. That the additions to the home debt thus made were regarded as unavoidable in the actual circumstances is not questioned, and indeed such were the difficulties of the time, in consequence of the great fall in exchange, that it is possible that no other course could have been followed. But unless a recovery in the exchange takes place, the relief obtained by borrowing in London may in the end be very dearly purchased. Excluding the last two years of the series, there has been httle advantage gained by borrowing in sterhng, other than that secured by avoiding the loss by exchange on an equivalent rupee remittance, and sooner or later this must be made good again, if not on the discharge of the debt then on the payment of the interest on it, un- less some fortunate turn of events shall once more raise the value of the rupee to something like its old rate. Considering the very obvious importance of reduc- ing the home disbursements of the Indian Government to a minimum, and the equally obvious difficulties in the way of making remittances by the sale of the biUs of the Secretary of State on India, in sufficient amount to pay off any important part of the sterling debt, it is not easy to see what objection could be taken, on grounds of general pohcy, to any measures that could be devised for transforming the sterhng into rupee debt, and thus obtaining indirectly those means of discharging the debt which cannot be obtained directly. Though it may be true that English constitutional practice requires the sanction of Parliament to the raising of loans in England by the Secretary of State for India, 12G FINANCES AND PUBLIC WORKS OF INDIA. there would be no apparent cause for jealousy of a power to transform sterling into rupee debt, or to sell rupee securities, subject to the condition that the pro- ceeds should be applied to discharge sterling debt or other similar sterling habihties. In dealing with the rupee debt there are no such technical difficulties to be overcome, and the main ques- tion with reference to it is to consider what are the conditions under which it is possible or expedient to continue borrowing for the prosecution of pubUc works, and at the same time to discharge debt. It can hardly be said that the debt of India at present causes any very heavy burden on the country, or that there is any particular urgency in its reduction. The net charge for interest is hardly in excess of 3,000,000^., out of a total net expenditure of 46,000,000^. The part of the debt due to pubhc works may be taken at 55,000,000^., or, excluding the East Indian Eail- way portion, 45,000, OOOZ. It would not appear unrea- sonable to provide for the gradual discharge of this by the action of some form of sinking fund, which should distribute the burden over a series of years. One per cent, on the capital, with interest at 4 per cent., would paj^ it off in about forty years, and some such rate ap- pears hkely to be suitable. For reasons which will be stated subsequently it would probably be preferable to place the responsibility for the gradual discharge of the capital debt incurred for public works, on the Provin- cial Governments under which they are constructed and kept in operation. Such a sinking fund would at present involve an actual discharge of debt to the extent of about 450,000L yearly, and the changes which occur from time to time by the lapse of old securities would commonly give the opportunity of applying tlie IMPEOVED CREDIT OP INDIAN GOVEKNMENT. 127 accumulating contributions in a convenient manner. The powers which are possessed by the currency department to invest the currency reserve in Govern- ment securities to the extent of six crores of rupees would give facilities for such operations. As the discharge of debt can only take place when there has been a surplus of revenue over expenditure, the continuance of any policy of reducing debt neces- sarily imphes a succession of years of surplus, and in- volves the recurrence of a consideration of the relative expediency of reducing taxation, or applying a realised surplus to the discharge of debt ; but it would mani- festly be out of place here to enlarge on such a subject, which can only be usefully dealt with as the occasion actually arises. An examination of the market price of the securi- ties of the Government of India during the period under review gives no useful indications of the extent to which the increase of the total amount of the debt may have affected the selling price. The fluctuations appear to have been mainly dependent on the varying rates of interest in the money market, and the rates of exchange between India and England, and the latest results are altogether opposed to any idea that the markets have been overweighted with such securities either in this country or in India. How httle the credit of the Indian Government has been affected by the clamours of the past year or two is sufficiently demon- strated by the fact that the issue price of the loan issued in Calcutta in the spring of last year, immediately after the announcement of the serious error that had been made in the war estimates, was actually higher than the market price immediately before ; and the success of the Secretary of State's 3^ per cent, loan, 128 FINANCES AXD I'UBIJC WORKS OF INDIA. whicli immediately rose to a premium, points to the same conclasion. Before leaving this part of the subject reference may perhaps usefully be made to the position of the Indian Government in relation to the guaranteed railway capital. The obligation to pay interest on this at the stipulated rate, commonly 5 per "cent., with a set-off of the net traffic receipts, operates of course in a way which, when there is any deficiency in the net re- ceipts, is identical Avith a liability to pay interest on ordinary debt. This charge at present is from 500,000Z. to 700,000/. yearly, of which more than half is due to the Madras Eailway. The Great Indian Peninsula Eailway causes a charge of less than 100,000Z. in one half-year, in the other half-year giving a surplus, and may so remain for some years. The Oudh and Ro- hnkhund and the South Indian hues will probably continue to bring a charge, from 50,000Z. to 100,000/. each, for several j'ears. The Punjab and Sindh line has improved considerably, but is still hkely to cause a burden of about 100,000/. The East Indian and the Eastern Bengal lines are permanently yielding a surplus income. The Bombay and Baroda line will certainly reach this condition almost immediately. The conditions of the contracts with these com- panies are complicated, and it is not necessary to ex- plain them in detail. But in all cases they are such as to make it to the interest of the Government to exercise the power of purchase, which is among the conditions, at the earliest date possible. It happened, very unfortunately for the interests of India, that owing to a misconception on this point the Secretary of State some years ago gave up his first power of purcliase in the case of the Great Indian Peninsula, Bombay and PURCHASE OF EAST INDIAN BAIL WAT. 129 Baroda, and Madras railways, and cannot exercise it for twenty-five years to come. The money value of the loss caused by this error can hardly be estimated at less than several millions sterhng, but it is now beyond remedy, and all that can be done is to take care that no such blunder is again permitted. On the whole it seems probable that, at least for the next ten years, the aggregate burden caused by the less productive of these railways will not be reduced much below 500,000^. yearly ; but the set-off that is even now obtained from the more profitable fines covers the deficiency, and yields a direct surplus, and the ultimate advantage to the State, though in a somewhat distant future, and paid for by considerable present sacrifices, will certainly be very large. The power of purchase has been already exercised with the most satisfactory results, in the case of the East Indian Eailway, and a brief explanation of the manner in which this was done, and of its present and probable future financial eSect, will afford the best indication of the way in which other similar operations may be expected to work. The Secretary of State, under the contract with the East Indian Eailway Company, was able to purchase their undertaking by creating an annuity for seventy- four years in their favour, equal in capitaHsed value to the amount of their share capital, taken at the average price during the three years preceding the purchase. This price was by agreement settled at 1251. for 1001. stock, and the rate of interest for calculating the annuity at 11. 6s. per cent. The capital havmg been 26,200,000Z. an annuity of 1,473,750^. was created, which is at the rate of 4^ per cent, on 32,750,000/. At the same time the Government took over the 130 FINANCES AND PUBLIC WORKS OF INDIA. debentures of the company, aggregating in amount 4,450,000/. The purchase having been thus disposed of a working lease of the railway was given to the com- pany, on the following basis. A nominal sum of 6,550,000/., which is one-fifth of the purchase-money on which the annuity was reckoned, was to be left with the Secretary of State during the currency of the lease, a corresponding deduction being made from the amount of the annuity. On this sum interest was guaranteed at the rate of 4 per cent, on the security of the revenue of the railway. The net receipts of the line after pay- ing all working expenses, and a contribution to a Pro- vident fund, were then to be dealt with as follows. From the receipts were to be deducted the following sums : (1) the amount paid by the Secretary of State on account of the annuity, (2) the guaranteed interest to the working company, (3) interest on the debentures taken over from the old company, and (4) interest on all moneys advanced by the Secretary of State for the purposes of the working company. The Secretary of State was to supply aU needful capital required for extensions of the undertaking, being paid interest there- on as just stated. The residue was then to be divided, in the proportions of one-fifth to the working company and four-fifths to the Government. All sterling pay- ments of interest and annuities, &c., made by the Secre- tary of State were also to be converted into rupee currency at the current rate, instead of at the old fixed conventional rate of Is. lOd. per rupee. The general result of the change thus made will appear by comparing the actual amounts received by the Government and the company respectively for the year 1880, under the new arrangement, with what they would have been under the old one. ITS riNANCIAL RESULTS. 131 Under the new arrangement, the net traffic receipts for the year, after the payment to the Provident fund, being 2,84,66,849 rupees,^ they were distributed as follows : Annuity and Interest Es.1,90,71,220 Surplus to Company Ks. 17,72,690 Eesidue to Government Es. 76,22,939 Under the old contract the result would have been : Guaranteed Interest, 1,498,000/. at Is. lOd. . Es.1,63,41,818 Surplus to Company Rs. 59,94,107 Loss by Eioliange on Guaranteed Intere3t . Rs. 11,23,102 Eesidue to Government, net .... Rs, 50,07,766 Therefore the Government direct advantage is 26,15,173 rupees, or about 260,000/. in the year. But as this profit wlU. be made after paying the instalments of the purchase-money included in the annuity, the average amount of which for the 74 years is about 440,000/. yearly, the whole advantage may be taken at 700,000/. yearly. The present yearly Government income from the railway being about 760,000/., about 53,000/. has to be deducted from that sum as the interest on Govern- ment capital advanced for the undertaking, so that the present yearly clear income may also be taken at 700,000/. This will go on increasing as the receipts of the railway improve, and at the end of the term of seventy-four years, with the lapse of the annuity, the Government, having completed the purchase of the railway, will come into the receipt of a clear yearly income which cannot be' less than 2,500,000/. sterling, and probably will be much more. ' The Indian system of reckoning money is by crores, laldis, and thousands of rupees, so that this sum would be read as :— Two crores, eighty-four lakhs, sixty-six thousand eight hundred and forty-nine rupees. K a CHAPTER rS. DECEXTKALISATION OF FINANCUL ADMINISTRATION. GBBAT EXTENT OP INDIA DIFFEEENCilS AMONS ITS PROVINCES — EOEMATION OP SBPAKATE ADMUJISTB.AIIVE GOVEBNMBNTS — BUT WITHOUT FUrANCIAl PO^VBR — IsECESSIIT POK SUCH POWERS RECOaNISED — DIPFICULTtES CAtrSBD BY ITS ABSENCE — ^MEASTJEES FOR ITS INTBODTJCTION StTGGESTEB OABKIED OUT BT LORD MAYO IN 1871 — HIS MEASURES DESCRIBED— FIRST APPLIED TO EXPENDITURE— THEIR EPPECT — ITTETR DEFICIENCIES — EXTENDED IN 1877 BT INCLUDING REVENUE — THE SCOPE OP THESE EXTENSIONS — FURTHER EXTENSIONS CONTEMPLATED — GENERAL RESULTS OF POLICY OP DECENTRALISATION SHOULD BE APPLIED TO MANAGEMENT OP PRODUCTIVE PUBLIC WORKS — SIR A. EDEN's OPINION ON RESULTS OF POLICY IN BENGAL — PROPOSALS MADE BY ME, BRIGHT. Allusion has more than once been made to the measures which have been taken for increasing the financial authority and responsibiUty of the Local Governments. Their extreme importance has not been understood or appreciated by the pubhc, which sees little of their practical working, but they have in fact revolutionised not only the financial relations which formerly existed between the Supreme and Provincial Governments, but the whole system of Indian adminis- tration. Of these measures a more particular account will now be given. India, it ought always to be remembered, is no homogeneous country, but a continent containing many nations, the differences between which are as great as those which exist between the nations of Europe. It EAKLY FINANCIAL ADMINISTRATION. 133 is further from Lahore to Calcutta than from London to Naples, and wide as is the difference between England and Italy in physical conditions and in the character of their inhabitants, the differences between the Punjab and Bengal are hardly less. We should think it absurd to suppose the same plans of administration to be necessarily apphcable in aU their details to all the countries of Europe, and it is not less absurd to suppose it of India. And it may here be observed that this consideration may often afford the explanation of divergencies between high Indian authorities on matters not only of opinion but of fact. We frequently hear complaints of the impossibihty of learning anything certain about India ; we are told that statements made yesterday, by men who ought to know, differ entirely from statements made by men of equal knowledge to-day. These uncomphmentary comments of Enghsh critics often have their origin in forgetfulness of the vast extent and the varying conditions of the provinces comprised under the common name of India. The necessity for dividing the country into separate governments, and entrusting the chief local authorities with large executive responsibihty, arose very early. But so long as the British power was in the tran- sition state mentioned in the first chapter of this work, the much smaller amount of the revenues, and simpler character of the administration, rendered the management of the finances a matter of comparatively small difficulty. It was not until after the Mutiny in 1857 that anything deserving the name of a regular financial administration was estabhshed in British India. The enormously costly measures adopted for the restora- tion of authority and order, followed by the hardly less 134 FINANCES AND PUBLIC WORKS OP INDIA. imperious demands for funds to meet the rapidly- growing wants of tlie country, then made it apparent that a system of strict financial control over all parts of the empire, and all branches of the executive govern- ment, had become essential. This control was naturally centered in the Supreme Government of India, and almost of necessity it was, at the outset, exercised in the form of a very severe repression of expenditure. At that time ^ the Local Governments, which practi- cally carried on the whole administration of the coun- try, were left with almost no powers of financial control over the afiairs of their respective provinces, and no financial responsibihty. Everything was rigor- ously centralised in the Supreme Government, which took upon itself the entire distribution of the funds needed for the public service throughout India. It controlled the smallest details of every branch of the expenditure ; its authority was required for the employment of every person paid with pubhc money, however small his salary ; and its sanction was necessary for the grant of funds even for purely local works of improvement, for every local road, and every building, however insignificant. The evils of this system became more and more manifest as time went on. There grew up gradually, among the most competent advisers of the Govern- ment, a strong conviction that radical changes were necessary. By no one was this opinion more forcibly urged than by Lieut.-General Dickens, then Secretary to the Government of India, in the department of public works, who in a memorandum written in ' The following account of the measures of financial decentralisation adopted by Lord Mayo is, for the most part, extracted from Sir John Straohey's Finaucial Statement for 1 S77-78, -which was founded on papers written by General Strachey. NECESSITY FOR ITS MODIFICATION. 135 September 1860, -when serious discussions on the subject had abeady begun, proposed to confide to Local Governments a large share in the management of the finances. He protested against a system under which the exercise by the Supreme Government of constant and minute control in matters of petty detaU . was 'regarded with feehngs of aversion by the local governors, whose powers it curtails, and with whose acts it interferes. The consequence is, as might be expected, that the Local Governments render at best to the Supreme Government a cold and languid support in financial vigilance and reform ; they too often exhibit a passive resistance, and even countenance evasions of regulations intended to be conducive to economy. The Supreme Government is always suspicious and dissatisfied ; the Local Government, always sulky and discontented.' In the financial statements for 1861-62 and 1862-63 Mr. Laing dwelt strongly on the evils of the existing system ; and in the latter of those years he spoke as follows : — ' If this great empire is ever to have the roads, the schools, the local police, and other instruments of civilisation which a flourishing country ought to possess, it is simply impossible that the Imperial Government can find either the money or the management. The mere repair of the roads, where anything like a sufficiency of good roads has been made, is matter alto- gether beyond the reach of any central bureau. It is of the first importance to break through the habit of keeping every- thing in dependence on Calcutta, and to teach people not to look to the Grovernment for things which they can do far better for themselves. . . . ' It is most desirable to break through the system of barren uniformity and pedantic centralisation, which has tended in times past to reduce all India to dependence on the bureaus of 136 FIXANCES AKD TUBLIC WORKS OF INDIA. Calcutta, and to give to Local Governments the power and the responsibility of managing their own local affairs. The great branches of the expenditure, such as the army and national debt, are imperial ; and while this is the case, the great branches of revenue must remain imperial also. But there is a wide field, both of revenue and expenditure, which is properly local, which in England is met by local rates, and which, in fact, must be met locally, or not at all.' Mr. Laing made no actual change in this respect, but the necessity for some measure of reform became daily more apparent. The business of supervising in a central office all the details of the receipts and expenditure of the empire had become so enormous, that its proper performance was impossible. 'I do not think,' wrote Sir Henry Maine, ' that anybody can have observed the recent workings of our system of financial control without coming to the conclusion that, if it be not on the point of an inevitable collapse, it is, at all events, in great danger of going to pieces, unless the strain be lightened somewhere.' For many years the ordinary financial condition of India had been one of chronic deficit ; and one of the main causes of this state of afiairs was the impossi- bihty of resisting the constantly increasing demands of the Local Governments for the means of providing every kind of improvement in the administration of then- re- spective provinces. Their demands were practically unhmited, because there Avas almost no Hmit to their legitimate wants, and the Local Governments had no means of knowing the measure by which their annual demands iipon the Government of India ought to be regulated. They had a purse to draw upon of unhmited, because unknown, depth ; they saw, on every side, the necessity for improvements ; their constant and justifi- EVILS OF CENTRALISED SYSTEM. 137 able desire was to obtain for their own provinces and people as large a share as they could persuade the Government of India to give them out of the general revenues of the empire ; they found by experience that the less economy they practised, and the more impor- tunate their demands, the more likely they were to persuade the Government of India of the urgency of their requirements. In representing and pressing those requirements, they felt that they did what was right, and they left to the Government of India, which had taken the task upon itself, the responsibihty of refusing to provide the necessary means. The Government of India had totally failed to check the constant demands for increased expenditure ; there was plainly onty one remedy — to prevent the demands being made — and this could only be done by imposing on the Local Governments a real and effectual responsi- bihty for maintaining equihbrium in their local finances. There could be no standard of economy until apparent requirements were made absolutely dependent upon known available means. It was at that time impossi- ble for either the Supreme or Local Governments to say what portion of the provincial revenues was properly apphcable to local wants ; for the revenues of the whole of India went into a common fund, and to deter- mine how much of this fund ought fairly to be given to one province, or for one object, and how much to others, was impracticable. ' The distribution of the public income,' General Strachey wrote, ' degenerates into something like a scramble, iu which the most violent has the advantage, with very httle attention to reason ; as local economy leads to no local advantage, the stimulus to avoid waste is reduced to a minimum ; so, as no local growth of the income leads to an increase 138 FINANCES AND PUBLIC WORKS OF INDIA. of the local means of improvement, the interest in developing the pnblic revenues is also brought down to the lowest level.' The unsatisfactory condition of the financial rela- tions between the Supreme and the Local Governments led to other evils. Constant difierences of opinion about petty details of expenditure, and constant inter- ference of the Government of India in matters of trivial importance, brought with them, as a necessary conse- quence, frequent conflicts with the Local Governments, regarding questions of provincial administration, of which they were the best judges, and of which the Government of India could know httle. The relations between the Supreme and Local Governments were thoroughly inharmonious, and every attempt to make financial control more stringent increased an antagonism the mischief of which was felt throughout the public service. It was not until 1867, when Mr. Massey had charge of the financial department that the subject began to assume a clear shape. Definite proposals were then for the first time made for the adoption of specific practical measures which should accomplish the object in view. Their author was General Strachey ; the principles laid down in papers written by him in 1867 are those which have since received so wide an applica- tion, and the practical course he suggested has been followed in the proceedings taken up to the present time for conferring on Local Governments a larger measure of financial responsibility and power. Although Mr. Massey was unable to carry those proposals into efiect, he gave them his firm and constant support, and this contributed greatly to their ultimate adoption. To Lord Mayo belongs the honour of having LORD MATO'S KEFORMS. 139 actually applied the only effectual remedy for these serious evils. He resolved to carry out, so far as circumstances allowed, the reforms which General Strachey had proposed ; to give to the Local Govern- ments the economical standard which they required ; to make over to them a certain income within which they must regulate their local expenditure ; and to leave to them, subject to certain general rules and conditions, the responsibihty of managing their own local affairs. From the commencement of the official year 1871-72 the financial control of the following services was trans- ferred to the Local Governments : gaols, pohce, educa- tion, registration, medical services, printing, roads, and civU buUdings. The objects in view were stated by Lord Mayo him- self in the Legislative Council on March 18, 1871, as follows : — ' Under these eight heads it is proposed to intrust the ad- ministration, under a few general conditions, to the Provincial Grovernments, and a fixed contribution will be made from im- perial revenue every year. ... It is impossible to prophesy or say at present what can be done in the far future ; but I should be misleading the Local Governments if I were not to say that it is our opinion that these sums are now fixed at an amount which cannot be exceeded for at least a number of years. I think it desirable that this should be perfectly under- stood, because one of our objects is the attainment of as great an amount of financial certainty as is possible. . . . But, in addition to the increased power of administration which it is proposed to give to the Local Grovernments, an administrative change will take place, which I think they will be able to exer- cise with advantage. They will have a large sum to devote to local objects ; the power of allotment will be left absolutely to them ; and they will be able to vary their grants for roads, civil buildings, education, and other heads, from year to year, as they may think most desirable ; in some provinces it may be 140 FINANCES AND PUBLIC WORKS OF INDIA. desirable in one year to spend a larger sum on roads ; in others it may be desirable to fill up some shortcomings with regard to education or other objects. The Local Governments will thus be able to exercise that power of allotment with much greater satisfaction to themselves and to the public than they did under the old system, when they were obliged to consult the Supreme Grovernment, not only as to the allotments that were made in the beginning of the year, but also with regard to any appro- priations that were thought desirable within the year, provided that those appropriations exceeded a certain amount. ' . . . I have heard it stated that, by the proposals which we make, there may arise a separation of interests between the Supreme and Local Grovernments ; I fail to perceive any strength whatever in this assertion ; I believe that, so far from there being a separation of interests, the increased feeling of respon- sibility and the feeling of confidence which is reposed in them will unite and bind together the Supreme and Local G-overn- ments to a greater extent than before. ... I believe that we shall see, in place of greater uncertainty, greater certainty ; we shall see works and objects carried on with more vigour, enthu- siasm, and with less hesitation, when these works and these ob- jects are effected under the immediate responsibility of those who are most interested in them.' The gross sum made over yearly to the Provincial Governments for these services, and some few others transferred between 1871-72 and 1877-78, amounted to about 5,600,000^. The original distribution of the provincial grants was strictly based on the then actual expenditure under the heads transferred. That there were great differ- ences in the incidence of the public burdens in different provinces was well known, but it would manifestly have been quite impracticable to have attempted any re- adjustment at that time, and all idea of dividing the available revenues among the several governments, on theoretical conceptions of supposed equity, was deliber- RESULTS OF THESK REFORMS. 141 ately rejected. Nor is it indeed apparent liow any more satisfactory principle could have been adopted than to start from the status quo of each province, leaving the removal of inequalities to be effected by degrees and by a readjustment of local burdens. When Lord Lytton became Viceroy, and Sir John Strachey took charge of the financial department of the Government, six years' experience of the new sys- tem had been gained, and there was not, nor had there ever been, a dissentient voice, either in the Supreme Government or in any of the Local Governments, in regard to its success. The only fault ever found with it was that, although an excellent beginning, it did not go far enough. Every object with which the change of system was made had been gained ; the old friction between the Supreme and Local Governments had been diminished ; the authority of the Supreme Government, and its power of general control, instead of being weak- ened, had become stronger and more real since the attempt to interfere in aU sorts of petty details had been abandoned ; and the Local Governments had been able to carry out many measures of improvement which would otherwise have been impracticable. The most important object of all, so far as the imperial finances were concerned — that of economy and the prevention of increased expenditure — had been completely gained. The charges made over to the Provincial Governments had been selected because they were specially hable to increase. Between 1863-64 and 1868-69 the cost of the services in question rose from 5,112,000Z. to 6,030,000/., or at an average of nearly 200,000Z. a year. In 1870-71, in consequence of the determined efforts of Lord Mayo's Government the charges which had been growing at so alarming a 142 FINANCES AND PUBLIC WOEKS OF INDIA. rate were reduced to 5,197,000/., but until the new system was introduced, there was little reason for hoping that the process of constant increase would not immediately recommence. Five years after the change of system had been made, the expenditure on the whole of the assigned services remained almost unaltered. The total charges only exceeded by 200,000Z. the sum to which, by extraordinary efforts, they had been reduced in 1863-64, and they were less in 1875-76 by 700,000Z. than they were in 1868-69. When the figures were examined in detail they were still more satisfactory, for they showed that there had been a reduction of expenditure under nearly all heads excepting ' Education ' and ' Medical,' or, in other words, that the people had got more schools, hos- pitals, and dispensaries, although less money had been spent on gaols and police. When Lord Mayo's measures were taken in 1870, there was much ignorant talk about their leading to an in- crease of local taxation, and it has been loudly asserted that in consequence of those measures new burdens had been imposed on the country, which were none the less serious for being called local. There is no foundation for such statements. The Local Govern- ments obtained no powers of taxation which they did not possess before, and excepting in the North- Western Provinces, Punjab, and Oudh, where new rates for local purposes were imposed to a very moderate extent, the measures of 1870 led to no fresh taxation. It is true that a considerable increase to local taxation was made about the same time in Bengal, Madras, and Bombay, but this was an accidental coincidence, and had no con- nection whatever with the introduction of the new system of administration and finance. THBIE DKPICIEIfCES. 143 The chief defect of these measures, excellent so far as they went, was that they dealt almost exclusively with expenditure, and hardly at all with income. If it was certain that provincial responsibility would lead to economy in expenditure, it was equally certain that it would lead to improvement in those sources of revenue which depend for their productiveness on good administration. For example, the two great heads of income, excise and stamps, yielded in 1876-77 5,360,000/. The whole of this went into the Imperial treasury ; the increase or decrease in the receipts mainly depends, in the long-run, on good or bad management ; and bad management of such resources means not only the wasteful throwing away of revenue without any rehef to the country, but very possibly the needless imposition of other and more objectionable taxation. In the finan- cial statement for 1877-78, Sir John Strachey referred to this subject in the following terms : — ' How is this better management to be obtained ? — The answer seems to me simple : it can be obtained in one way only ; not by any action which gentlemen of the financial de- partment, or any other department of the Supreme Grovern- ment, can take while sitting hundreds or thousands of miles away in their ofiS.ces in Calcutta or Simla ; not by examining figures and writing circulars ; but by giving to the Local Grovernments, which have in their hands the actual working of these great branches of the revenue, a direct and, so to speak, a personal interest in efiicient management. It may be very wrong, but it is true, and will continue to be true while human nature remains what it is, that the local authorities take little interest in looking after the financial aS'airs of that abstraction the Supreme Grovemment, compared with the interest which they take in matters which immediately afifect the people whom they have to govern. When Local Grovernments feel that good administration of the excise and stamps and other branches of 144 FINANCES AND PUBLIC WORKS OF INDIA. revenue will give to them, and not only to the Grovemment of India, increased income and increased means of carrying out the improvements which they have at heart, then, and not tiU then, we shall get the good administration which we desii-e ; and with it, I am satisfied, we shall obtain a stronger and more real power of control on the part of the Central Government than we can now exercise.' Lord Lytton had always, from the time of his assumption of office, desired to carry out to its full legitimate extent the policy which had worked so successfully, and consequently in 1877 he effected a further important appUcation of the original scheme, which on grounds of expediency Lord Mayo had not attempted in 1871. The services which were the subject of the settlement of 1871 were gaols, registra- tion, pohce, education, medical services, printing, miscellaneous pubhc improvements, and civil buildings, with the connected receipts. In 1877 the system was extended to all the remaining services, excepting the few administered directly by the Central Government, or in the management of which the Local Governments could manifestly exercise no influence. At the same time, the revenues from stamps, excise, law and justice, and some other items, were surrendered, under certain conditions, to the Local Governments. To these was added the hcence tax as soon as it was imposed. Moreover, the management of some of the railways and all of the canals within their jurisdiction was made over to the Local Governments. The object of all that was done was, as far as possible, to renounce on the part of the Government of India all responsibihty for the detailed management of these revenues and services, and to intrust this responsibility to the Local Govern- ments. EXTENSION OF SYSTEM, BY LOED LYTTON. 145 These new arrangements still left tlie Local Govern- ments without any separate interest in the land, the forest, and some other items of revenue. As regards the Governments of Assam and Burmah, this defect was cured in the settlements made with them in 1879. By these settlements, all the revenues and all the ser- vices which could possibly be made provincial were so treated ; and for the balance, instead of a fixed sum, a fixed proportion of the land, forest, and other reve- nues was assigned to the provincial treasury. It will give a better idea of the practical scope of these measures, and of their administrative importance, to mention that the revenues assigned under them to the Provincial Governments amounted in 1880-81 to close upon 10,000,000?. sterling, to which were added supplementary grants from the revenues reserved as Imperial of about 4,250,000?. ; thus the sum of about 14,500,000?. was placed at the disposal of the Local Governments, for provincial purposes, besides the more strictly locaHsed income designated as Local amounting to nearly 3,000,000?., or altogether more than 17,000,000?., out of the 69,000,000?. which constitutes the whole gross public revenue. The latest settlements have worked most satis- factorily ; stm they are not perfect. On the one hand, the Central Government has not always reserved a suffi- cient share in the increase of such revenues as those from excise, stamps, and registration. On the other hand, the interests of the Local Governments in the land revenue, and in the other revenues now shared between them and the Central Government, are not substantial enough. It is also felt that it would be desirable, without insisting on any unmeaning identity, to make the arrangements Avith the several provinces 146 FINANCES AND PUBLIC WORKS OF INDIA. more uniform. The existing settlements having been made separately at various times, the terms of one settlement sometimes differ needlessly from those of another. The Government of Madras, moreover, has, since the original settlement of 1871, declined to enter into any extended arrangements, and none of the recent measures apply to that Presidency. No reason for this was apparent to the Government of India, except that chronic and invincible dishke of change by which the Madras Government has been so often distinguished. Sir John Strachey had hoped, before leaving India, to complete the policy described in this chapter by a revision of the settlements with all the Local Govern- ments upon a uniform and comprehensive basis. What he contemplated was as foUows. The revenues and charges arising from tributes, salt, and opium, allow- ances and assignments, the administration of the post office and telegraphs, the poHtical department, the East Indian Eailway, the guaranteed railway companies, and all items recorded only in the accounts of the Central Government, would have remained wholly imperial. The revenues from forests, excise, and assessed taxes, stamps, and registration, and the import duties on liquors, would have been shared equally between the Local and Central Governments. Each Local Govern- ment would have received a fixed proportion of the net land revenue to make good the difference between its assigned revenues and expenditure ; and the rest of the revenue and expenditure, with a few exceptions, would have been provincial. The assignment of a share of the land revenue formed a part of General Strachey's original scheme, but was dehberately avoided at first in order to remove as far as possible all objec- tions to the practical adoption of the measure, and to FUETHER EXTENSION DESIRABLE. 147 introduce it in a form that should not excite opposition, or risk failure, from its too large dimensions. To complete this scheme the Local Governments ought to have some interest in the salt revenue also ; there are, however, difficulties in arranging this. Except in Burmah the salt revenue brought to account in each province is not the duty levied upon the consumption of salt within the province ; it would be difficult to ascertain the true local consumption, and objectionable to allow to a Local Government a share in the duty levied on salt consumed beyond its juris- diction. The foregoing is an outhne of the measures for completing the policy of financial decentrahsation which Sir John Strachey proposed, and the needful details of which have been worked out by Mr. Chap- man in the department of Finance with much care and labour. The plan awaits the consideration of the Government of India.^ Under it, instead of the general allotment now made, amounting to about 4,250,000Z., specific proportions of the separate items of revenue would be assigned for provincial purposes, amounting in all to about 7,000,000Z., with a cor- responding addition to the charges that would become provincial, so that the provincial income and expenditure would be raised from 14,500,000Z. to 17,000,000Z. The facts and figures given in this chapter and elsewhere show how completely successful this pohcy of decentralisation has been. Viewing it in its finan- cial aspect, we find that in the last twelve years there has been, on the whole, no increase in the charges 1 While these pages were passing through the press, the decision of the Government to carry out arrangements based on these plans has been announced. L 2 148 FINANCES AND PUBLIC WORKS OP INDIA. under the chief provincial heads, the only exceptions being a moderate growth of the expenditure upon education, medical services, the internal civil adminis- tration, and gaols. ■ The provincial revenues are flourishing, and show every indication of successful management. The aggregate surplus of provincial revenue over expenditure during the twelve years has amounted to more than 2,000,000/., so that the provin- cial treasuries were able without difficulty between 1879 and 1881 to contribute 670,000/. towards the necessities of the central treasury arising from the war. The total amount standing to credit as the provincial and local balances was at the end of 1880-81 rather more than 3,000,000/., and in 1881—82 is estimated at 2,500,000/., after providing for an increased expenditure, compared to the previous year, of nearly 1,000,000/. The administrative results are equally satisfactory. Controversies between the Central and the Local Governments are now almost unknown ; the transaction of pubhc business has been greatly facilitated ; and the Local Governments are generally well content, not only with their financial position, but with the wide measure of administrative independence which they have ob- tained. And this last is the greatest result of all. Interference with the petty details of expenditure necessarily involved interference in all the details of administration. The Local Governments are incom- parably stronger than they were, and the efficiency of all the most important branches of the public service has been increased. As was said at the beginning of this chapter, the whole system of Indian administration has been profoundly affected by this change. The Viceroyalty of Lord Mayo will be honourably remem- bered for its introduction ; to that of Lord Lytton FURTHER EXTENSION DESIRABLE. 149 belongs the honour of its accomplishment. The reform is now not far from complete, all that remains being to make final improvements of detail, and to give the policy an extension in a direction which Lord Lytton's Government had desired, but was unable to accom- plish. The nature of this extension will be briefly stated. The arrangements which have been described relate almost exclusively to the receipt and expenditure of the ordinary revenues. They should be supplemented by others, more completely handing over to the Local Governments the responsibihty for applying borrowed funds to works of pubhc improvement. It would have been the aim of Lord Lytton's Government to appro- priate suitable sums, proportional to the ascertained wants of the several provinces, in a manner that would have secured to the Local Governments reasonable continuity in their operations, and would have freed them in respect to this part of their duties from the necessity of constant references and appeals to the Central Government, in a way similar to that which has been accomphshed in deaUng with the ordinary funds derived from the revenues. The measures of Provincial decentraUsation will not be complete untU the Local Governments have been invested with full responsibility for the financial administration of aU branches of the pubhc service, the executive management of which is placed in their hands ; and mth this responsibility should be joined that of originating all measures needed for the good government of their respective charges. Were this done, the Government of India would be freed, as it should be, from all details of local business, and would assume its proper position of a controlHng authority only. 150 FINANCES AND PUBLIC WORKS OF INDIA. One direction in which the efforts of Lord Lytton's Government thus to extend the powers of the Local Governments were frustrated calls for special notice. It is plainly an object of considerable importance to obtain the co-operation of local capitahsts in the prosecution of useful works. In the North-Western Provinces, Sir W. Muir, when Lieutenant-Governor, undertook a branch railway on this principle. A large part of the requisite capital was suppHed by persons locally in- terested in its success, the residue being made up from the Provincial funds. A moderate guarantee of interest, to be met from Provincial revenues, was promised on the capital locally subscribed, as well as the right to participate in half the profits in excess of the guaranteed interest. A local committee of native gentlemen was formed from among the subscribers of the capital, which was consulted as to the tariff and business arrangements of the Une. The success of this undertaking, which almost from the outset gave a return a Httle in excess of the gua- ranteed rate of interest, and caused no burden on the Provincial revenues, made it clear that the plan might be usefully adopted in other cases, and the Local Govern- ments, generally, -were invited to adopt the system, under certain rules which were framed to secure financial regularity, and prevent the undue extension of the Pro- vincial liabilities. Two or three works of local interest were immediately brought forward for prosecution m this manner ; considerable sums were subscribed locally for them ; and the subsequent great success of one of them, the Patna and Gya Eailway, shows that the plan was one of much promise. But before it had received such a development as would certainly have rendered most valuable assistance in the extension of works of WOULD STIMULATE LOCAL ENTERPRISE. 151 local improvement, and would have initiated a system of true local co-operation for such purposes, the Secre- tary of State issued orders which had the effect of arresting all further progress in this direction. He required that all money raised locally, under engage- ments by the Local Governments to pay interest from the Provincial revenues, should be treated as though it had been borrowed by the Imperial Government, and that the amount thus provided should be deducted from the limited sum to which he had restricted the loans for the prosecution of Pubhc "Works. It followed that the Local Governments could not increase the means at their disposal by thus receiving local aid. All inducement to seek it was removed, and a plan of the greatest promise fell — stiU-born. The centralising power of the Government of India, and of the Secretary of State acting through that Government, which it had been desired to relax in a new direction, was strictly maintained, and the means of developing a healthy and useful spirit of local co-operation and self-support, which it had been proposed to give to the Local Governments, were withheld. The reduction of the total amount to be spent on productive works, and the refusal to authorise this use- ful extension of the powers of the Local Governments, were subsequently followed by still further restrictions, both on the classes of works that might be undertaken with borrowed money, and on the application to them even of funds obtained from the revenues of the year. It is hardly necessary to point out how httle such a restrictive poHcy finds any justification, either in the present state of the finances, or in the actual results of the different course that was till lately followed in this matter; how manifestly it stands in the way of the 152 FINANCES AND PUBLIC WORKS OF INDIA. reasonable development of Provincial administrative and financial responsibility, on which the future pro- gress of India essentially depends ; nor how seriously it must interfere with the early provision of those means of protection against future calamity, which a true perception of the demands of good government and ordinary humanity ahke require. The following extract from a Eesolution of the Government of Bengal, reviewing the position of that province at the commencement of the present financial year, affords the best possible corroboration of the views expressed in this chapter. The able Lieutenant-Governor of Bengal, Sir Ashley Eden, whose independence of judgment and freedom from all disposition to exaggera- tion are beyond question, and whose cordial co-operation with the Government of India in all matters affecting the financial administration calls for special acknow- ledgment, uses these words :-^- ' That the system of decentralisation has been thoroughly successful in Bengal is suflSciently clear from the foregoing sketch. The revenues have rapidly increased, independently of any new taxation ; useless expenditure has been cm:tailed ; and funds have been made available for improvement under all branches of the Administration. All grades of the service have shown the deepest interest in increasing the resom'ces of Government, under the belief that the sui-plus revenue would be available for the good of the province. The three heads of improvable revenue made over to the management of the Pro- vincial Government, with an income of 165;^ lakhs in 1876-77, will stand with an income of not less than 217^ lakhs in 1881-82. In the meanwhile, the Lieutenant-Governor has been able to carry out numerous works of improvement on his own responsibility, many of which, under the previous system, would have been indefinitely postponed. Besides making a special contribution of 20 lakhs to the Imperial treasury in time of need, he has been able during these five years to in- Sm ASHLEY BDEN'S OPINIONS. 153 crease the staff of executive and judicial officers ; to provide increased facilities for the administration of justice ; to increase the grant for education ; to make grants in aid of district com- munications and of works of drainage, sanitation, and municipal improvement ; to build schools, colleges, and hospitals ; to re- place the huts in which the public business was transacted, or prisoners were confined, by substantial masonry court-houses and gaols f to spend 20 lakhs on railways which will bring in a large return, 5^ lakhs on tramways, J of a lakh on a steamer service to improve communications with Assam, and 2 lakhs on a road to develop the trade with Thibet ; to spend 1 1 lakhs on the first portion of a work which will develop the trade of Orissa and protect it from famine ; and to spend 38^ lakhs on im- proving navigation and providing a supply of pure water for the people. While 77^ lakhs have thus been expended on great measures of material improvement, and the expenditure on Ordinary Public "Works has been increased from Es. 25,12,000 in 1877-88 to Rs. 63,53,000, exclusive of expenditure on pre- liminary works of railway construction, in 1881-82, and while no legitimate outlay has been spared to strengthen every de- partment of the Administration, the five years' period, which opened with a credit balance of Es. 2,88,000 only, will close with a credit balance of at least Es. 14,46,000. When it is recol- lected that under the system which prevailed before 1871 every new charge required the sanction of the Imperial Grovemment, that the decision on the demands of each province took no cognisance of the extent to which it had contributed to the general Exchequer, that nothing was to be gained by economy, because money left unspent by any one G-overnment was practically lost to it and only went to increase the amount to be scrambled for by all, some idea may be gained of the advan- tages which Bengal has reaped from the control of its own finances. There is no department of the service which has not felt the benefit of the financial independence conferred on the Grovernment immediately responsible for its administration.' It may not be out of place here to point out how the measures of wliich this chapter gives an account, differ from certain proposals made by Mr. Bright some 154 FINANCES AND PUBLIC WORKS OF INDIA. years ago. He told us in eloquent terms that it was foUy to suppose that so vast a country as India, with all its diflferent nations and languages, could ever be bound up into a single State. ' What you want,' he said, ' is to decentralise your Government. What would be thought if the whole of Europe were under one Governor who knew only the language of the Feejee Islands ? ' The basis of truth in these observa- tions is obvious and undisputed. But the projects by which Mr. Bright would have abohshed the Governor- General in Council, and estabhshed half-a-dozen se- parate Governments in India having little or no con- nection with each other, and each of them directly subordinate to the Government at home, would if carried out have hardly failed to destroy our Indian Empire. Although it is true that we ought to de- centrahse our administration, the last thing we ought to desire is to diminish the authority of the Central and Supreme Government. The one thing most essen- tial to India is a strong Central Government. We shall certainly never get such a government except in India itself, and it is difficult enough to get it even there. Experience has fully established that the only way to secure this object, and to maintain a true imperial control, is for the Central Government to refuse to meddle with details which the local authorities alone can understand, and -with which they alone can in- telligently deal. CHAPTER X. FINANCIAL MEASURES FOR MEETING FAMINE LIABILITIES. FAMINE LIABHITIES MTTST BE MET FEOM KEVENTJES — THETK HEA.TT AMOTTKT — LOED Salisbury's opinion of necessitt for locaiisino them; — DANGER OF MDBTING THEM BY BORROWING — PROVINCIAI. REVENUES OV BENOAL MABB LIABLE FOR CHARGES ARISING FROM RAILWAYS AND IRRIGA- TION WORKS — SIMILAR STEPS LST NOEIH-WBSTEEN PEOVINCBS — LOED NOETHBROOK'S VIEWS — FAMINE EXPENDIIITEE ESIIMAIBD AI ONE-AND- A-HALF MILLIONS YEARLY DECISION 10 OBTAIN SPECIAL YEARLY StTBPLUS OF THIS AMOUNT — TO BE APPLIED DIRECTLY OE INDIRECTLY IN SEDUC- TION OF CHAEGE FOR DEBT — FRESH TAXATION HOW FAR NEEDED — ACTUAL RECEIPTS FROM NEW TAXES — MISOONCEPITONS AS TO FAMINE INSUEANTCB — CREATION OF A FUND NOT PEOPOSED — PLAN NUCBSSAEILY INOPEBAirVD IN ABSENCE OF REAL SURPLUS — CHANGES OF POLICY MADE BY HOME GOVERNMENT — SUBSTANTIAL REALISATION OF SCHEME OF IN- SURANCE. Among the measures which have engaged the attention of the Government of India during the last ten or twelve years, none have surpassed in their importance those which had their origin in the distinct recognition of the obligation to provide against the liabilities, financial as well as administrative, arising from the destructive seasons of drought to which almost all parts of India are periodically subject. These habilities included not only the necessary direct rehef of the population which suffers from scarcity or famine, but the obligation to carry out those pubhc works which, as experience has proved, afford the only true safe- guard against such calamities. The very heavy expen- diture which famine has entailed has been already 156 FINANCES AND PUBLIC WORKS OF INDIA. referred to. How the administration of Lord Lytton dealt with these matters will now be described. Shortly after Lord Lytton assumed the office of Viceroy, the south of India was visited by a most de- structive drought and famine, the measures for the relief of which were necessarily on such a scale of magni- tude, and followed so closely on the enormously costly operations thought requisite for meeting the famine in Bengal in 1874, that it became evident to the Govern- ment that one of the most obvious and important duties which the State was called upon to discharge, was that of maturing and carrying into execution plans for guarding against the financial consequences of the outlay on rehef, which threatened to become ruinous. This question had to be taken up in a time of great diffi- culty, whUe the most serious drought of modern times was devastating the provinces of Madras and Bombay. In a despatch, dated November 25, 1875, reviewing the rehef measures adopted in Bengal in 1874, Lord Salisbury had called the attention of the Government of India to the question of the proper incidence of the charges which have to be incurred for the relief of famine. These, he argued, should be locahsed as far as possible. He said that, however plain may be the primary obligation of the State to do all that is possible towards preserving the lives of the people, it would be most dangerous, either to make the general revenues bear the whole burden of meeting all local difficulties and of reheving aU local distress, or to supply the need- %1 funds by borro^ving in a shape that establishes a permanent charge for all future time. The first practical recognition of the principle on which Lord Salisbury thus insisted was given in Marcli 1877 by measures which had for their object the im- LOCAL LIABILITY ESTABLISHED. 157 position upon the several provinces of responsibility for the charges incurred in providing canals and railways to give protection to the people against famine. The famine which prevailed in Southern India rendered it impossible at the time to think of imposing fresh burdens on Madras and Bombay ; and the first measures of the Government were confined to the Ben- gal Presidency, including Bengal, the North-Western Provinces and Oudh, the Punjab and the Central Pro- vinces. It was estimated that in Lower Bengal the capital outlay incurred by the Government on canals and rail- ways, in operation or under construction, would be at least 8,000,000Z. To enable the Local Government to discharge the interest on the capital expended on these works, and to meet similar obhgations in the future, a provincial cess, of which more will be said further on, was imposed upon the land in Bengal. Similar obhgations for the same purpose were at the same time imposed in the North- Western Provinces, but they were much hghter than in Bengal ; and to enable the Local Government to meet its new liabilities, all that was thought necessary was the introduction of a very hght hcence tax upon traders, estimated to yield 50,000Z. a year. This was in the beginning of 1877. In December of the same year the Government announced the measures by which it hoped to complete a sufficient insurance of the whole country against the financial consequences of famine ; and early in 1878 those measures were carried into efiect. The principle which underlies the policy they involved had been pubhcly recognised by Lord Northbrook after the famine of 1 874 in Northern Bengal. He said that famines could no longer be 158 FINANCES AND PUBLIC WORKS OF INDIA. treated as abnormal or exceptional calamities, and that sound financial principles required that the grave ob- ligations which they entailed upon the Government should be explicitly recognised and provided for among the ordinary charges of the State. Within the previous ten years three serious famines had occurred. The drought of 1866 led to famine in Behar and Orissa ; the failure of the rainy season in 1868 and 1869 caused severe distress over a great tract of country in Northern India ; and in 1874 came the famine in Bengal. As it could not be doubted that India was liable to the periodical and not unfrequent occurrence of such calami- ties, Lord Northbrook justly concluded that to attempt to meet them merely by borrowing without a simulta- neous increase of income would be financially ruinous. ' Whatever means,' he said, ' we may take to obviate or mitigate them, it must, under present circumstances, be looked upon as inevitable that famines will from time to time occur.' He therefore declared that, to enable the State to meet the obhgation of preventing and relieving famine, it was necessary to secure, in pros- perous times, a substantial surplus of revenue over ex- penditure, in addition to that necessary margin which a prudent administration always requires for the ordinary service of the State. Due provision would thus be made for meeting occasional expenditure on famine. He said that if this surplus were devoted in years of prosperity to the reduction of debt, or to preventing the increase of debt for the construction of productive public works, there would be no objection to the public expenditure exceeding the pubhc revenue in occasional years of adversity, so that we might then meet the charges on famine from borrowed funds to the full ex- tent to which our surplus had permitted the discharge ESTIMATE OF FAMINE LIABILITIES. 159 of debt or prevented its increase. The principles thus enunciated by Lord Northbrook were fully accepted by the Secretary of State, Lord Salisbury, but no steps were taken to put them in practice until they were made the basis of the policy carried into effect by Lord Lytton. The actual expenditure on famine rehef, including remissions of land revenue, in the five years from 1873 to 1878, was nearly 16,500,000/. But there was good reason for beheving that this had been a period of exceptional disaster, and the Government came to the conclusion, necessarily in a somewhat arbitrary manner, that, taking an average of years, the annual cost of relieving famine, including loss of revenue and actual expenditure, was not hkely to exceed 1,500,000Z. It is satisfactory to find that the probable sufficiency of this assumption has been confirmed by the subsequent elaborate inquiries of the Eamine Commission, which has estimated the yearly average charge at 1,250,000/. ' Considering/ the Commission says, ' the doubts that must necessarily surround any such estimates, the ac- cordance of the sum thus obtained with the 1,500,000/. adopted by the Government of India in 1878, seems to justify the behef that this last-named amount is not hkely to be exceeded as the average charge for famine relief over a series of years.' ^ The Eeport of the Famine Commission gives so clear and succinct an explanation of the pohcy adopted, of the principles laid down, and of the objects aimed at by Lord Lytton's Government, that it may usefully be quoted here : — ' The Government,' it says, ' has, ^rith good reason, pro- ' Report of Indian Famine Commission, part i. paragraph 100, 160 FINANCES AND PUBLIC WORKS OF INDIA. ceeded very cautiously in its ari-angements for localising the expenditure which famines must involve. It was declared that the Local Grovemments should henceforth be regarded as responsible, to the fall extent of what was possible, for providing the means of protecting the people of their own provinces against famine, and of meeting the cost of relief when famine actually occurred. As to the first of these objects, arrangements were made under which a guarantee might be given by each province for the interest on the capital expended on its own railways and canals, and the sources of income necessary for the discharge of this liability being at the same time entrusted to it. As to the second, it was expected that, by economical and judicious control of the expenditure on the numerous branches of the administration which have been transferred to Provincial Grovemments, a balance would be secured which would be avail- able for purposes of relief, and that such balances standing to the credit of provincial revenues should be exhausted before the imperial treasury could be drawn upon. But it was recognised that there was a limit beyond which the provincial revenues could not supply relief, and that resources must be created from which the central authority could supplement provincial funds on occasions of widespread and severe famine ; and it was to this end that arrangements were made to secure a surplus of 1^ millions of income over ordinary expenditure, in addition to the annual surplus of half a million othei-wise regarded as proper. It was determined that this surplus should not take the form of a fund specially allocated to meet the cost of famine relief, because such an arrangement would be financially inconvenient and objectionable. The intention was simply that a source of revenue should be provided which would enable the Grovernment to carry out the principle on which it had for some years insisted — that the relief of famine distress must be regarded as a charge constantly liable to recur, which must be met like all other obligatory items of State expenditure. The money obtained, or so much of the 1^ millions as remained after meeting charges for famine during the current year, was to be appHed to the discharge of debt, or the prosecution of remunerative public works of a character likely to give protection to the country against the effects of drought. Such works might be expected to produce an income equal to the interest on the capital spent FAMINE INSURANCE PKOPOSED. 161 on them, and thus lead to a result financially identical with the discharge of debt, but otherwise more beneficial from the pro- tection given by the works. As the Grovemment was engaged in carrying out productive public works, the expenditmre on which involved annual loans to the extent of three or four millions, the plan practically operated in reducing, to the extent of the surplus, the sum to be thus borrowed. We see no reason to doubt that the general arrangements thus made were in the actual circumstances well suited to meet the difiScult problem that had to be solved, nor is it easy to see how such heavy and irregularly recurring charges as those that arise from the relief of famine on a great scale of severity and extent, could otherwise be met than by borrowing when the calamity occurs and by discharging the debt in times of prosperity, or securing such an increase of revenue from productive works as shall cover the interest on the debt.' ' According to this plan, the Government, when the country is free from famine, would virtually reduce the public debt by 1,500,000Z. a year, or prevent debt to that amount, and resources would thus be stored up in years of prosperity, by means of which, when famine actually occurs, it would be possible to discharge the heavy obhgations which then fall upon the State. The Government in 1877 came, as elsewhere stated, to the conclusion that the ordinary income and expen- diture of the State might at that time be considered to be, for practical purposes, in a state of equiUbrium. It was therefore, in the opinion of the Government, neces- sary to improve the financial position by l,oOO,OOOZ. a year on account of famine habilities alone, and in addi- tion to this to provide a margin on the annual esti- mates of at least 500,000Z. to meet unforeseen con- tingencies. A considerable portion of this total sum of 2,000,000Z. was supphed, without any addition to the ' jRppcn-t, part i. paragraphs 1 75, 1 76. 362 FIXANCES A>T) PUBLIC WORKS OF INDIA. public burdens, either imperial or local, by the transfer of charges to the Provincial Governments under the measures of financial decentrahsation of which I have spoken ; but fresh taxation was thought necessary to complete the whole amount required. The new taxes actually imposed will be described elsewhere ; it wUl now be shown what financial success has attended these efibrts of the Government towards insuring the country against the liabilities entailed by the periodical occurrence of famine. The question whether this object has been gained is practically identical with the question, which has a much simpler appearance, and which has already been answered in a previous chapter of this work, whether we have really secured a substantial annual surplus of income over ordinary expenditure of not less than 2,000,000^. a year. This was to be ascertained on a comparison of the revenue with the expenditure, after excluding the ex- penditure on productive public works, which, to what- ever extent was necessary, might be provided for by loan. That portion of the surplus which was especially required to meet famine liabilities, or 1,500,000^., would be subject to reduction by any amount which might be expended on famine rehef, or which might be lost in the shape of remission of revenue on account of famine. The remaining 500,000^. of the required sur- plus might be reduced by expenditure of an obviously abnormal and extraordinary character. In other words, it was desired to secure an income sufficient to meet all ordinary charges year by year, besides 1,500,000^. for famine, and also all extraordinary charges up to 50O,O00Z. More than this was not aimed at. For heavy war expenditure, for instance, no provision was OPERATION OF MEASURES OF INSURANCE. 163 made beforehand, and it would have been absurd to attempt to do so. The amount of new taxation actually imposed amounted originally to 1,345,000Z., and is now about 1,000,000Z. Whether the pubhc accounts have shown deficit, surplus, or equOibrium, it is indisputable that if the new taxes were not appUed to stimulate fresh expenditure, they must have prevented debt, or per- mitted its reduction, to the exact amount which they have yielded, and that, when famine occurs, our re- sources for meeting it will be increased by an amount exactly equal to the amount obtained from those taxes, with compound interest upon them. The actual sum which they are estimated to have yielded in the aggregate in the three years since they were imposed is 3,393,891/. In the same period the actual or estimated expenditure on famine relief was 417,420Z. Therefore the taxation thus levied in these years has enabled us to defray the expenditure on famine relief, and to prevent debt to the amount of 2,976,471/. with interest on this sum, and therefore to improve the general financial position to the same extent apart from other independent causes of expendi- ture, and to obtain a corresponding resource available in the future. That this result has been achieved is self-evident ; it is independent of the surplus or deficit of the revenue as a whole, and requires no further demonstration. It has been asserted that the proceeds of these taxes have not been expended on the objects for which they were imposed, but on the prosecution of the Afghan war. Such assertions are based on miscon- ception of the facts. These taxes were imposed to enable the State to meet its future liabihties for tlie M 2 164 FINANCES AND PUBLIC WORKS OF INDIA. relief of famine. Their proceeds have been devoted to meeting these Habilities as certainly as if they had been actually expended on famine relief, or had been apphed to the direct repayment of debt. If these taxes had not existed during the last three years, the revenues would, as was shown, have been less by nearly 3,000,000Z. than their actual amount ; consequently the amount available for meeting the whole public expenditure, including that on the war, which has obviously not been aifected in any way by these taxes, has been in- creased by this sum, and the amount to be borrowed has been reduced by the same sum: in. other words, the public debt is now 3,000,000^. less than it would have been. It is plain, therefore, that when serious famine next occurs we shall be able, if necessary, to borrow 3,000,000Z. for its relief, without creating liabi- lities of a larger amount than that by which the present increase of the general liabihty has been prevented ; any increase of debt due to the war is beyond the present discussion. There has been much misunderstanding in regard to the so-called Famine insurance fund or surplus, which, in fact, was never designed to be anything more than a mere surplus of annual revenue over expenditure, though the necessity for it arose from a particular cause. It was impossible for the Government, even if it had desired to do so, to have given a different character to this surplus, unless, indeed, the expedient had been adopted of paying the proceeds of the new taxes into a separate fund to be applied only to specified purposes. From the very first, and at all times, every idea of this sort Avas repudiated by the Government as out of the question, foohsh, and impracticable, and no doubt will be equally repudiated in the future. REFUSAL TO CONSTITUTE SEPARATE FUND. 165 In further explanation of this point reference may be made to the following extract from the Budget Eesolution of 1879-80. • The propriety of the course followed by the Grovernment last year in refusing to constitute any separate fund in' connection ■with the famine arrangements has thus, it may be added, been justified by the event. Foreseeing the possibility of such a contingency as that which has actually occurred (namely, the anticipated failure of the surplus in consequence of the heavy fall in the exchange and the cost of the Afghan war), Sir John Strachey spoke in the Legislative Council on Febniary 9, 1878, as follows : — " Any other decision might lead to results probably not con- templated by those who have suggested the establishment of a separate fund ; I mean that this might involve the necessity for imposing fresh taxation. Suppose, for instance, that the produce of the new taxes were, by law, strictly set apart from the general revenues and paid into a separate fund only to be applied to specified purposes ; if then any sudden change of circumstances arose, calling for seriously increased expendi- ture, or causing a considerable falling off in the revenue, we should have to choose between the imposition of fresh taxes and the abrogation of the law constituting the fund, for I set aside the idea of meeting the ordinary charges by borrowing as a course financially inadmissible. This dilemma might arise, though the pressure was likely to be only temporary ; nor can any one say that such a contingency would be at all improbable, or that it might not occur at any moment. With all my desire to see the pledges maintained that we have given as to the application of a sum not less than 1,500,000L, as an insurance against famine, I think it would be irrational, under many cir- cumstances that I can conceive, to object to the temporary diversion of any necessary pai't of the revenue from this purpose, with the view of obtaining relief which might be no less urgently required than that which experience has taught us to be requisite in meeting famine. Without thinking of a future far removed from us, events might of course happen which would make it impossible even for us who. have designed these measures to maintain our present resolution." 166 FINANCES AND PUBLIC WORKS OF, INDIA. In the very nature of the case, a real sinkmg fund involves the existence of a real surplus, and the above extract clearly shows that this was well understood. Indeed in circumstances such as had been foreseen, and were very soon to arise, the only effect which the specially created resources could have, would be the indirect one which has abeady been explained. It is obvious that the measures which were proposed could have no effect in averting other causes of ex- penditure, or in preventing debt being incurred for other objects, and that so long as the surplus was dis- sipated never mind how, or as debt was increased never mind why, no real sinking fund operations could be carried out. That the misunderstanding which has been alluded to may have been due to want of precision in the original explanations of the pohcy of the Government is not denied. When these questions were first brought forward, being, as they were, new and comphcated, they were not in their financial aspect very easy to comprehend, and some things were undoubtedly said which not unnaturally gave rise to misinterpretation. Moreover, the difficulty which the pubhc has had in understanding this matter has been increased by the fact that the original pohcy was afterwards greatly modified by Her Majesty's Government, and some of the statements of the Government of India thus ceased to be apphcable. This observation apphes especially to the orders of the Secretary of State, given in accordance with the recommendations of a Committee of the House of Commons, by which the Government of India was obliged greatly to reduce its expenditure on those works the construction of which it had looked upon as the best safeguard against famine. If Lord Lytton's SUCCESS OF MEASURES OF INSUKANCE. 167 beneficent and admirable schemes for the protection of the country have been abandoned or postponed, it has certainly not been his fault. So far as his Govern- ment has been concerned, there was at no time any change of pohcy in regard to the subject of famine insurance, or to the construction of necessary pubUc works, or any failure to carry out any of the intentions with which the new taxation was imposed. But no apology or explanation is in truth needed for any part of these measures. So far from the famine insurance policy having failed through the faults of its originators, the fact is indisputable that notwithstanding all the difficulties of the actual situation, the net charge for interest on the public debt, after making allowance for the receipts from public works, has actually been reduced during the past three years by a much larger sum than had been aimed at. The net charge for productive pubhc works and interest on debt feU from 4,070,000/. in 1877-78 to 3,093,000/. in 1880-81 ; that is, more than 900,000/., which is equivalent to a dis- charge of debt of about 20,000,000/., so that instead of there having been any failure in the pohcy, it has obtained an altogether unexpected measure of success, and in the precise manner that had been from the first designed. CHAPTER XI. MEASURES FOR GIVING PROTECTION AGAINST FAMINE. BECURRBNOB OP FAHINE STIU. TTlfAVOniABLB — KBASTIRBS OF AILBVIATION AKD PRBTEITIIOS' POSSIBLE — NBCESSm FOR APPLTIN6 IHEM — LORD NORTHBROOk's OPmiON — ESrEifSIOS' OF RAXLWATS AlfB IRRIGAIIOK EBatJIEJED — rNSUFPIOIEITCT OP MEASURES ACTUAILT TAKEN — LORD LTTION'S PROGRAiritB — BMTGRATION XOI APPLICABLE — IMPORTANCE OF EARLY EXTENSION OF CHEAP RAILTVAYS — ^VALTJB OF IRRIGATION — CO- OPERATION OP LOCAL GOVERNMENTS TO BE SECURED — STEADY SUPPLY OF FUNDS ESSENTIAL — PLANS FRUSTRATED BY ORDERS FOR REDUCTION OF OUTLAY ON PHODUCTITE WORKS — OTHER RESTRICTIONS IMPOSED APPLICATION OF HALF OF FAMINE SURPLUS TO UNREMUNERAIITE WORKS PROPOSED — OBJECTIONS STATED TO THIS ARRANGEMENT. The periodical recurx-ence of seasons of drought in India must be regarded as a physical necessity, and, in the present condition of the country, famine in an ex- treme form must at times be unavoidable. The gradual advance of the economical position of the people can alone bring complete remedies ; nor need we doubt that a security may some day be attained equal to that now enjoyed in other countries, which, as their past history shows, long remained hable to periodical famines hardly less disastrous than those which have recently devas- tated India. But it is certain that it is already possible to pre- vent, or very greatly to alleviate, by remedial measures the worst effects of scarcity. When provision had been made against the financial liabilities to which it had become obvious that the State was exposed in the LORD NORTHBUOOK's VIEWS. 169 future by the recurrence of famine, it still remained, therefore, to supply such direct means of protection and prevention as vfere practicable, and Lord Lytton regarded this object as being, if possible, even more im- portant than financial security. After the famine in Bengal Lord Northbrook had insisted upon the duty which rested on the Government of sparing no efibrts to provide railways and canals for this purpose. In the financial statement for 1874-75, reference having been made to the necessity of providing a sufficient surplus of income over ordinary expenditure to meet periodical charges on account of famine, it was said that there remained — ' the further and more important consideration, whether the disastrous effect of periodical failures of rain may not be miti- gated, and to a great extent obviated, by the extension of irri- gation works, and of railways or other means of communication. This subject has constantly received the attention of the Grovernment of India. Already a vast area of country has been rendered secure from the effect of a failure of rain by the irri- gation works which have been originated or renewed by the British Government. Had it not been for the large expenditure upon the construction of the guaranteed railways, it would have been physically impossible to have taken adequate precautions to preserve the lives of the people in Behar. In the forecast of expenditure upon reproductive public works, published in July last (1873), it was announced that 2,700 miles of railway and irrigation works, calculated to secure from liability to drought 50,000 square miles of country, would be constructed during the five years ending with 1877—78 at a cost of 22^ millions sterling. This programme is sufficient to show that, before the occurrence of the drought of last year, the Grovernment of India were fully aUve to the necessity of a vigorous prosecution of such works. A general view is now being made of the position of the whole of Her Majesty's dominions in India as regards liability to famine from the want either of the works of irriga- tion or of means of communication. It wUl be the duty of the 170 FINANCES A^^) public works of INDIA. • Groveriunent to consider how far it may be desirable to accele- rate the construction of reproductive public works, and, if so, how the necessary funds shall be provided.' But, as has too frequently been tlie case on other occasions, these promises were not followed up by any sufficient action. After the immediate pressure caused by the occurrences of 1874-76 had passed away, things went on in their old routine. If such a review of the wants of the country as was spoken of was actually made, nothing came of it, and so far from any accelera- tion of the construction of productive pubhc works having ensued, a disposition to reduce the available funds began to find favour. The subject, however, was once more taken up by Lord Lytton, with the serious intention of doing all that it was possible for a Government to do towards pre- venting famine, and furnishing the country with the machinery by which, when it occurred, the largest practicable amount of relief could be most speedily and effectually distributed. The new taxation, and the other measures by which the finances were improved, gave the means of carrying out these objects with a certainty and rapidity which it would otherwise have been impossible to iasure. A nobler, more humane, or wiser programme was never devised by any Government for the benefit of a country than that put forth by the Government of India in 1878 for the protection of India against this most terrible and ruinous and far-reaching of all natural calamities ; and untU it is brought into far more complete operation than has hitherto been permitted, the most urgent of the duties of the British rulers of India to the vast population they have undertaken to govern will be left unfulfilled. The following extract STATEMENT BY LORD LYTTON. 171 from Lord Lytton's speech before the Legislative Council ^ is quoted at length, as containing the clearest exposition of the whole subject of providing the country with protection against famine, through the instru^ mentahty of pubhc works, and his words deserve to be remembered among the wisest utterances of Indian Governors. ' The statement made by Sir John Strachey will, I trust, have satisfied the Council that the additional revenue now required by the Grovernment, and the increased burdens which must con- sequently be borne by the people of India, are the inevitable consequences of famine, and of famine only. I will not abuse your sympathies by harrowing your feelings with any descrip- tion of the ghastly scenes I have witnessed this year in Southern India ; scenes which, horrible as they were, only partially re- vealed the mass of unseen, unuttered misery that lay behind them. I feel sure you will beheve that no such sights were needed to impress me, and I am equally confident that no such descriptions are needed to impress this Council, with a profound sense of the paramount obligation now resting on us all to spare no effort for preventing the recurrence, or mitigating the effects, of such calamities. But of one thing I am convinced — oiur efforts must fail if they be merely the uneducated offspring of casual impulse and indefinite sentiment. The primary con- dition of successful effort is the strictly sympathetic subordina- tion of it in all directions, and in all details, to the verified re- sults of experience, and the carefuUy ascertained conditions of what is practically possible. It is not by the indulgence of that morbid sensibiUty to the dramatic elements of horror which so unconsciously simulates compassion, it is not even by exclama- tory utterances of a generous impatience, or a genuine grief, under the painful contemplation of the sufferings of our feUow- creatures, that we can practically prevent or alleviate such national calamities as those through which Southern India has been passing during the last two years. I am profoundly per- suaded that every rupee superfluously spent on famine relief ' Some sentences have been omitted which are not of importance to the present argument. 172 FIXANCES AXD PUBLIC WORKS OF INDIA. only aggravates the evil effects of famine, and that in all such cases waste of money involves waste of Life. ' The measures now before the CouncU have for their principal object the provision of that increase of the public income which experience has proved to be the first condition of any practical insurance against famine ; and, therefore, it is only proper that the Council should know how we intend to employ the resources ■which its adoption of these measures will place at our disposal for that purpose. ' Our first duty must be, I fear, to recognise and face, with all its consequences, the sad but certain fact that, in the present social condition of India, famines cannot, for many years (I might almost say for many genei-ations) to come, be entirely prevented. The population of this country is still almost wholly dependent upon agriculture. It is a population which, in some parts of India, under those securities for life which are the general consequence of British wle, has a tendency to increase more rapidly than the food it raises from the soil. It is a population whose consumption, in many places, trenches too closely on the crops already provided by its industry ; and which, therefore, runs great risk of having no accumulated produce to depend upon, whenever the earth has failed " to bring forth her fruit in due season." A people permanently living under such conditions — a people, that is to say, whose entire labour provides only just food enough for its own annual sustenance — is, it must be confessed, a people removed only a few degrees from a state of barbarism. Until the accumu- lated fruits of industry exceed the current requirements of the population for its own subsistence, there can be no growth in the wealth of the community ; and until the national wealth — that is to say, the exchangeable surplus produce of the country — has been increased up to a ceitain standard, there can be no adequate security against famine. To the attainment of this object, therefore, all our efforts, in every department of the administration, must be constantly directed. But, at the same time, it must also be always borne in mind that, until this object has been attained, no exertions and no expenditure on the part of the State can practically do more than provide for the restriction and mitigation of periodical scarcity. It is MEASURES OP PEOTECTION REQUIRED. 173 not yet in the power of human science to foresee, still less to control, the uncertainty of the seasons ; and this uncertainty, which is so constant and violent in India, must always afflict with exceptional severity any population that is habitually living from hand to mouth. Fortunately, however, the material ap- pliances which already exist, and only need to be prudently developed, in order to provide us with an effectual insurance against the worst consequences of famine, are also those which, if rightly employed, will most rapidly promote that general in- crease of the national wealth on which alone we can reckon for the permanent prevention of famine. ' Now, of the countless suggestions made from time to time, and more especially during the present year, for rendering less bitterly ironical than it still seems, when read by the sinister light of recent events, that famous inscription on the huge granary built at Patna for " the perpetual prevention of famine in these provinces" there are only thi-ee which merit serious consideration. These are, ^?'sii2/, Emigration ; secondly, Raii,- WAYS ; and, thirdly, Irrigation Works. ' We must practically exclude the first expedient from the list of those on which we mainly rely as a means of insuring the population of India against the calamities of periodical famine. The conclusion thus arrived at forcibly confines our immediate efforts to the most rapid development, by the cheapest methods, combined with the most appropriate and efficient application, of the only two remaining instruments for increasing the produce of the soil, facilitating its circulation, and thereby improving the general social condition, and augmenting the collective wealth, of the whole community. Those instruments are rail- roads and irrigation works. ' Now, the incalculable value to India of her present railways has been unmistakably demonstrated duiing the past year ; and the Grovernment is unquestionably bound to stimulate the ex- tension of this class of works to the greatest extent, and with the greatest rapidity, consistent with the requirements of finan- cial prudence. The capital expenditure on the guaranteed railways, during a period of 28 years, has amounted to not far from 95 millions sterling, with a result to be measured by about 6,000 miles of broad-gauge line. During the last nine years 174 FINANCES AND PUBLIC WORKS OF INDIA. the outlay on State railways has amounted to about ISJ millions, producing 1,050 miles of broad and 1,200 miles of narrow-gauge line, more or less finished. I need not here re- open the once-vexed question of broad versus narrow gauge. For all practical purposes that question has long ago been settled. Had we now to consider the construction of long Unes of rail solely, or chiefly, for military purposes, I doubt not that many arguments might be forcibly xu-ged in favour of a broad- gauge system. But when the object in view is to stimulate the exchange of commodities, and provide for a goods traffic with special reference to local needs and local means, then, I think, it cannot possibly be doubted that any extension of our railway system must be carried out in strict conformity with that method which experience has proved to be the cheapest, and indeed the only one financially possible in the circumstances of a poor coim.try with a languid commerce. The importance of strategic railroads to such an empire as this is not, in my opinion, open to question. But it is not for the construction of strategic rail- roads that we are now seeking assistance from the local popula- tions and Governments of India.' ' It is an unquestionable fact that the railways, and the rail- ways alone, were the salvation of the situation in North Behar during the famine of 1874; and that they have again been the salvation of the situation in Madras during the present year. The sea, no doubt, would have thrown rice into the town of Madras ; but, with the cattle djdng of drought, it would have been impossible to move the grain up-country ; nor, if every possible mile of navigable canal had been completed throughout the Madras Presidency, would it have greatly helped us to throw grain into those very districts where the famine has been at its worst ; for the broken upland country of Bellary and Kurnool, and the Mysore plateau, are physically impracticable for big canals ; and had there been no railway within reach of these districts, the people, where they have now died by hundreds, must have assuredly succumbed by thousands. ' I am satisfied that the development of a network of subsi- diary lines of railway, giving the means of transport through every district of British India, has become a matter of vital CHEAP RAILWAYS. 175 necessity for the attainment of the great object now before us. To accomplish this, in accordance with the financial and admin- istrative policy already explained, we propose to call upon the various Provincial Governments to undertake at once the pre- paration of such a scheme of local railways, with plans for their gradual and systematic execution, carefully made out by the best-informed local authorities. Our present object is to render available, within the shortest possible time, a maximum length of line specially constructed for a slow goods traffic, rather than to provide those more ample conveniences for passengers and goods which have been commonly deemed necessary for all Indian railways hitherto constructed. We have every reason to believe that, by restricting the works at the outset to the essential requirements of a slow goods traffic, we can, without any sacrifice of durabUity, or sound constructive principle, reduce the first capital outlay even below the amount which was found sufficient for the execution of the Hathras and Muttra Eailway in the North-Western Provinces — a line which furnishes us with a most instructive illustration of what maybe done, under a local Grovemment, in the way of thoroughly useful work executed at a small cost. We have also in the United States of North America an encouraging example of the rapidity and financial ease with which cheap railroads may be constructed over vast tracts of sparsely populated territory, and of the incalculable benefits conferred by them on every part of a continent even more spacious in extent and various in climate than our own. ' During my visit to Madras and Mysore I had many oppor- tunities of obtaining information about the distribution of grain into the distressed provinces. I cannot doubt that but for the main trunk lines of railway there must have been an appalling, and quite irremediable, failure in the supply of food to those provinces ; and, for all purposes of famine relief, I am equally convinced that the proved utility of these great arterial lines will be immensely increased by the cheap internal railroads we now propose to commence, with the intention of completing them as rapidly as may be compatible with the extent of the financial resources at our disposal for that undertaking. ' The early conclusion of such an undertaking must necessarily depend upon its financial practicability ; and for this reason all 176 FINANCES AND PUBLIC WORKS OF INDIA. minor considerations must be subordinated to the most rigid economy in construction, and the most severe limitation of the works to what is indispensable for the efficient exercise of their special function. But if these conditions be duly complied with, I have confidence that, at a comparatively early period, we shall, without any strain upon our financial resources, have extended to all parts and pro^•inces of our Empire the most efficacious protection, not indeed from dearth (for that is impossible), but from those terrible effects of dearth which now generally termin- ate in famine. ' These, then, are the principles on which we are prepared to apply at once to the extension of our railway system, as a means of insurance against famine, an adequate proportion of the re- sources at our command for that puqDose. We cannot, indeed, solely for the sake of developing local commerce, undertake to build railroads on the commodious and costly scale of our pre- sent main lines, which have been constructed with a view to their general utility in many other ways. But with the active co-operation of the Local Grovemments, and by steadily adhering to, and prudently developing, the great principle of provincial responsibility which is the backbone of our financial policy, we are persuaded that the resources of the State will now be sufficient for the early and continuous construction of a wide network of cheap provincial lines well adapted to the special object for which they are required. ' It remains to es^lain to the Council the manner in which we propose to apply to the extension of irrigation works precisely the same principles and policy. ' It is certain that throughout the greater part of India the produce of the soil may still be very considerably increased by artificial irrigation. But it is equally certain that in many parts of India, and for many kinds of Indian crops, irrigation could only be employed at a cost which would render it unremunera- tive. Canal irrigation cannot everywhere be supplied from permanent sources ; and, wherever it is not supplied from per- manent sources, it fi-equently proves altogether abortive as a preventive against famine. Again, in the second year of the drought from which we have been suffering throughout Southern India, tank in-igation generally failed. Moreover, even were it IRKIGATION WORKS. 177 physically possible to apply irrigation to all the cheap millet crops now grown upon the uplands of Madras, the expense of their cultivation by that means would render them quite un- purchasable by the classes who at present derive from them their chief means of subsistence. The difficulties and disasters of the recent famine have been greatest in Madras. But Madras is, taken as a whole, the best irrigated part of India. Out of a total area of 22,000,000 acres under cultivation, that Presidency has some 4,000,000 acres artificially irrigated ; and its entire irrigation system is supervised by professional officers who, in their own line, are unsurpassed. One part of the irrigation system of Madras is supplied by the permanent rivers ; and of these the number is limited. AH the rest of it is derived from the local rivers and storage tanks which are scattered in profusion over the whole Presidency. Now, the ex- perience of the present year has proved that the latter source of supply is only one degree less dependent on the normal rain- fall than are the dry crops of the unirrigated districts. If, therefore, we are to insure Madras against future famines by largely increasing its present water supply, it is exclusively upon the permanent rivers that we must reckon for our attainment of that object. Assume (and from all the inquiries I have yet been able to make this is the most I feel justified in assuming) that the waters of the permanent rivers might be so employed as to irrigate another half million of acres : what effect would the produce of half a million of acres have had towards prevent- ing the famine in Madras ? It would not represent one-third of what the railways alone have carried down from Northern India, and it is about equal to what was landed by sea during only two and a half months out of the twelve through which this famine has lasted. So far, then, as it was possible to render irrigation a protection against famine in a second year of drought, Madras has received, within a narrow margin of some 20 per cent., all the benefit which the nature of the case and circumstances of the country permitted, and yet Madras has this year suffered from a worse famine than has affiicted any province of India during the present century. In view of such facts as these, we cannot safely lay down any ficxed rule for universal application. Whether the value of increased produce will, in any particular N 178 FIXANCES AND PUBLIC WORKS OF IXDIA. case, be sufficient to justify the requisite outlay of capital on providing iriigation ; whether the necessarily limited amount of capital available for works of improvement is best applied to irrigation works ; or, again, whether the physical conditions of the locality will practically admit of irrigation at all — to these and many similar questions no general answer can be given. Each case must be decided in reference to its own merits, and on a careful review of many conflicting considerations. ' But, though I feel that, for all these reasons, we must be constantly on our guard against premature generalisations and impulsive action in such matters, I am none the less most fully persuaded that, next to the facilitation of transport, our greatest safeguard against future famine will be found in a well-con- sidered and widely developed system of irrigation works. The surplus produce of industry is the foundation of national wealth : and irrigation is the most certain means of improving and ex- tending agricultural industry. It enables the cultivator to accumulate produce ; and, if combined with navigation, it also enables him to transport produce. ' Every country which produces only just enough for its own consumption is a poor country. So is every country which can- not export its surplus produce, and exchange it for other com- modities. Therefore, admitting even that in many parts of India irrigation cannot appreciably augment the local food-supply, it by no means follows that irrigation cannot largely augment the wealth of the whole community ; for if this Empire be ade- quately provided with the means of transport, it is not so much by increasing the actual food-supply of the people as by helping to create other and different produce, not required for the con- sumption of the people, and possibly not even adapted for such consumption, that extensive irrigation will promote the social and financial prosperity of India. It is only by the gradual and continued improvement of their material condition that the people of this country can permanently escape the calamities they now suffer from the uncertainty of the seasons. ' To look to irrigation works as a panacea for our misfortunes would be to trust to an illusion ; to hesitate to recognise them as among the most certain of our means of protection would be to reject the irrefutable evidence of prolonged ex- perience. EFFECTS OF IRRIGATIOX. 179 ' A memorandum has been placed in my hands showing from the latest retm-ns of the actual operation of the irrigation works in the North-Western Provinces that the whole area now irrigated by them is about 1,500,000 acres, which, under pressure, might be extended to 1,600,000 acres, producing respectively 775,000 or 800,000 tons of grain, and providing food for eight m^onths for six million to six and a half million persons. The progress of these works will add half a million of acres ; and this addition would yield one quarter of a million tons of food, and feed for eight months two millions of people. Thus these works will secure the food for the period named of between eight and nine millions of persons. ' I conclude, then, that we shall be certainly right in carrying out irrigation works wherever the water-supply is both sufficient and constant, and wherever the material difficulties to be over- come do not involve an outlay that interposes insurmountable financial obstacles ; so long of course as due attention be, at the same time, given to the means of communication. But we can- not, and do not, undertake to provide irrigation gratuitously to those for whose special benefit it is required. We cannot affijrd to apply to new irrigation works the financial policy which has hitherto rendered so costly, and so unremunerative, the works of that kind which are already constructed. Here, again, we can only proceed in strict accordance with the prin- ciple of provincial responsibility and self-support. As the only funds at the command of the Grovermnent for irrigation works are derived from the country itself, the cost of such works must fall to a great extent upon those who derive from them imme- diate benefit. I repeat that it is on the co-operation of the whole community we reckon for the means of securing the whole community against the worst consequences of periodical scarcity. But it is to the local Grovernments that we look for the execution of local works of a preventive character ; and it is upon local resources that we must depend for the ultimate supply of the funds necessary to provide and maintain such works. I am aware that there are already some parts of India whose exclusively local interests are practically secured by the bounty of nature, or the industry of man, from the direct effects of famine. In the nature of things the population of K 2 180 FINANCES AND PUBLIC WORKS OF INDIA. those particular localities may, and probably do, derive some immediate advantage from the periods of scarcity which so fearfully afflict their fellow-subjects in other provinces. But it would be an insult to suppose that their fortunate exemption from the perils and sufferings common to the rest of the com- munity can furnish any argument they would stoop to urge in favour of exempting them from their fair participation in the support of any general burden imposed for the protection of the whole community from such sufferings and perils. Whilst, therefore, I do not doubt that the chief cost of protective works ought to be borne by those who most need them, and will chiefly benefit by them, I must maintain that no province of the Empire, and no class of the community, can be legitimately relieved of the national obUgation to contribute to the means required for the construction of such works. ' And here I would ask the Council to listen to the testimony of my honourable friend the Lieutenant-Grovernor of Bengal, who, speaking of the measures he contemplated last spring for dealing with irrigation works in the province he so ably admin- isters, observed that — ' " During the last five years the Grovemment of India has spent nearly 20 crores of rupees in alleviating famines caused by deficient water-supply. When I say that the Grovemment of India has spent this money, you will understand that this ex- penditure has fallen, not upon the Viceroy and the Council, but upon the people ; and that, if the necessity of expending their money had not been forced upon the G-ovemment, the taxation of the people would have been diminished to this extent. Now, the only way of averting famines arising from drought is to make the greatest use which science and experience can sug- gest of the supply of water which fortunately nature has given us in Behar. . . . This, of course, cannot be done without the expenditure of money ; and the question is who, in fairness and justice, should find this money. ' " After very careful consideration, I come to the conclusion that, as the whole of the province of Bengal suffered when there were such famines as have occurred of late years in Orissa and Behar, it was fair that a large proportion of the cost should be borne by a tax laid upon the public at large. But it also seemed EXTENSION OF LOCAL RESPONSIBILITY. 181 to me fair, and I believe you will agree with me if you will give the subject your unprejudiced consideration, that a share of the cost should fall on the people who directly benefit by the intro- duction of water to the neighbourhood of their fields, and are thus assured of a good crop at all seasons, instead of being ex- posed to the risk every few years of absolute failure. When I proposed this, I was told that the people did not want water ; that they would sooner be left alone to bear the risk of famine ; and I was even told that the water of the Sone was destructive to fields. Shortly after this discussion took place, the periodical rains were suspended, and then we had practical proof as to whether or not the Sone water was considered injurious or pre- judicial. The people clamoured for water, and to meet this demand we were forced to open our unfinished canals, by means of which we have irrigated, during the last few months, 200,000 acres of land, which would otherwise have remained waste for the year, but which are now covered with luxuriant crops. The produce of this land represents food grain of the value of 55 lakhs of rupees, 550,000^., and of this crops to the value of 40 lakhs, 400,000L, certainly would have been entii-ely lost if it had not been for the supply of canal water ; but it also repre- sents the rent of the land, of which the landholder would have been otherwise deprived ; and to this must be added the outlay which would fall on him if he had again to give relief to his tenantry in consequence of famine." ' To sum up, then : the Grovernment of India is convinced, upon a careful review of its financial position and prospects, that the heavy obligations imposed upon it by the calamitous cir- cumstances of recent years can only be discharged, without serious risk to its financial stability, by a strict and patient adherence to the principle affirmed in the financial measures we introduced last year, and developed in those which are now before the Council. That principle involves the enlargement, with adequate precautions, of the financial, and consequently also of the administi-ative, powers and responsibilities of the local Governments. In the next place, we believe that, if this principle be fairly earned into effect, the new imposts, which the Council is now asked to sanction, will, when added to the resources already created, pro^'ide the State with sufficient 182 FINANCES AND PUBLIC WORKS OP INDIA. means for the permanent maintenance of a national insurance against famine, without heavily increasing the pecuniary burdens of its subjects. For the attainment of this object the material appliances we intend to promote, by means of additional revenue, are cheap railroads and extended irrigation works. We are conscious of the reproach we should justly incur if, after such a declaration as I have now made, the prosecution of these necessary works was commenced, suspended, or relinquished ac- cording to the increased or relaxed pressure of annual circum- stance, or the intermittent activity of spasmodic effort. We therefore propose to entrust, in the first instance, to the local Grovernments the duty of framing a suflBcient and carefully con- sidered scheme of local railroad and irrigation works. We are prepared to provide them with the means whereby they may from year to year work systematically forwards and upwards to the completion of such a scheme. The funds raised for this purpose will be locally applied. But provincial Governments will have to meet the cost of provincial famines out of provincial funds to the fullest extent those funds can bear. They will find that thriftless expenditure in one year may involve the risk of diminished allotments in subsequent years ; and I cannot doubt that the unavoidable recognition of this fact will make them wisely eager to spend the requisite proportion of their annual income upon well-planned and carefully estimated rail- way and irrigation works, which will be their best insurance against the losses of famine, and the postponement of all ad- ministrative progress which famine generally entails. It will be the special duty of the Public Works Department of the Grovem- ment to keep those objects constantly in view of the local Grovernments, and to assist them, no less constantly, in their endeavours to give a rational preference to really useful and re- munerative works, over those more captivating, but less com- pensating, subjects of expenditure which, in all comparatively small communities, so powerfully appeal to provincial pride, professional proclivities, or popular pleasure. ' The specific projects now announced to this Council I ha,ve not presumed to put forward as the enunciation of any new policy. On the contrary, I should have spoken with much more hesitation if I imagined myself to be treading upon ground not PROVISION MADE FOR CARRYING OUT PROMISES. 183 long since surveyed by experienced authorities ; and the strongest recommendation I can claim for the views I have ex- pressed is that they differ in no important particular from those of the eminent statesmen who have preceded me in the office I now hold. But between the present and all previous occasions on which the Grovernment of India has declared its policy and principles in reference to the prevention of famine, there is one essential difference which I am anxious to impress upon your attention. We have been told over and over again by the highest authorities that India is to be insured against famine in this way or in that ; but when famines come upon us we find that the promised way is still wanting. The current claims upon the activities and resources of the Government of India are so numerous, so pressing, so important, official forces and imperial funds so necessarily limited, that when once the daily, hourly strain of a great famine has been removed from a wearied administration and impoverished treasury, its fearful warnings are soon forgotten. ' Well, then, I think I am entitled to point out to the Council that we are not now fairly open to this customary criticism. We do not speak without having acted; and we promise nothing which we have not, after long and anxious consideration, provided ourselves with the means of performing. I must have very imperfectly explained myself thus far, if I have failed to make it clearly understood that I am not now speaking of what we ought to do, or would do, to insm-e this country against the worst effects of future famine, had we only the means of doing it ; but of what we can do, and will do, with the means already provided for in the measm-es now before the Council. I do not mean to say that the construction of such an extensive system of local railroads and irrigation works as we propose to undertake will not be the gradual task of many years. But I do mean to say that, in the manner and on the principles already explained, we are now providing for the prompt com- mencement, and uninteiTupted continuation, of this great and necessary task. We are systematising a policy the principles of which have been repeatedly approved and proclaimed by our predecessors. We are associating with it the interests, the powers and the duties of our local administrations. We are 184 FINANCES AND PUBLIC WORKS OP INDIA. providing them with the means of permanently prosecuting and developing it, not without reference to our financial control, but exempt from the distressing uncertainty which has hitherto been inseparable from the practical execution of this policy, in consequence of the obligation which till now has rested on the Grovemment of India, with the very limited funds at its disposal for the prosecution of public works, to choose, from year to year, between the conflicting claims upon its purse of the various and dissimilar localities of this spacious empire. If you look back over a wider and a longer tract of experience than that which is covered by the history of India, if you embrace in one view our own history with the past history of other countries in other climates, you will find that the principles on which we have lately acted, and on which I trust we shall continue to act, in dealing with seasons of calamitous drought, have been found no less applicable, no less efficient, in other countries similarly affected, than they have proved to be in this country, wherever they have been intelligently understood and loyally carried out. There is, I venture to think, no more striking illustration of this truth than the history of the scarcity that occurred in Central France during the year 1770-71. That great states- man, Turgot, was then Minister. His administrative ability was equalled by his philosophical power of thought; and, fighting with difficulties in many respects almost identical with those which we ourselves have lately had to deal with — diffi- culties partly material, but greatly aggravated by the prevalence of extremely erroneous economical conceptions — Turgot con- ceived, developed, and, in the face of great opposition, carried into effect, views no less identical with those which have guided our own action, as to the essential importance of guarding the perfect freedom of inland trade in grain, of improving the in- ternal communications of the country, and of providing relief works of permanent utility upon which to employ the suffering population. Here, to-day, in India, those views are as sound, and as applicable, as they were in the Limousin a century ago. If, then, from the past we look forward into the future, why, let me ask, may we not hope that, under improved conditions of administration, and with increased development of those material appliances which civilisation creates for the provision POLICY BASED ON RESULTS OF EXPERIENCE. 185 of national wealth, India will eventually enjoy as complete an immunity from the worst results of scarcity as that which now exists throughout those regions of France where but a century ago such a result might have seemed as difficult of attainment as it now appears to be in many of our own provinces ? ' It was the confident hope of Lord Lytton that he would soon see the rapid fulfilment of these plans. Their execution, which the imperative requirements of humanity prescribed, not only involved no financial risk, but was certain to prove financially sound and prudent and profitable. Notwithstanding mistakes, which after all have not been numerous, and which in transactions of such magnitude it was impossible altogether to avoid, the pohcy by which, for many years past, we have been constructing railways and canals in India was wise and statesmanlike in its conception, and its practical results have, as already shown, been triumphantly successful. The wealth of the country, and the prosperity and happiness of its people, have been increased by it to an extraor- dinary extent ; the consequent gain to the country and to the public finances has been immense, and is not to be measured by figures showing only the direct returns from the works which have been constructed. There are no drawbacks, and no disadvantages which deserve to be weighed for one moment against the bene- fits which have been derived. It is certain that hmits can hardly be assigned to the increase in wealth and prosperity which it is in our power to bestow upon India by the construction of works of material improvement. The exercise of careful judgment and of aU possible caution are of course essential ; but if these conditions be duly observed, the boldest policy will be financially the safest. Other counsels, however, have temporarily ]86 FINANCES AND PUBLIC WORKS OF INDIA. prevailed. Lord Lytton was prevented from fully executing the plans which have been described ; he was compelled, by orders from the Secretary of State, largely to reduce the expenditure which, for many years past, the Government of India had incurred on works of necessary improvement, and to leave unex- ecuted measures by which he had hoped to facilitate their more rapid progress. Similar partial failure attended other efforts of Lord Lytton's Government to supply protection to the country. The arrangements described in the last chapter were intended to secure a surplus revenue, to the average amount of 1,500,000^. a year, which should be applied either directly to the actual rehef of famine, or to the reduction or prevention of debt ; and this amount, or any part of it, might be in- vested in the construction of productive works, likely to produce an income equal to' the interest of the capital spent on them. But it was apparent that, under the strict rules laid down for the apphcation of borrowed funds, no facilities existed for meeting a very important class of cases, in which, although it is obviously necessary to construct certain works for the prevention of famine, it cannot be assumed that they ^vill be so directly remunerative as to yield a net income equal to the interest on the capital expended on them. The question therefore arose how to provide means for the construction of this class of works, called for the sake of distinction protective, Avhen the required expenditure was too large to be met from ordinary income. The province of Bandelkhand supplies an illustra- tion. It suffers frequently from serious drought, and RESTRICTION OF EXPENDITURE ON PRODUCTIVE WORKS. 187 is peculiarly exposed to failure of the periodical rains and consequent famine. It is cut off from the existing railway system, and its means of communication are very imperfect. Designs for irrigation works and for cheap railways had been completed, which would render the province secure against serious danger, and would make its relief in case of necessity easy. But the country being naturally poor, it could not confidently be said that the direct money return from these works would cover the interest of the capital expended on their construction. It might, perhaps, for a good many years cover only half of it, and leave, say 20,000Z. or 30,000/. a year unprovided for. Under the existing rules these works could not be undertaken, except from the ordinarj' revenues, and, in the absence of funds from this source, Bandelkhand was left exposed to the dangers of famine. The first suggestion for deaUng with such cases was that these protective works might properly be constructed from the famine insurance surplus, which would be reduced to a corresponding extent. But, although this plan had been proposed by the Secretar}^ of State, the Government of India considered that it was not admissible. ' It is essential,' they wrote to the Secretary of State,^ ' that the limited amount of that surplus should not be trenched upon to an extent that wiU frustrate the main object of its creation, namely, the prevention of any permanent increase of the pubhc debt by reason of the pubhc expenditure upon famines. If the assumption be true upon which our recent measures were founded, namely, that 1,500,000/. sterUng is the amount which it is necessary to secure as a yearly surplus to provide for the cost of counteracting famines, ' Despatch from Government of India to Secretaiy of State, dated September 16, 1878. 188 FINANCES AND PUBLIC WORKS OF INDIA. it is plain that, if unremunerative works were carried out under conditions which caused a reduction of that surplus beyond a certain limit, additional taxation would be eventually required to make good the loss. This result could only be avoided if the works were found so useful as, when famine occurred, to cause a diminution of the expenditure which must otherwise have been in- curred for purposes of rehef, sufficient to compensate for the cost of the construction and maintenance of the works at other times.' The suggestion that the supply of funds from the famine surplus for the construction of protective works may be justified by such an expectation as that just referred to should be received with much hesitation. The true object of these works is to give increased security against the greatest dangers that arise in ex- treme drought, to supply the means of saving life and of averting suffering and misery, rather than to cause an eventual reduction in the cost of famine relief. Experience indicates no vahd ground for hoping for any important diminution of the burden of such rehef. On the contrary, the probabihties of the future, within any period to which for practical purposes we can now look forward, assuredly are in the direction of a constantly growing demand for a more bountiful administration, and of increased efficiency rather than for reduced cost. In short, no reduction of any insur- ance fund against future liabiUties could be prudently accepted on grounds such as those just noticed. Further, one of the most essential conditions to be observed in the construction of great pubhc works is that, when they have been commenced, they should be carried on to completion without interruption, at a cer- tain and steady rate of expenditure; the neglect of PROPER APPLICATION OP FAMINE SURPLUS. 189 tins condition has notoriously been already a fruitful cause of wasteful expenditure in India ; and consequently if the construction of protective works depended on the possession of a sufficient surplus, there could be no certainty that they would go on uninterruptedly for a single year, for their progress might at any time be disturbed by fainine, or war, or other causes. For such reasons, to which no reply can be given, the Government of India rejected the proposal to provide from the famine specia;l surplus the capital required for protective works demanding a large expenditure, or in other words to provide the money from ordinary revenues, making an equivalent reduction from the surplus of 1,500,000Z. Lord Lytton's Government considered that there was only one way in which these works could be made with the speed which the necessity of protecting the country against famine required, and at the same time without financial risk. In any case, they said, in which it would be justifiable in principle, although not expedient in practice, to diminish our annual famine insurance surplus, -with the object of defraying the capital ex- penditure on protective works, it would be unobjection- able to apply a portion of that surplus in payment of interest en the capital required. It was therefore proposed to allow, in case of necessity, money to be borrowed for these works, subject to the condition that the net charge for the interest on their capital cost, and for their maintenance, after setting off the income yielded by them, should not exceed a specific maximum amount, to be provided from the ordinary standard surplus. The amount of the habdity thus admitted might be altered, from time to time, as experience was gained ; but to be on the safe side, it was proposed, in the first instance, to fix at 190 FLXAXCES AXD I'UBLIC WORKS OP INDIA. 250,000^. the sum by which the yearly charge for inte- rest and maintenance might exceed the net revenue from the works. It was beUeved that the annual surplus of 1,500,000Z., reserved for famine, might safely be re- duced by this amount, not only because the construction of these works would reduce the ultimate liability for the relief of famines when they occur, but because, as the inquiries of the Famine Commission have since more decidedly shown, there is reason to think that, in originally determining the standard amount of that sur- plus, it was fixed at a sum somewhat higher than was really essential. This sum of 250,000^., to be annually expended in paying interest on fresh capital for protective works, would have been distributed between the Local Govern- ments according to the urgency of their wants ; and as soon as the quota of any province became exhausted, the further capital outlay in that province would have been suspended until the growing income from the provincial works as a whole, or, under certain condi- tions, from other sources of provincial income, again relieved the provincial revenues and supplied a surplus. Even if the works should produce no net income at all, and should merely cover their working expenses — a supposition so improbable that it does not really deserve to be considered — a capital sum of about 6,000,000^. might, under this plan, be gradually ex- pended, and such a sum would go far towards providing the protective works most urgently required. But, in fact, the grooving income would, without the least doubt, rapidly provide the means of extending the capital ex- penditure, while, as ailready said, the gain to the coun- try from the improvement of its communications would far outweigh any deficiency in the direct return from SECRETARY OF STATE'S ORDERS. 191 the works. The adoption of this plan would create no fresh ultimate obhgation beyond what has already been accepted ; the interest payment would be nothing more than an indirect contribution of the capital itself, and no greater risk would be incurred than if the capital had been directly supphed from surplus revenue. These proposals were not sanctioned by the Secre- tary of State. Not being able to appreciate the force of his reasons for this, and wishing not to misrepresent them, I quote his orders on the subject in extenso : — ' I have given a most careful consideration to this important question, and regret that I am unable to give my consent to the modification proposed. . . . The events of the last few months, and their effect on our financial position, have compelled me to reconsider the question of public works expenditure ; and I pro- pose to address your Excellency in another despatch on this subject. In the meantime, however, I deem it necessary to ex- press the opinion that the present condition of the finances does not justify any loan for outlay on protective works, or any ex- penditure on them beyond what may be met from the receipts from the special taxation recently imposed. The first claim on those receipts being that of the Home Grovernment for the re- payment of debt already incurred on account of famine, I am of opinion that not less than one-half, or, say, 750,OOOL, should be held available for remittance to England in the next ensuing years on that account. The remainder may be appropriated, at your discretion, to the extinction of debt, to the relief of famine, or to the construction of protective works, not necessarily re- munerative, but obviously productive in the sense of guarding against a probable future outlay in the relief of the population. I cannot, however, under present circumstances, sanction the raising of capital by loan for the construction of works which do not distinctly fall under the regulations laid down for productive public works.' It must be understood that the proposals of Lord Lytton's Government were made on the assumption that 192 FINANCES AND PUBLIC WORKS OF INDIA. the regulations referred to in the last words of this quo- tation would be maintained, and that it was useless to advise their alteration. So long as this assumption remained true, no other satisfactory means of providing the funds required for protective works could be suggested. But a far better solution of the difficulty- would have been found in the abandonment of the system under which the assignment of borrowed funds for the construction of irrigation works and railways was made to depend solely on the immediate financial prospects of each individual undertaking. It would be a much more reasonable and beneficial plan, and one attended with no financial risk whatever, as has been shown in Chapter VII. of this work, to revert to the principles originally laid down in the time of Lord Lawrence and Lord Mayo, and to regulate the expendi- ture of borrowed money on great pubhc works of im- provement on the broader considerations, of what are the true requirements of the country, and what the amount which can -svisely be contributed from the general revenues in payment of interest on capital laid out for such purposes. Under such a system there would be an end to the misleading and really meaningless distinc- tions now drawn between productive and protective works, to the arbitraiy hues laid down for determining what are and what are not remunerative works, and to the artificial and inconvenient complications in the accounts which are now growing up as a result of these distinctions, and Avhich can only tend to make the facts unintelligible to the public. It appears from the Budget Statement for 1881-82 recently published, that effect is about to be given to the views expressed by the Secretary of State in the quotation above given, and that a sum of 750,000^., EFFECT GIVEN TO THOSE ORDEKS. 193 to be taken from the famine surplus, is assigned for expenditure in the coming year on the class of works that have been spoken of as protective ; and among these will be some of the works before mentioned as required in Bandelkhand. I have thought it right to notice this in connection with what has been said on the subject of protective works ; but it may be added that the object of this book is to state the policy of Lord Lytton's Government, and it forms no part of my plan to discuss the acts of their successors. CHAPTEE Xn. TAXATION IMPOSED IN 1877 ANB 1878. TAXATION POB FAMINE H. T.T.rp. T? SHOUIB BE GEKEEAI — BEIMPOSIIION' OF DfCOME TAX mPKACIICABLB — CLASSES SPECIALLY LIABLE — TKADEES HITHEBIO UNDULT EXE3IPI FROM TAXATION — LIOBNOE TAX PKOPOSED — ADDITIONAL EATES OS" LAND IN BENGAL — IN NOETHERN INDIA — AMOUNT EAISBD FKOSI LAND — INCIDENCE OF LICENCE TAX — ITS EXTENSION TO OFFICIALS AND PROFESSIONS — DIRECT TAXATION HOW FAR NOW APPLICABLE AND DESIRABLE — FREQUENT CHANGES IN PAST AR- RANGEMENTS MOST MISCHIETOUS — BEIENTION OF CESSES IN BENGAL AND LICENCE TAX ON TEADERS NECESSARY FOR PROPER ADJUSTMENT OF BURDENS — TAXATION FIRST NEEDING EEDUCHON. When the Government of India resolved, in 1877, that it was necessary to make a permanent addition to the public revenues, with the object of enabhng the State to meet its obligations for the rehef of famine, it de- clared that there was no class in the whole community, and no sort of proj)erty or income, which might not properly be made to contribute for a purpose of such general interest as the protection of the country against the consequences of famine. But there were special reasons which at the time rendered it hardly possible to reimpose an income tax, and their sufficiency could not be denied even by those who have always regretted the loss of that tax, and have always believed that it might with great advantage have been maintained as one of the permanent sources of Indian revenue. Lord Lytton could not avoid the conclusion that its reim- position was impracticable, and the Secretary of State had declared that he would not assent to it. There CLASSES SPECIALLY LIABLE FOR FAMINE TAXATION. 195 was, therefore, an income tax having been set aside, no way in wliich any universal liability could be enforced, and there were good reasons for considering that the trading and agricultural classes should be the first to bear the new taxation which was considered necessary. These reasons were fuUy explained by Sir John Strachey at the time. It was shown that when scarcity affects one part of India, the dealers in grain and the producers of grain in parts of the country not so affected make large profits ; and that while the agricultural and trading classes are, on the one hand, those that require large measures of rehef in a region suffering from extreme scarcity, so, on the other hand, these are the classes which are in a position to obtain - large profits when their o^vn provinces are flourishing and others are suffering. The less wealthy members of the professional and o&cial classes, on the other hand, who depend on fixed incomes for their support, or on incomes httle affected by competition, as well as the labouring class paid by wages, suffer from the pressure of high prices, not only when scarcity prevails in their own provinces, but when it prevails elsewhere. The high prices which, under such circumstances, serve to enrich the producing and trading classes, entail suf- fering on the small officials, and on those subsisting on wages the amount of which they are powerless to regu- late. Also, though it was never suggested that the richer members of the official, or professional, or any other classes, might not equitably be taxed, yet it was con sidered that the class of European officials, from which the professional classes could hardly be distinguished, were for the moment placed under such special dis- advantages by the recent sudden and heavy fall in the exchange value of the rupee, that it would be inex- 2 196 FINANCES AND PUBLIC WORKS OP INDIA. pedient then to subject them to any fresh burden. These considerations did not apply to the trading and agricultural classes, to which, for the reasons above stated, a special HabUity was held to attach, and as regards the former there were other reasons of a more important and more permanent character. It has always been admitted that the trading classes in India are the least heavily taxed portion of the population. They have ordinarily contributed almost nothing to the expenses of the State, while they derive perhaps. the largest share of benefit from our administration, and from the railways and other works of improvement provided at the cost of the country at large. The exemption which these classes have enjoyed has long been felt to be one of the most in- defensible and inequitable peculiarities of our Indian system of taxation. It was not an easy task at once to apply a remedy, and to introduce a system under which a fair share of the pubhc burdens should be placed on the commercial and trading sections of the community ; but the Govern- ment resolved that the task must be undertaken. It was clear that until it was accomphshed the condition of our fiscal administration would always be unsatis- factory. The Government believed that at least the foundations might be laid for a better apportionment of the public burdens, and that, although mistakes might be made at the outset, they would be corrected as experience was gained. Tliey accordingly endeavoured to frame a scheme which, although it might be iin- perfect, should, as far as possible, be equitable in principle, and which might be capable of future deve- lopment into a system which would secure many of the objects aimed at by a general income tax. THE LICENCE TAX. 197 It -was therefore decided to impose a licence tax on all traders whose presumed annual profits exceeded a certain amount. This amount varied in different provinces. The average rate of the tax on annual profits waR about !{, and was in no case to exceed 2 per cent. This Indian licence tax, it should here be explained, has no analogy with the Hcence duties levied in England. Here persons are required to take out hcences to carry on certain occupations or to perform certain acts. The fees paid for the licences are com- paratively small in amount, and have no relation what- ever to the income of the person paying them. Bankers pay BOL, auctioneers 10^., game dealers 2Z., wine mer- chants 10/. 10s., and the like. But the Indian hcence tax is a tax assessed on persons engaged in professions, commerce, or trade, with direct reference to their income. The persons who are chargeable are divided for pur- poses of assessment into classes according to their pre- sumed income. All persons in the same class pay the same tax. Thus the so-called licence tax is in fact a limited income tax assessed on a system of classifica- tion according to approximate income. The propriety of placing fresh taxation on the land might seem, at first sight, more open to question ; but the Government was satisfied that no room for doubt existed. In Bengal an additional cess on the land had been already imposed in 1877, under the name of the Pubhc Works Cess, to cover the habihties caused by the works constructed in that province to protect it from famine. A new rate was placed on the land in all other provinces, excepting Madras and Bombay, which were at the time actually sufiering from famine. In the permanently settled province of Bengal, the land revenue, which was fixed nearly a century ago, has 198 FINANCES AND PUBLIC WOKKS OF INDIA. notoiiously become a very small and often hardly appreciable burden. There is certainly no important class of persons in any civilised country in the world which enjoj^s such a virtual immunity from taxation as the Bengal zemindars, and Bengal, although the wealthiest, is the most Hghtly taxed of all the provinces of the Empire. There was also a special propriety in insisting that when the Government was obUged to impose fresh taxation for such a purpose as the pro- tection of the country against the consequences of famine, Bengal, in which, within the last few years, nearly 7,000,000^. had been expended from the general revenues of India on famine rehef, should not escape its just share of the common habihty. It was inevit- able that on this as on every other occasion on which the zemindars of Bengal have been called upon to bear their share of fresh public burdens, it should be loudly asserted that the Government was infringing the conditions of the permanent settlement of the land, and was committing a breach of faith. On these grounds, the zemindars had demanded to be exempted even from the income tax, which was imposed on all kinds of property throughout India, without exception. Lord Lytton was not disposed to listen to such extravagant claims. They have received, during the last ten or twenty years, much more consideration than they de- served. It is sufficient to say here that it has been repeatedly and finally decided that (to quote the words of the Duke of Argyll, when he was Secretary of State) ' the levying of such rates upon the holders of land, irrespective of the amount of their land assessment, involves no breach of faith upon the part of the Government, whether as regards holders of permanent or temporary tenures.' CESSES ON LAND. 199 111 Northern India, the imposition of the new rate, at one per cent, on the rental of the land, to meet famine liabilities, was approved by all the Local Governments. It is payable by the landlord and not by the tenant. It cannot, of course, be asserted that this or any other taxation is not disHked by those who have to pay it, but it is so shght a burden that it certainly constitutes no real hardship. The debate of February 9, 1878, in the Legislative Council, and especially the speeches of Mr. Thornton and Mr. Bazett Colvin and Sir Ashley Eden, than whom no men could speak mth higher authority, indicates the opinions of the Government on this point. Mr. Thornton showed that ' the landholders of the Punjab could well afford the proposed insignificant addition to the local rates,' that the agricultural popula- tion was ' eminently prosperous and thriving,' and that land had so increased in value that the people were, as a rule, more than six times as well off as they were twenty years ago. ' Wliat,' he said, ' does the Govern- ment ask ? Why, it asks a body of landowners, whose property has more than sextupled in value, to pay a famine insurance rate for that property amounting on an average to one farthing per acre per annum.' Mr. Colvin showed that similar facts were true in the North-Western Provinces. He said that ' everywhere there has been an extraordinary rise in the value of land,' that ' the great advance in wealth and prosperity of the agricultural classes is too plainly evident to be called in question,' and that ' whatever the industry and intelligence of the proprietary class may have been, this improvement in their position is, in very great measiire, due to the direct action of our Government. It is scarcely too much to say that it has created proprietary 200 FINANCES AND I'DBLIC WORKS OP INDIA. rights in the soil. It lias secured them by maintaining good order and tranquilhty ; and it has added indefi- nitely to their value by furnishing marvellously improved and accelerated means of communication, and by open- ing markets for the produce of the land, of which the people of two generations back never even dreamed.' Mr. Colvin declared his behef that the landowning class, as a body, are four or five times as rich as they were at the beginning of the century. The Lieutenant-Governor of Bengal, Sir Ashley Eden, gave similar testimony. He stated his opinion that ' no measures could have been devised more likely to be efficient, equitable, and inoppressive,' and with reference to the position of the landholders of Northern India, who, as Mr. Colvin had shown, had prospered greatly under former settlements, when they paid to the Government two-thirds of their collections, instead of one-half as at present, he made the following remarks : — ' For no very apparent reason, when the new settlement was made the zemindars were only called upon to pay half of their collections, keeping one-half. Admitting, as I do, that it is sound policy in the Government of India to limit its demands on the country to its actual requirements, and to distribute the burden of taxation as evenly as is practicable on all classes of the people, I should be sorry to condemn the principles of the present settlement ; but the fact remains that if the present settlement had followed the lines of the old settlement in respect of the shares of the Government and the landholders, the Government would, setting new cesses aside, have received 2,000,000L more than it receives now. And making all allow- ances for new cesses, including those now imposed, the land- owners of the North- Western Provinces are receiving 1,500,000?. more than they received before. And now that its imperative requirements have increased, I do not consider that there is anything unjust or unreasonable in Government imposing upon the classes who received these great benefits the same bui'den iDIOUNT OF NEW TAXATION. 201 which is imposed upon all other classes. Of course it requires no very great ingenuity to find some sort of objection, theoretical or practical, to every kind of tax ; and I am sorry to have to say that those who are loudest and most unreasonable and im- patient in their demands that Government should take upon itself the liability of relieving and preventing famine, and of constructing extravagant works of irrigation, are the first to put into the mouths of the people reasons why no one should con- tribute towards such a purpose. But the money has to be raised, and this being so, I must congratulate your Excellency's Grovem- ment on the substantially fair and even manner in which this liability has been distributed.' The so-called famine taxation, though it is con- venient for some purposes to treat it as a whole, was actually imposed partly in 1877, and partly in 1878. The additional cess on the land in Bengal was origin- ally imposed in 1877, as a part of the modified finan- cial arrangement under which the provincial revenues were required to bear the charges incurred on ac- count of the canals and railways constructed for its benefit, and for its protection against famine. The Bengal taxation differed in this respect from that im- posed in Northern India. Its character was provincial and not imperial ; and whereas in the other provinces the whole of the proceeds of the new rates on the land have gone into the imperial treasury, a large portion of them has, in Bengal, been left at the disposal of the Local Government, over and above the amount paid to the Government of India. The Bengal Public Works cess yielded in 1878-79, 355,590^. In 1878 the new rates were imposed on the land in the North-Western Provinces, Oudh, the Punjab, and the Central Provinces ; they yield about 170,000Z. Thus the total amount of new taxation on the land was about 525,000Z. The hcence tax on traders was first imposed in 1877 202 FINANCES AND PUBLIC WORKS OF INDIA. in the Nortli-Western Provinces, and in the following year the licence Acts, which, with modifications to be noticed, are still in force, were applied to the whole of India. They yielded at their maximum about 820,000Z. net. The total amount of what has been called the famine insurance taxation was therefore about 1,345,000^. Subsequent exemptions of the poorer classes have reduced it to about 1,000,000Z. The attempt to. make the commercial and trading classes, by means of the licence tax, contribute some- thing towards the expenses of the State, was, on the whole, financially and otherwise, successful. The greater part of the tax, in by far the greater part of India, was assessed and collected without difficulty or opposition. But experience showed that, as originally introduced, it descended too low, and feU on large numbers of people on whom the imposition of direct taxation was not expedient or profitable. The lower limit of hability to the tax, which varied in different provinces, had been in every case virtually de- termined by the Local Governments ; in some instances, however, the Government of India interfered to make the limit higher than the Local Governments pro- posed, for some of them would have gone lower than annual incomes of Es. 100, the minimum actually fixed. In the North-Western Provinces, Oudh, and Madras, traders whose annual earnings amounted to Es. 200 were originally hable to the tax ; in Bengal, Bombay, and the Punjab, the hmit was Es. 100. After nearly two years' experience, the Governments of Madras, of Bengal, and of the North-Western Provinces concurred in the opinion that about Es. 250 might properly be adopted as the minimum. Sir Eichard Temple, the Governor of Bombay, and Sir Eobert Egerton, the Lieu- SUBSEQUENT MODIFICATION OP LICENCE TAX. 203 tenant-Governor of the Punjab, would have made Httle or no change in the existing Uniit of Es. 100. They informed the Government of India that the tax was working well, that collections were made without trouble or complaint, and that the difficulties which had at first been felt had ceased. Notwithstanding these opinions, given by such high authorities, the Government, towards the close of 1879, decided that it was desirable to raise throughout India the limit of habihty to the tax. Statistics received from aU parts of India showed that we were raising by direct taxation from more than a miUion of people no larger sum than about 340,000^. a year, and it was clear that this was neither financially nor pohtically wise. The lower hmit of hability to the tax was conse- quently fixed at an annual income of Es. 500. This decision was not arrived at on the ground, often main- tauied by persons possessing httle knowledge of the country, that the Hcence tax feU upon the poor. Speaking on this subject in the Legislative Council, in denial of the assertion that the tax would fall on the poorer classes. Sir Ashley Eden, the Lieutenant- Governor of Bengal, said — ' It may be difficult for men who know nothing of the country to reahse that practically a native with an income of Es. 100 a year is in a better position than a trader or mechanic in Europe with an income of lOOZ. a year. I am sure that every one really acquainted with native habits and modes of life and requirements will agree with me that this is so.' There now remain in all India not more than 250,000 traders hable to the tax, and it is expected to yield, in the present year, something over 500,000Z. When it was decided that the imposition of a 204 FINANCES AND PUBLIC WOKKS OF INDIA. general income tax was impracticable, and that mea- sures of class taxation must consequently be adopted, it was inevitable tliat whatever were the measures actually taken they would be open to objection on the ground of inequahty and unfairness in their inci- dence. Such objections were raised by the mercantile classes in the Presidency towns, and by others, early in 1878, shortly after the licence tax was imposed, and the injustice of exempting the official and professional classes from taxation was strongly urged. The Government of India, although it had thought it necessary, in the first instance, to restrict the opera- tion of the new taxes, had no desire permanently to maintain any such exemptions ; in the latter part of 1878 it made a definite proposal to extend to the professional and official classes taxation similar to that already imposed on the traders and agriculturists, which was approved by the Secretary of State. Various cir- cumstances rendered the postponement of the measure necessary, and it was not until November 1879 that a Bill to carry it out was introduced into the Legisla- tive Council. The extension of taxation to the official classes was supported hj every local Government in India. But from causes which need not be stated in detail, the proposal was dropped, a step which, though I my- self accepted it as inevitable, I now regret ; and I think the Marquis of Hartington was right when, in his despatch of August 5, 1880, he said that he could not ' approve of the withdrawal of the measure for the ex- tension of the Ucence tax to the official and professional classes, which had been recommended by the Govern- ment of India and sanctioned by. the Secretary of State as being likely to remove from the minds of the other EXTENSION TO OFFICIAL AND PROFESSIONAL CLASSES. 205 classes a sense of being subjected to unequal treatment, and which, whUe thus desirable in itself, would have avoided a loss of 240,000^. a year.' The existing hcence Acts impose, or, with modifica- tions such as those proposed in 1880, would impose, without minute inquisition, and in a manner Httle open to objection, a virtual income tax, at an average rate of about 14 per cent., on the richer members of the pro- fessional, commercial, and trading classes. They are estimated to yield in the present year 515,000Z. With the extension of taxation, at 1-| per cent., to aU the higher salaries, the richer officials would contribute at a rate similar to that already paid by the traders. The fund-holders and house-proprietors would remain untouched. Under existing circumstances, while India is every year borrowing money for the con- struction of productive pubhc works, the exemption of the fund-holders from new taxation has much to recom- mend it. With regard to house-proprietors, according to the income tax returns for 1871-72 there were, in all India, only 3,100 persons deriving incomes exceeding Es. 1,000 a year from houses alone, and a tax on them of 1^ per cent, would have yielded about 18,000Z. In the absence of a general income tax, it would not be worth while to inipose fresh taxation on this class. The new rates on the land, now yielding 525,000Z. a year, impose an approximately equal burden on the agricultural portion of the community in the Bengal Presidency, and, there is no reason why, with certain restrictions which the different tenure of land and other considerations would render proper, similar taxation should not be imposed in Madras and Bombay, especially on the permanently settled zemindars of Madras, if at some future time it should become desirable. But it 206 FINANCES AND PUBLIC WOEKS OF INDIA. would be very unwise on theoretical grounds of uni- formity to impose any such fresh taxation when finan- cially it is not wanted. Although I have always regretted the loss of the income tax, and recognise that its reimposition at the present time is impracticable, rather from the strength of adverse opinion than from any fundamental objec- tions of principle or pohcy, yet I am satisfied that it will be wise to continue, in regard to the question of direct taxation, to act on principles similar to those which during the last four years have been followed by the Government of India. I do not propose to discuss at length the advantages of an income tax, or of other forms of direct taxation. In a note to this chapter a quotation is given from Mr. Bazett Colvin's valuable paper on Indian taxation, because it expresses the views which I hold. Although under existing circumstances I do not advise that prac- tical efiect be given to them, I must repeat Mr. Colvin's observation that they are in accordance with those of very many of the most distinguished men in modern Indian administration. Foremost among these is that of my honoured master and friend. Lord Lawrence, who never, while he was in India, or after he left it, wavered in his opinion on this subject. No man knew India better than he, and never was there a man who would have more strongly and indignantly refused his consent to measures which he thought must entail injustice and oppression on the people. He beheved that there are some classes of the community which have borne no proper part of the pubHc burdens, although no classes are better able than they to bear their share; that it is by direct taxation alone that they can be reached ; and that NECESSITY FOR SOME FORM OP DIRECT TAXATION. 207 with reasonably good administration, which it is cer- tainly within our power to secure, there is no neces- sity whatever for any gross abuses in the assessment and collection of taxes of this kind, particularly if a high minimum of taxable income be adopted. On the very last occasion on which I saw Lord Lawrence, he spoke to me to this effect. Indirect taxation, in a country like Lidia, is in it- self no doubt preferable to direct, but many erroneous ideas are prevalent on the subject. Direct taxation on the trading classes has been imposed in Lidia from time immemorial, and there is at this moment no im- portant Native State in which it is not a recognised part of the fiscal system. There is probably no country in the world in which so large a proportion of a great revenue is raised by direct small payments as Lidia. As a matter of fact, the greater part of the land revenue of more than 20,000,000Z. is raised by what are vir- tually direct payments from an immense number of persons ; and obviously it matters little to the miUions of smaU proprietors and cultivators, who pay the greater portion of this revenue, what name we give to theu' payments. So, again, nearly the whole of the local taxation in a great part, perhaps in the greater part, of India, is received in the form of direct and not indirect payments. If, however, any plan of direct taxation is to become successful, the fast-and-loose system which has hitherto been followed must be abandoned. As Mr. Elvers Thompson has observed, ever since the days of Mr. Wilson licence taxes have succeeded income taxes, cer- tificate taxes have followed hcence taxes, in various forms and shapes, and each in turn has been abandoned through an entbe absence of any settled continuity of 208 FINANCES AXD PUBLIC WORKS OF INDIA. administration in our finances. No agency could be perfected under such constantlj^ recurring changes. It was forcibly pointed out, some years ago, by ISIr. Alonzo Money, that in the assessment of direct taxation throughout the greater part of India a system re- sembhng, in some respects, the periodical settlement of land revenue ought to be adopted. The character of the population is so stationary and unchanging that there is little variation from one year to another in the income and profits of the great majority of the persons called on to pay an income or licence tax, and, excepting in the large commercial centres, no necessity exists for annual assessments . Sir WiUiam Muir , when Lieutenant- Governor of the North-Westeru Provinces, laid much stress on these considerations. ' As in the assessment,' he said, ' of landed profits, so in the assessment of incomes, the more fix:ity and permanency arrived at, the greater will be the feeling of rest and of confidence. In proportion as such a state of comparative permanency can be approached, the suspicion and irritation, the fraud and oppression, and the other evils incident to the tax, would be diminished, the pressure on the people would be lightened, and the action of the Government would be better understood, and its motives more fully appre- ciated.' The question may here fairly be asked, whether, granting that the imposition of this new taxation was right in 1877, its maintenance is necessary now, when the condition of the finances has become so far more satisfactory than it was, and when there is declared to be a large surplus of revenue over ordinary expen- diture ? Before replying to this we should remember what are the classes on which this new taxation actually falls. RETENTION OP LAND CESS IN BENGAL NECESSARY. 209 There are, first, the landlords of Bengal, the richest class in the richest province of the Empire, who now pay in taxation almost nothing, and in land revenue an amount altogether inadequate. They have succeeded in throwing upon the tenants a portion of all the cesses hitherto imposed on the land, and if this could be pre- vented I for my part should be glad. I can therefore conceive no more unwise or unjustifiable measure than the exemption of the Bengal zemindars from their share of this burden, the only fault of which, in rela tion to them, is that it is too light, while so much remains to be done for the relief of the poorer classes from taxation. Secondly, the new taxation falls, at the rate of 1 per cent, on their gross rental, on the land- lords of Northern India. It has been shown how well they can afibrd to pay this demand, no portion of which is payable by the tenants. At the same time their case is altogether difierent from that of the land- lords of Bengal. Although their assessments are very moderate, they nevertheless contribute largely towards the necessities of the State, and I should see without regret relief given to them by the remission of the rates imposed three years ago. The loss of revenue would be about 170,000^. Nor would there be any in- consistency in retaining the rates in Bengal and re- mitting them in Northern India, because, independently of the fact that Bengal is incomparably better able to pay, the rates were, as already explained, imposed at difierent times and for difierent purposes ; and al- though it has been thought convenient to consider the Bengal public works cess as a part of the so-called famine taxation, it has been treated quite differently from the rates imposed in Northern India. Thirdly, the new taxation falls on the richer class of traders, touch- P 210 FINANCES AND PUBLIC WORKS OF INUIA. ing no one whose annual profits are less than Rs. 500 a year, a hmit equal perhaps to 400Z. or 500/. a year in England. This class, if the licence tax were remitted, would pay literally no obligatory taxes at all, except indeed an annual Id. a head for salt. The total number of persons paying the licence tax in all India is about 250,000. Considering that the population of British India exceeds 190,000,000, it is an abuse of language to talk of such a tax being unpopular. Of all the taxes that are levied in India, there will be none more just or more necessary than this, when, as I trust may soon happen, similar taxation has been extended to the ofiicial and professional classes in the way that has been proposed. Indignation is always aroused in India by every attempt to relieve the poorer classes from taxation at the expense of the richer. ' Such a change,' it has been observed by an accomplished writer, ' is inevitably de- nounced with more vigour and outspokenness than are available for its defence. Those whom it reUeves are for the most part persons who accept the decrees of Government, whether for better or worse, as providential dispensations which it is in vain to question, and as to which silent endurance is the wisest policy. On the other hand, it touches the pockets of a class of persons who have both the will and the power to make their troubles known, and are by no means inchned to let their interests suffer for want of courageous advocacy. Indian journalism of the more respectable and influential order is closely alhed with the oflicial world, and reflects with undeviating accuracy the feelings and the tastes of those from whom it draws its inspiration, and on whose patronage it depends. The English merchants, too, at the presidency towns have no difficulty in stirring the TAXES WHICH FIRST CALL FOR REDUCTION. 211 sympathies and guiding tlie convictions of writers whose interests are in many particulars identical with their own. The consequence is that every measure which imposes on the official or mercantile classes a larger share in the taxation of the country, is denounced by the Indian press with a vehement unanimity which an in- experienced observer would be tempted to value at more than its true worth. It imphes really nothing more than the natural pang which every conscious contribu- tion to the public treasury occasions : and its political importance is certain to be exaggerated, because we hear nothing of the silent milhons whose opinion, were they capable of expressing it, could not fail to be in favour of a measure which transfers a portion of the burden of taxation to sturdier shoulders than their own.'^ Thus temptations are never wanting in India for Governments to earn for themselves an easy and apparent popularity by a refusal to impose taxes on the richer and more influential classes of the community ; and while these, the only audible critics, approve, it will never be difficult to find acceptable reasons for a course essentially impohtic and unjust. Statesmen should never forget that the real foundations of our power in India do not rest on the interested approval of the noisy few. They rest on justice, on the contentment of the millions who may not always be silent and quiescent, and on their feehng that, in spite of the selfish clamour of those who profess to be their guardians and representa- tives, they may place implicit trust in the equal justice of our Government, and in its watchful care of the in- terests of the masses of the people. The exemption of ^ Although the general truth of these remarks is undeniahle, there is one notahle exception. The justice and liberality of view shown by the public and by the press of Bombay in regard to all these questions of direct ta.\a- tion have long heen remarkable. p 2 212 FINANCES AND TUBLIC '(VORKS OF INDIA. the richer classes from taxation is a pohtical mistake which, as time goes on, and knowledge and intelligence increase, must become more and more mischievous. When taxation is diminished, these, then, are not the taxes with which we ought to begin. As I have endea- voured to show in another chapter, further reductions in the salt duties are, on all grounds, desirable, both for the benefit of the people and of the finances. Further reforms in the customs tariff", involving a loss of present revenue, but certain to be most beneficial to the country, should also be made. The court fees, which are taxes on the administration of justice, ought to be reduced. The capitation tax in Burma ought to be abolished. These are among the taxes of which the reduction or remission are first required. NOTE TO CHAPTER XII. Extract from a Paper by Mr. Bazett Golvin on Iiidian Taxation. An income tax is not an untried resource, or a doubtful experi- ment. In one shape or another it has been imposed, at inter- vals, during the last twenty years, and the arguments for and against it are familiar to most people in this country. I am aware how much there is to be urged against an in- come tax, and know its defects not from hearsay but from ex- perience, having been personally engaged as a district officer, in assessing and collecting every direct tax upon incomes, except one, which was imposed between 1860 and 1872. I do not deny that there are serious defects in it ; but it does not follow that those defects are beyond remedy ; or, even if they were, that an income tax would be worse than any of the other forms of taxation which we have been examining; Our choice in the case supposed would lie among evils ; and, this being so, the MR. COLVIN ON DIRECT TAXATION. 213 real question is, whether an income tax is not the least that we can choose. The chief argument that is used against an income tax by- its opponents is its unpopularity. It is, no doubt, greatly dis- liked both by Europeans and Natives. The European aversion from it is due, in some measure no doubt, to its incidence as a direct tax upon themselves ; but the official dislike to it should (I think) be chiefly ascribed to the defects of its assessment, and to an Englishman's reluctance to be concerned in anything like arbitrary taxation. Natives object to it, less, perhaps, be- cause its assessment is faulty, than because it is a direct tax, and because they hate all taxation of which they are conscious. Whatever the motives may be, I am not prepared to dispute the fact of its unpopularity. But I believe that much more import- ance has been conceded to this unpopularity than it deserves. The classes who cherish hostility to an income tax are, of coui-se, the classes who feel it — in other words, the European commu- nity, and the educated and well-to-do portion, which is a very small portion, of the native population. These classes have every opportunity of making their dissatisfaction heard, and are, indeed, the only classes whose voice is audible. But they are, of all people, the least likely to carry their dissatisfaction to the point of disaffection towards the Government, and of any active desire to disturb order. The political importance, therefore, of the hostility displayed to the tax is really much less than it seems. The great mass of the people do not pay it, and are utterly indifferent about it. A tax on tobacco, or one on houses, or marriages, would stir the people with a far greater force, and to a much lower depth. Putting aside the unpopularity of an income tax with the few whom it affects, there seem to be no other objections to it which are entitled to much weight. The inquisitorial mode in which it was at first assessed was abandoned after a short trial, and was no longer a characteristic of the tax when it ceased to exist. It is hardly disputed now that there was exaggeration in the charge made against it, that it afforded facilities for great corruption and oppression on the part of subordinate officials. Moreover, if an income tax became a permanent part of our financial system, there is no reason to suppose that these defects 214 FIXANCES AJTD PUBLIC WORKS OF INDIA. in its working, so far as they actually exist, could not be remedied as well in this as in other branches of the adminis- tration. On the other hand, whatever may be said against an income tax, this, at least, in its favour, is true — ^that it would be no doubtful experiment, but a measure of which the result is known, and the success certain. Again, it is no less true that an income tax is a just form of taxation, and that it is the only way in which the mercantile wealth of the country can be made to contribute to the cost of the Grovemment. It is notorious that this wealth, which is considerable and daily increasing, pays very little, in proportion to its means, for the protection and the great advantages which it enjoys under British rule. It is no small recommendation of a tax that it should redress the great injustice which this immunity of so many rich men causes to all other tax-payers. Admitting, also, that its assess- ment has been hitherto defective, this evil might certainly be remedied, if the number of persons liable to it were largely re- duced, which, as I hope to show, is possible, and if the tax were made permanent. Nor must we forget that, however great the alleged evils of an income tax may be, they have not prevented a great many of the "most distinguished names in modern Indian administration from expressing their approval of it. CHAPTER Xm. THE SALT AND SUGAR DUTIES. SOURCES OF Si.LT STTPPLT IN VAEIOTJS PEOTINCES — SYSTEM OP LEVYING DITTIES — ORIGIN OF DITTIES — ABOLITION OP OLD INTEENAl CUSTOMS DUTIES — SAIT AND 8UQAB EXCEPTED — URATES OF DUTY VARIED IN DIFFERENT PROVTNCJES — PREVENTIVE LINB ACROSS INDIA — RESOLUTION IN 1869 TO EQUALISB DUTIES AND ABOLISH CUSTOMS LINE — LORD MAYO's MEASURES — FURTHER STEPS TAKEN IN 1878 — DUTIES PARTIAXLY EQUALISED — RAISED IN BOMBAY AND MADRAS — REDUCED IN NORTHERN INDIA AND BENGAL — PINAE REDUCTION TO 2 RS. 8 ANS. EXCEPT IN BENGAL ARRANGEMENTS WITH NATIVE STATES IN RAJPUTANA — SINDH — ABOLI- TION OP CUSTOMS LINE IN 1879 — GENERAL RESULTS ON PRICE — CON- SUMPTION AND REVENUE — POSSIBLE FURTHER REDUCTION OP DUTY — BAIT IN BURMA — ADMINISTRATION OP SALT DEPARTMENT — SUGAR DUTIES THEIR ABOLITION IN 1878. The changes carried out during the administration of Lord Lytton in the system of assessing and coUecting the salt duties in India have been extremely important, and, notwithstanding large reductions over the greater part of India in the rate at which the duties were levied, they now yield a revenue exceeding by nearly 1,000,000Z. that which they yielded in 1877-78, four years ago. Properly to appreciate the measures that have been taken, and the policy by which those measures have been guided , it is necessaiy to understand the condition of things which previously existed. And first it must be explained that the circum- stances under which the salt duties are raised vary 216 FINANCES AND PUBLIC WOEKS OF INDIA. greatly in different parts of India. Bengal and Assam, with 70,000,000 people, now get nearly the whole of their salt supply from England. Almost the only local source within easy reach, from which Bengal can obtain salt, is the sea, but owing to the damp climate, and the large body of fresh water brought down by the numerous rivers which intersect the delta of the Ganges, the natural faciHties for making salt on the northern coasts of the Bay of Bengal are not great. On the equalisation of the duty on salt manufactured locally and on that imported by sea, the latter almost com- pletely supplanted the former. In Madras and Bombay, on the other hand, which contain about 47,000,000 people, the manufacture of salt from the sea is cheap and easy ; and for these pre- sidencies, as Avell as for the greater part of the Central Provinces and the Native States of Southern India, the sea is the great source of supply. In Northern India the Punjab possesses inexhaust- ible supplies of rock-salt, which is consumed by about 16,000,000 people. Throughout the North-Western Pro- vinces and Oudh, and in a portion of the Central Pro- vinces and of the Punjab, although there are many places where more or less impure salts can be pro- duced by washing the soil, the home sources for the supply of good salt are altogether insufficient; 47,000,000 of our subjects depend almost entirely for their salt on the Native States of Eajputana, or on places on the confines of those States, where lakes or springs impreg- nated with excellent salt occur. The system under which the duty is levied also varies in different provinces. In Madras the duty is mostly collected under a monopoly by which all salt is manufactured on behalf of the Government, and sold at ORIGIN OF INDIAN SALT DUTIES. 217 a price which gives a profit equivalent to the duty. In Bombay the duty is chiefly levied as an excise. In Lower Bengal it is levied chiefly in the form of a sea customs import duty. In the Punjab the duty is in- cluded in the selHng price of the rock-salt, which is dug and removed from the mines and sold by the Government. For the rest of the upper provinces, until 1879 the duty was collected when the salt im- ported from Eajputana crossed the British frontier ; it is now levied at the places of production, where it is prepared by evaporation from the brine by a Govern- ment establishment. The origin of the Indian salt duties is well ex- plained in the following quotation, taken, with some unimportant omissions and alterations, from a speech by Lord Lytton, made in the Legislative Council on February 9, 1878 :— ' The taxation of salt is a part of the fiscal system which the British G-ovemment inherited from the Native rulers of India. The history of our present salt duties is a separate one for each province. Except in one respect, which I will mention immedi- ately, these provincial duties have had no connection with each other ; and hence that irregularity in their rates which the Grovernment of India has always desired, and is now endeavour- ing, to rectify. The only historical connection between these local salt duties is to be found in the common origin of additions made to them in connection with the abolition of a mass of most vexatious transit duties with which the whole surface of this Empire was formerly covered. Under Native rule, tolls were taken on all roads and navigable rivers ; and, in spite of their irregularity, these early transit duties were probably less harassing to trade than the forms which they subsequently assumed under the regulations of the East India Company ; for those regulations added to the original tolls aU the refine- ments and checks of an elaborate customs system. About half a century ago the Government, recognising the intolerable 218 PINAXCES A^'D PUBLIC WORKS OF INDIA. inconvenience of these multiplied checks upon internal trade, decided to abolish them and substitute for them higher rates of duty upon salt. This great reform is mainly due to the en- lightened advice of Su- Charles Trevelyan, than a member of the Bengal Civil Service. The extinction of the condemned imposts involved a loss of revenue, in the Bombay Presidency, amounting to more than 345,000?., whilst the enhanced duty on salt yielded only a revenue of less than 215,000L In Madras the loss of revenue was still greater. The transit and inland customs duties had yielded a net revenue of about 310,000?., while the increase in the salt duty yielded less than 95,000?. ' The history of the southern salt duties is thus not one which the GTovemment of India has any reason to recall with self-reproach. A similar policy has been pursued in Bengal and the upper provinces of India. The Bengal transit duties were aboUshed by the Act of 1836, and the Bengal salt duty was fixed in the following year at Es. 3-4 per maund. The Act of 1843 abolished all import and export duties on the frontiers of the North- Western Provinces, with the exception of the duties on salt, sugar, and cotton ; and the cotton import duty was abandoned in 1855; the salt duty in the North- Western Provinces having been fixed in 1843 at Es. 2 per maund, with an additional assessment of E. 1 on all salt passing eastward of Allahabad, The annexation of the Punjab was followed by an increase of the salt duty in that province ; but that increase was part of a general measure which extinguished simultaneously all the export, import, transit, and town duties previously levied. It will thus be seen that the present system of comparatively high salt duties in British India is the result of an enlightened and beneficent fiscal policy, which has relieved British India from a multitude of mischievous and vexatious imposts on internal commerce; imposts described by a competent authority as being " so full of inequalities, and anomalies, and complica- tions, that it would be vain to inquire from what objections or what abuses they were free." Thus the salt duties levied- in the different provinces of India had little real connection with each other, and the rates at which they were imposed varied THE INLAND CUSTOMS LINE. 219 greatly from time to time. Trom 1869 to 1877 the duty in Lower Bengal was Es. 3-4 per maund (82 lbs.) ; in the upper provinces Ks. 3 ; and in Madras and Bombay Es. 1-13. So long as there were no railways, and the means of communication were imperfect, the inconvenience of these different rates of duty in different provinces was comparatively little felt. But to secure the levy of the duty on the salt imported from Eajputana, and, as com- munications were improved, to prevent the ingress of salt taxed at lower rates into the provinces where it was more highly taxed, preventive measures were necessary, and there grew up gradually a monstrous system to which it would be almost impossible to find a parallel in any tolerably civihsed country. A customs line was estabhshed, which stretched across the whole of India, which in 1869 extended from the Indus to the Mdhdnadi in Madras, a distance of 2,300 miles; and it was guarded by nearly 12,000 men and petty officers, at an annual cost of 162,000Z. ' The fine,' the commissioner of inland customs wrote in his report for 1869-70, ' is divided into 110 beats, each presided over by a patrol, and watched from 1,727 guard-posts. A very perfect system of patroUing exists, and, except in some wild portions of the Central Provinces (where tigers bar the way alike to smuggler and customs officer after dark), goes on with unabated vigilance night and day.' Before the latest changes were made this inland customs fine had been partially reduced, but still ex- tended from a point north of Attock on the Indus to the frontier of Berar, a distance of more than 1,500 miles, and was guarded by some 8,000 men. If put down in Europe, it would have stretched froni London 220 FINANCES AND PUBLIC WORKS OP INDIA. to Constantinople. Along the greater part of its extent it consisted of a huge material barrier, which Mr. Grant DufF, speaking from personal observation, said could be compared to nothing else in the world except the great -W^all of China ; it consisted principally of an im- mense impenetrable hedge of thorny trees and bushes, supplemented by stone walls and ditches, across which no human being or beast of burden or vehicle could pass without being subjected to detention and search. A similar line, 280 miles in length, was maintained in the north-eastern portion of the Bombay Presidency, from Dohud to the Eunn of Cutch. It may be easily imagined what great and inevitable obstruction to trade, what gross abuses and oppression, what annoyance and harassment to individuals, took place. The interference was not confined to the traffic passing into British territory ; for, owing to the levy of an export duty on all sugar passing from British terri- tory into Eajputana, which had been retained after all other similar inland duties were removed, and to which I shall again refer, the same obstructions were offered to the traffic passing in the other direction. In spite, however, of the evils inseparable from the existence of an inland customs line, it was impossible to dispense with it so long as we levied our salt tax at different rates in different provinces, and had no means of controlling the manufacture and taxation of salt produced in Native States and brought thence into our own territories. The flagrant evils arising from this state of things were long recognised by the Government of India, but nevertheless, until ten or tAvelve years ago, it acted as if it had httle interest in applying a remedy, or in facih- tating the supply of salt to the people. Thus, for example, salt from the Sdmbhar Lake, the most import- LOED MATO'S REFORMS. 221 ant source of supply to the Nortli-Western Provinces, had to find its way two hundred miles through Native States, with no roads or bridges, on the backs of pack- cattle or camels, and subjected to imposts and exactions and hindrances of every kind, until it came to the greatest hindrance of all, our own customs line. In 1869, Lord Mayo's Government, with the con- currence of the Governments of Madras and Bombay, raised the salt duty in those presidencies by five annas a maund, and this was done not merely to increase the revenue, but chiefly as a step towards the equalisation of the duties throughout India, and the aboHtion of the inland customs line. A stiU more valuable measure taken by Lord Mayo, in the same direction, was the acquisition by the British Government, under an amic- able arrangement with the Native States of Jaipur and Jodhpur, of the lease of the SAmbhar Salt Lake, the most important of the salt sources of Rajputana. To Lord Mayo also belongs the honour of commencino-, as the first instalment of the projects for railway extension then happily conceived, the lines from Agra and Delhi to the SAmbhar lake, thus providing railway transport between the salt sources of Rajputana and our own territories. With the means of communication which formerly existed, it was physically impossible to brin^ into Northern India a supply of salt sufficient for the wants of the people. During the administration of Lord Northbrook the same policy was followed, and, although the rates of duty remained unaltered, the extension of the railways in central India admitted of a further great step in advance, by the abolition in 1874, with practically no loss of revenue, of about 800 miles of the customs fine in tlie Central Provuices and Behar. 222 FINANCKS^^AND PUBLIC WOEKS OF liS^DIA. When Lord Lytton became Viceroy, the whole question of the salt duties Avas reconsidered, and the result was the declaration by the Government of India not only of the pohcy which it intended to follow in connection with the equahsation of the duties and the abohtion of the inland customs Une, but of the principles by which the administration of the salt revenue ought in future to be regulated. What those principles are, what has been done towards carrying them into effect, and what stUl remains to be done, will now be stated. There can be no doubt that salt is, in itself, a proper subject of taxation in India. The following extract from a despatch by the Duke of Argyll, dated January 21, 1869, expresses, very clearly and accurately, what appears to be the true doctrine : — ' On all grounds of general principles, salt is a perfectly legitimate subject of taxation. It is impossible, in any country, to reach the masses of the population by direct taxes. If they are to contribute at all to the expenditure of the State, it must be through taxes levied upon some articles of universal consumption. If such taxes are fairly adjusted, a large revenue can be thus raised, not only with less consciousness on the part of the people, but with less real hardship upon them than in any other way whatever. There is no other article in India answering this description upon which any tax is levied. It appears to be the only one which at present, in that country, can occupy the place which is held in our own financial system by the great articles of consumption from which a large part of the imperial revenue is derived. I am of opinion, therefore, that the salt tax in India must continue to be regarded as a legitimate and important branch of the pubHc revenue. It is the duty, however, of the Grovernment to see that such taxes are not so heavy as to bear unjustly upon the poor, by amounting to a very large percentage upon their necessary expenditm-e. The best test whether an indirect tax is open to this objection is to be found in its effect upon consumption. SALT A PROPER SUBJECT OF TAXATION. 223 ' I observe that several of those officers whose opinions upon this question have been given in the papers before me, found that opinion upon what they have heard, or what they have not heard, in the way of complaint among the native population ; but this is a very unsafe ground of judgment ; it is one of the great advantages of indirect taxation that it is so mixed up with the other elements of price that it is paid without observation by the consumers. Even at home, where the people are so much more generally educated, and more accustomed to political reasoning, the heavy indirect taxes formerly levied upon the great articles of consumption were seldom complained of by the poor ; they were not themselves conscious how severely they were affected by those taxes, and how much more of the articles they would consume if the duties were lower. But whilst this peculiarity of indirect taxation makes it a most con- venient instrument of finance, it throws additional responsibility upon all Grovemments which resort to it to bring the most enlightened consideration to bear upon the adjustment of taxes which may really be very heavy and very unjust, without the fact being perceived or understood by those on whom they fall.' In Sir John Strachey's financial statement made in March 1877 it was declared that the main object of the Government, and the basis of its whole poHcy in regard to this question, was ' to aim at giving to the people throughout India the means of obtaining, with the least possible inconvenience, and at the cheapest rate consistent with financial necessities, a supply of salt the quantity of which should be Umited only by the" capacity of the people for consumption. There can be no doubt that, in the interests of the revenue, the best system would be that under which we should levy throughout India a low rate of duty on unrestricted con- sumption.' Although it cannot be truly asserted that there was any part of India in which the actual supply of salt was insufficient for the preservation of the health of the 224 FINANCES AND PUBLIC WOEKS OP INDIA. people, and although it is an exaggeration to say that the salt tax anywhere pressed with extreme severity on the poorer classes, yet it was not open to question that very large numbers of our subjects failed to obtain a full supply of salt, and that the system under which high duties were levied on a restricted consumption had not even the merit of being financially profitable. In the Madras and Bombay Presidencies, where the duties were lowest, and salt was cheap and abundant, the average consumption of the people per head was double that of the people in Northern India, Avhere salt was dear, where the duty was high, and the supply limited ; and financially, the results in the former case were far- more satisfactory than in the latter. The salt duties yielded, relatively to the population, a larger revenue in Madras than in any other part of India. The Government would have desired that the duties throughout the whole of India should be at once brought down to the rates in force in Madras and Bom- bay, but the immediate loss of revenue would have been at least 1,500,000/., and some years must have elapsed before increased consumption restored the revenue to its former amount. It was clear that the equaUsation of the duties throughout India was impracticable, unless while reducing the duties throughout the greater part of India some additions were made, for a time at least, to the low duties in Madras and Bombay. Although the financial difiiculties in the way of dealing with this subject in a thoroughly satisfactory way were greatly increased by the necessity, which arose in 1877-78, of imposing fresh taxation to meet the liabilities caused by famine, that necessity at the same time diminished the practical difficulty of en- hancing the salt duties in Madras and Bombay, and EQUALiSATIO]S* OF DUTIES. 225 prevented much opposition which would otherwise have been inevitable. Throughout the rest of India, rates were imposed on the land, as a part of the so-called famine taxation, but, although no pledges were given that the exemption would be maintained, no such rates were imposed in Madras and Bombay, in consideration of the increase made in those Presidencies to the salt duties. This fact has been systematically misinter- preted, and it is still often asserted that the salt duties were raised in Madras and Bombay as a part of the famine taxation, though the contrary was distinctly stated at the time. The measure was a step towards the equalisation and ultimate general reduction of duties throucfhout India. It is not necessary to state in detail the measures taken, from time to time, during the last four years, for carrying out this policy, but the main facts will be described. In the beginning of 1878 the duty on salt in the Madras and Bombay Presidencies was raised from Es. 1-13 to Es.2-8 per maund. In Northern Indiait was at the same time reduced from Es. 3 to Es. 2-12, and in Bengal from Es. 3-4 to Es. 3 ; a further reduction was made in July of the same year to Es. 2-8 in Northern India, and Es. 2-14 in Bengal. In 1878 agreements were completed with the Native States of Eajputana under which the British Government ob tained leases of all the more important remaining salt sources, and on April 1, 1879, the whole customs line, with a small exception on the Indus, was abolished, and its abolition led to a direct saving of expenditure on the preventive estabhshments of about 100,000/. a year. The leases of the salt sources were framed on the precedent of the lease sanctioned by Lord Mayo, 226 FIXAKCES AXD PUBLIC WORKS OP INDIA. under which the Sambhar Lake had been managed for nine years, without any friction with the Native States, and witli most beneficial results on the price of salt. Ample compensation was paid to manufacturers and others interested in the salt-works. The chiefs were treated with liberaUty ; they were fully compensated for all loss of revenue, and there is every reason to be- lieve that they were and are well satisfied with the terms which they obtained. But, as an unavoidable consequence of the new system, and one without whicn the relief of our own subjects would have been im- practicable, the people of the Native States in question became generally liable to the payment of the British salt duty ; a portion, however, of the population still obtains salt free of that duty, and another portion pays only half the usual rate. Efforts were made, in carrying out these indispensable measures, to give to the people, as far as possible, compensation for the new salt tax so imposed on them. In four of the States, all transit duties on goods of every kind were abolished, and in all the States with which agreements were made it was stipulated that no transit duties on salt should continue to be imposed. Belief was also given by the removal, from April 1, 1878, of the duties formerly levied on all sugar exported across the customs line from our own territories, which fell mainly on the people of the Native States of Eajputana. Tliese sugar duties will be more particularly referred to hereafter. In Central India the new arrangements have worked very satisfactorily. Some difiiculties have occui-red with the Maharaja Holkar alone, certainly through no fault or want of liberality on the part of the British Government. The Maharaja Scindia, and all the other chiefs with whom agreements have been made, ARKANGEMENTS IN RAJI'UTANA. 227 have declared tTiemselves thoroughly satisfied. ' Salt,' wrote the Governor-General's Agent, Sh- Henry Daly, on November 20, 1880, ' is cheaper in Indore than it was in 1875, and in aU the eastern parts of Central India the benefit to the consumers has been great. The salt, except in Holkar's State, is untrammelled by petty dues ;, and to the poor is at a price before unknown. Scindia admits that he has been handsomely treated ; and I have heard no chief with whom we have dealt say otherwise. I urged liberality in every case ; and liberality was observed. . . . Everywhere throughout Central India the price shows that salt is a commodity within the reach of the poorest.' In Eajputana the Agent to the Governor-General, Colonel Bradford, wrote, December 4, 1880, that ' the salt arrangements are working most satisfactorily.' The price of salt was necessarily increased in some of the States where salt is produced, but in this respect matters go on improving as trade adjusts itself to the new conditions. That the income of the chiefs is greater now than before the new arrangements were made, is said by Colonel Bradford to be indisputable. In connection with this subject, it must be remem- bered that the Britisli Government has now nearly completed, entirely at its own risk and at a cost of some 10,000,000Z., the railways running through the Native States of Eajputana and Central India. The benefit thus conferred on the people of these States has been enormous. No part of India was formerly more completely cut off from conimunication with' tlie sea-board and with the great trading marts of the country. The transport of every article of trade has now been cheapened ; and wherever the railways have displaced road traffic, the onerous transit duties on 228 FIXANCES AND PUBLIC WORKS OF INDIA. almost every article of consumption, from which the people of these States liave long suffered, have ceased to be collected. These measures, by which the British Government obtained the control of the salt manufacture in Eajpu- tana, and without which the abohtion of the inland customs Une would have been imi^ossible, were not expected to give any direct profit to our revenue. On the contvavj, they were expected, in the first instance, to lead to an annual loss of about 48,000/., which it was believed would in time be made up by increased con- sumption in British territory, following the reduction in the cost of salt. It is too soon to speak confidently, but it now appears probable that the additional reve- nue received from the salt consumed in the Xative States, together Avith the amount saved by the abolition of the customs line, will considerably exceed the annual expenditure on account of compensation to the States, and the loss on account of suo-ar duties, which have also been relinquished. If this anticipation should be fulfilled, and the new arrangements, independently of their effect on the people of our own territories, should prove financially profit- able, it will be cause for satisfaction. It has been generally felt that the Native States throughout India ought to make much larger contributions towards the general expenses of the Empire than we now receive from them. For the maintenance throughout India of peace and tranquiUity, they pay, for the most part, almost nothing, and these inestimable benefits are mainly provided for them at the cost of our own subjects. In manjr cases, however, a partial remedj- has been supjilied by tlie operation of our salt duties. Thus the States of the Kizam, all the Native States of the Punjab, and others ABOLITION OP CUSTOMS LINE. 229 in otlier parts of India, derive their supplies of salt, wholly or in part, from sources where the British duty has been levied, and these States thus contribute indi- rectly towards the revenue of the British Government. Hitherto, Avith unimportant exceptions, no contributions of this or any kind have been made by the Native States of Eajputana, and if the new arrangements should give some direct financial gain to our treasury, they will in truth cause the partial removal of an injustice, not inflict one. The great customs line ceased to exist in April 1879, and there was an end to those artificial obstructions to the free development of trade which had so long checked the supply of salt to the people. With it disappeared one of the greatest opprobria of British rule in India. Lord Lytton, speaking on this subject in the Legislative Council in February 1878, said that the maintenance of this fine Avas ' a great commercial and political scandal,' and that he ' sincerely trusted that the history of his administration might be associated with its removal.' It is a cause of great satisfaction that this hope has been fulfilled. The salt revenue in the province of Sindh was, before 1878, raised by a system of sale by contract. This system was extremely defective, led to much smuggling, and produced a revenue very small in pro- portion to the population. At the beginning of 1878, the system in Sindh was assimilated to that in Bombaj"-, and the duty was raised to the same level, namelj-, Es. 2-8 per maund. The general result of all these measures was, that while the Government was compelled, for a time only as it believed, to increase the rate of duty on the salt con- sumed by 47,000,000 of our subjects, the rate was 230 FIXAXCES AXD PUBLIC WORKS OF INDIA. reduced tlirougliout the greater part of India, to tlie relief of 148,000,000. Complete figures to show the difference between the present prices of salt in various parts of India, and those which prevailed before the first steps in the new poHcy were taken, cannot be given, but the following facts are interesting. At the chief salt mart in Northern India, Agra, in January 1868, good average SAmbhar salt was selling wholesale at Es. 5-8 per maund. In 1869 the price was Es. 6. In 1876 it had fallen to Es. 4-6, and in 1880 to Es. 3-3. Thus, a reduction of about 40 per cent, in the price of the most important salt in Northern India has been secured at the cost of a reduction of 16^ per cent, in the duty. The increased duty in Southern India has necessarily increased the price of salt there, but to a smaller extent than might have been anticipated. In 1877, before the last increase of duty, the average price of salt in the Madras Presidency was Es. 2-12 per maund, while in 1880 it was Es. 3-5. This signifies, taking the average annual consumption at 12 lbs. per head, that each person has to spend in the whole year upon salt about 2d. more than he spent before. The increase of price in the Bombay Presidency has been nearly the same as in Madras. On the other hand the extension of railway communication has done much to lessen the price of salt over a great part of the country. In the speech already quoted, Lord Lytton observed — ' Nor should it be forgotten, I think, when we come to con- sider the practical incidence of the existing salt duties upon the poorer portion of the population, that the extension of railway communication has done much to cheapen the virtual price of salt to the people. For instance, the lines which now connect Bombay with Beypur and JMadrus, on the one side, and Jab- CONSUMPTION AND REVENUE. 231 balpur and Nagpur on the other, and those which connect Negapatam with Tuticorin, carry salt from the sea-coast to the interior at the rate of one anna {l^d.) per maund for about every fifty miles. Thus the carriage of a maund of salt from Madras or Bombay to any intermediate railway station does not now exceed eight annas, which is considerably less than the old cost of carriage by road, and may be fairly reckoned in favour of the consumer, against the corresponding increase of duty. ' Similarly, in the Bengal Presidency, the present railroads have placed a great part of the country in immediate communi- cation with the sea-coast and internal salt sources ; so that, in spite of the continued imposition (in the past) of comparatively high duties, the development of railway communication has cheapened the price of salt over a great part of the country ; and further reductions in the price of salt may consequently be expected from further progress in the development of railway communication.' The effect of these measures on the consumption of salt and on the pubhc revenue wiU next be shown. In 1870-71 the total consumption of duty-paying salt in India was 23,031,000 maunds,^ and the net salt revenue was 5, 686, 335 Z. In the three years preceding 1877-78, when the rates of duty were altered, the total average annual consumption was 24,218,000 maunds, and the average net revenue was 5,739,460Z. Since the alteration in the duties, the total consumption and the total revenue have steadUy increased. In 1879-80 the consumption had risen to 27,861,000 maunds, and the net revenue had risen to 6,895,713Z., an increase in three years of more than 1,000,000^. In 1880-81 there has been a decline in the consumption to 27,240,000 maunds, and of the net revenue to 6,572,000^. This is attributed partly to an artificial stimulus given to the sale of SAmbhar salt in the previous year, and partly to the ordinary fluctuation of trade. ■• The maund equals 82| lbs. ; a ton contains 27| maunds. 232 FINANCES AND PUBLIC WORKS OF INDIA. Tlie reform couinieuced in the course of tlie year 1877-78, and was not completed until the end of the year 1878-79. It will therefore be best to compare the average consumption of the years 1875-76 and 1876 -77 Avith that of the years 1879-80 and 1880-81. It will be found that the increase has been universal. In Bengal, where the duty was reduced from Es. 3-4 to Es. 2-14 per maund, the average consumption has risen from 8,014,000 to 8,877,000 maunds, but there has been a loss of duty amounting to 48,000/. In JSTortliern India Avhere the duty was reduced from Es. 3 to Es. 2-8, and the place of levy removed from the customs line to the sources of production, the consump- tion has increased from 4,517.000 maunds to 6,155,000 maunds, and the duty levied from 1,334,000/. to 1,519,000/. In Madras and Bombay, which should be taken together, since the west coast of Madras is chieflj^ but not wholly supplied with salt from Bombay, while Madras chiefly but not wholly supphes Mysore and the Nizam's territorj^ the duty was raised from Es. 1-13 to Es. 2-8 : nevertheless, the consumption has increased from 10,678,000 maunds to 10,923,000 maunds, and the duty from 2,001,905/. to 2,727,800/. For the whole of India the average annual consumption rose irom 24,424,000 maunds^ in 1875-77 to 27,550,000 maunds in 1879-81, the revenue increasing at the same time from 5,996,000/. to 6,834,000/. The maintenance and even increase of the consump- tion in spite of the increase of the duties in Madras and Bombay is remarkable. The increase of annual taxation which the measure involved Avas estimated at about tAvo- pence a head, distributed over the year hj almost dailj^ instalments, each of them infinitesimally small. Theftict appears to be that, Avhen, in consequence of the abund- IMPORTANCE OF UNIFORM DUTY AT LOW RATE. 233 ance of supply and lowness of price, the people of a country have become accustomed to consume a con- siderable quantity of salt per head, a small increase in the cost of salt will have a very slight effect in altering their habits and diminishing the quantity which they consume, and will interfere httle with the growth of consumption following increased population, and ex- tended cheap railway transport. Such considerations as these indicate another and a very important conclusion. It appears highly probable that if the policy that has been described is followed for some years to come, the average consumption per head of the population will increase in the other parts of India to an amount as high as that which already prevails in Madras and Bombay ; and that with a uniform duty throughout India, at a rate lower than the lowest now in force, and coincidently with a general reduction in the price of salt to the people, the revenue will become several millions larger than it is at the present time. If these anticipations should be fulfilled, the Govern- ment will have in its hands a financial engine of im- mense power ; for it will be able, for the purpose of meeting any serious emergency, to obtain temporarily, by a small increase of duty, a large increase of revenue, and this almost without the people being conscious that any addition has been made to their burdens. But these results will only be attained if we steadily perse- vere in the course that has lately been followed ; we must finally abandon the erroneous notion that it is profitable to leAry^ the salt tax at a high rate on a restricted consumption, and resolve to act at aU times on the only sound principle, that the interests of the people and of the -public revenue are identical ; for we shall receive the largest possible revenue when the 234 FINANCES AND PUBLIC WORKS OF INDIA. salt duties are low, and when the people throughout India obtain ' an unlimited supply of salt at the cheapest possible cost.' No time could be more favour- able than the present for taking another step in this direction, by a large and general reduction in the salt duties. The condition of the finances is so prosper- ous that a temporary loss of revenue could well be afforded, but this would rapidly diminish, and the salt revenue would before long be in a far more satisfactory condition than any which has hitherto existed. Although the wisdom of these reforms is plainly shown by their results, it must not be supposed that the increased consumption of salt and the improvement in the revenue have been exclusively due to the reduction and equalisation of the duties, and to the removal of the hindrances to trade caused by the inland customs line. The extension of railways, the general improvement in the means of communication, the open- ing out of new markets, and the increasing prosperity of the country, have all powerfully contributed to the results which have been obtained ; and without support of this kind the policy which has been adopted could not have succeeded. Until the last few years the means of supply and transport throughout the greater part of India were most imperfect, and the quantity of salt available for consumption was limited by material causes, and not by the requirements of the people. So long as this was true, nia;iy of the essential conditions of success for a policy which aims at raising the salt revenue without placing any avoidable restric- tions on the consumption of the country, were absent. The amount of duty is obviously only one among the numerous causes by which the price of salt is affected, and it is clear that it can by no means be AVERAGE RATE OP DUTY. 235 assumed that reduction of dutjj^ will always be at once followed by reduction of price ; but it is equally clear that, although in some particular place and province the price of salt may be as high after the reduction of duty as it was before, this affords no evidence that the reduc- tion was unwise. Whatever may happen for a time, it is certain that if trade be free, and the means of com- munication sufficient, every reduction of duty must ulti- mately contribute to a reduction of price and to an increase of consumption. During the last eight years the average rate of duty for the whole of India has only varied between a mini- mum of Rs. 2-43 per maund in 1875-76 and a maximum of Es. 2-56 per maund in 1878-79, the mean for the entire period being Es. 2-48. It was in view of this that in the measures of the last four years, which aimed at establishing throughout India a uniform duty, the Government adopted as nearly as possible the existing average rate ; thereby alike avoiding any loss of reve- nue which could not then be spared, and any increase to the average burden on the people. The rate fixed was therefore Es. 2-8 per maund, equivalent to five eighths of a penny per pound. This rate is now in force everywhere except in the Trans-Indus territory of the Punjab, in the greater part of Lower Bengal and in British Burma. Most of the salt produced Trans-Indus is exported into Afghanistan, and is charged with extremely low rates of duty for reasons chiefly of a political character. This, however, involves the maintenance of a customs fine for some 400 miles along the Indus. There seems to be no sufficient reason for not raising the duty to the rate prevailing in the Punjab, which would enable the Govern- ment to get rid of this last fragment of the customs hne. 236 FINANCES AND PUBLIC WOEKS OF INDIA. The duty in Bfingal, wliicli is iioav Es. 2 14 per maund, should be immediately reduced by 6 annas. Increase of consumption would soon make good the temporarj^ loss of revenue. It must not be forgotten that the difference between the rate of duty levied on Liverpool salt in Bengal and that imposed on salt pro- duced in Northern India was formeiiy 4 annas and is now 6 annas a maund. The Salt Chamber of Commerce of Cheshire and "Worcestershire represented early in 1880 that Liverpool salt had thus been placed at an unfair disadvantage, and that it had been driven out of markets formerly supplied by it.^ The latter state- ment is perhaps a mistake, but it is impossible to deny the general justice of the complaint. Lord Lj'tton was very anxious at the commencement of 1880-81 to apply an immediate remedj^, but, pending further inquiry, this was delayed. It is impossible to defend the main- tenance of this differential duty, and there can be no doubt that the Liverpool and the Indian salt ought, in respect of the rate of duty, to be placed on precisely the same footing. In Bi'itish Burma an important reform remains to be carried out. Salt is now taxed at the nearly nominal rate of three annas per maund. It has long been re- cognised by the most experienced local authorities that it would be highly desirable to abolish the present objectionable capitation tax, and impose a duty on salt at the Indian rate. A salt duty could not, Avhile the population of the province remains small, produce so much revenue as the capitation tax, but it would re- place it to a considerable extent. Indeed, there would probably be no loss at all, if the people of Upper Burma, who now obtain their chief supplies of salt from our ' See Piiiancial Stattment for 1880-81, paragraph 94, SALT DUTIES IN BURMA. 237 territory, were obliged to contribute to our revenue by paying duty on the salt which they consume. ' I do not see,' Sir C. Aitchison, the Chief Commissioner, wrote in 1878, ' any objection to the enhancement of the salt duty in Burma. Tlie ordinary objection to a tax on necessaries, as lowering the condition of the labouring classes, hardly applies to the present circumstances of the country. The standard of comfort of the labouring class is higher than in other Indian provinces. The rate of wages is very considerably higher, while the staple food of the working classes is not correspondingly dear. From certain calculations I have made of the relation of wages to the price of various staple articles of food, I estimate that, roughly speaking, a labouring man in Burma is twice as well off as his fellows in the North -Western Provinces, the Central Provinces, or the Punjab ; he gets far more from his labour, and does not pay very much more for his food.' No such enhancement of the salt duties is at the present time possible, because the British Government is obliged, by its treaty engagements, to supply salt to Upper Burma at the rate of 1 per cent, ad valorem, or about one-half pie, or a small fraction of a farthing, per maund. Upper Jiurma is almost entirely dependent on us for its salt supply, and, Avhile the treaties remain in force, -we could not largely increase the duty in our own territories without the certainty that our attempts to raise a hio;her revenue would be, to a crreat extent, frustrated by smnggling from Upper Burma. It is to be hoped that a revision of the treaties may before long remove this obstacle to an important fiscal reform, and meanwhile the subject ought to be kept in view by the Government. Before leaving the subject of Salt, it must be ob- 238 FINANCES AND PUBLIC WORKS OP INDIA. served that one great improvement still remains to be carried out. The salt department throughout India ought undoubtedly to be administered by the Supreme Government, and not by the Local Governments as is now the case in the greater part of India. The evils of divided management are strongly felt. There are, of course, some most important functions which tlie Local Governments can alone exercise ; they alone can judge how far it is wise and right to enforce the salt laws in their absolute rigour ; they alone can take care that the operation of the tax does not become oppres- sive, and they alone can suggest efScient measures for mitigating its severity by the improvement of the communications, by the encouragement of local manu- facture, or other means of a local kind. But, without depriving the Local Governments of their jurisdiction, or exempting them from their obligations in such matters, justice to the taxpayers throughout India requires that the salt tax should be in the main regu- lated and administered by the Central Government. The Salt Department is already administered directly by the Government of India in the North-Western and Central Provinces, Oudh, and the Punjab, and in Cen- tral India and Eajputana, and with most satisfactory results. Conflicts between the Local Governments and the Salt Department or the Central Government are unknown. It would be most desirable to apply tlie same procedure to the rest of India, and thus to utilise for the general advantage the experience gathered in various parts of the country. Another reason for making the administration of the salt revenue imperial is the fact that the revenue brought to account in each province is not the duty levied upon the consumption of salt within the province. Bombay supplies salt to Madras, SUGAR DUTIES ABOLISHED. 239 Bencral, the Central Provinces, and the Native States of Central India. Madras salt goes to Mysore and Hyder- abad, as well as to the Central Provinces. The Imperial Government can alone administer the salt revenue with a view to the interests of those provinces where the salt is consumed as well as of those where it is pro- duced. Difficulties and disputes have not unfrequently arisen from the contention of these interests. The fact that the inland customs line was used, until the year 1878, for the purpose of levying duties on Sugar as well as on Salt, has been already referred to ; and the abolition of these duties, which were more than once characterised as ' the most discreditable relic of the dark ages of taxation that exists in India,' must be mentioned among the useful measures of Lord Lyt ton's administration. The following description of them, and of the considerations wliich led to their ex- tinction, is taken from Sir John Strachey's Financial Statement for 1877-78 :— ' I have alluded to the duties levied on sugar exported across the inland customs line. These are one rupee per maund on refined sugar, and six annas per maund on ufirefined sugar, or saccharine produce. Except where the line runs along the left bank of the Indus, exports across it are taken to Native States ; but, when it passes the Indus, the sugar is merely taken from one part of British territory to another. This sugar is all the produce of our own people in the North-Westem Provinces, Oudh, and the Punjab ; it is one of the most important agricul- tural staples of those provinces ; and it is important not only to agriculturists and manufacturers and consumers, but directly to the Grovemment, which looks greatly to sugar cultivation for its irrigation revenue. ' "VMiile we are taxing heavily our own sugar grown on the east of the customs line for the supply of the country beyond it, we admit into the same country the Mauritius sugar, which is imported largely to Bombay, taxed at a much lower rate. It is calculated that the inland customs duty is equivalent to 10 240 FIXANCES AN^D PUBLIC WORKS OF INDIA. per cent, on the value ; but the incidence of the duty varies considerably, particularly on refined sugar. In the cheaper kinds the duty is equivalent to more than 20 per cent, on its value. The sea import duty on Mauritius sugar is 5 per cent. ad valorem. I do not assert that there is, at present, any great competition between the sugar of the upper provinces of this presidency and foreign sugar ; but as far as competi- tion exists, the inland customs duty acts as a protective duty in favour of foreign and against om- own sugar ; to this extent the duty must fall on the producer within the customs line. The competition will be more apparent and severe when the connection of the Eajputana State Eailway with the Bombay and Baroda line is completed. ' Little or no sugar is grown in Eajputana or Central India ; and the increase of price caused by the inland customs line must tend to diminish consumption, and so, still further, to injure the producer. It is impossible to estimate the injury to the people and to the Grovernment caused by placing artificial obstructions on the export of one of the great agricultural staples of the country ; and such obstructions obviously affect not only the export but the import trade as well. The Grovernment of India has repeatedly urged upon Native States the policy of abolishing their transit duties, but it is diflicult to see with what consis- tency we can do this, so long as we retain sugar duties. They yield about 165,000Z. a year.' These duties were altogether abolished on April 1, 1878, with the approval of everyone who could appre- ciate their mischievous and discreditable character. Arguments were used in their defence, it is true, founded on the behef that their existence was probably unknown to the sugar growers in our provinces, and that they were virtually paid by the consumers in Eajputana. But the ignorance of the peasants of the North- West Provinces did not affect the interference of the duties with the growth of sugar, nor did the incidence of charge on the people of Eajputana diminish the real obstruction they caused to the salt trade which, it was so important to develop. CHAPTER XIV. OPIUM. OPIUM EBTENTTB HOW KAISED — ^MAinjFACHJRB IN BENGAL — BXPOET DtTTT AT BOMBAY — MISTAKEN IDBAS AS TO UNCERTAINTY OP IffiTRNUB — CAUSES OP FLUCTUATIONS SEBAT VARIATIONS IN SALES BEFORE 1867 — NECESSITY FOE EBGULAEITT IN SUPPLY AND SALE — FORMATION OF EBSBRVE — VARIA- TIONS DUE TO CROP AUD SEASON — INCOME STEADY AND INCREASING CHARGES OF YEAR NOT PROPORTIONAL TO QUANTITY SOLD — ^EXCESS RE- PRESENTS VALUE OF RESERVE CORRECTED NET INCOME — UNCERTAINTY CAUSED BY UNDEE-ESTIMATE ORDERED BY SECRETARY OF STATE — IN PEESENT YEAR ONE-AND-A-HLALP MILLION — RISKS ATTENDING OPIUM REVENUE FROM ENGLISH OPINION THAT TRADE IS IMMORAL — TRUE POSI- TION OF CHINA IN RELATION TO OPIUM — SIR THOMAS WADE's IESTI- jIONY ACCOUNT FROM SHANGHAI — FACTS DO NOT JUSTIFY INTERFERENCE PROBABLE EFFECT OF SUBSTITUTING EXCISE FOR MONOPOLY RELATIVE FISCAL RESULTS FROM BENGAL AND MALWA SYSTEMS — EftUIVALENT DUTY CORRESPONDING TO PRICE — IMPOETANCE OF MAINTAINING A RESERVE — POSSIBLE _ FURTHER EXTENSION OF CULTIVATION — AS ADVANTAGE TO BENGAL AGRICULTURE — OBJFWTIONS TO REDUCED SALES — ^IMPORTANCE OF AVOIDING CHANGES OF POLICY IN ADMINISTRATION. Next to the land revenue the most productive head of revenue in India is opium, the net receipts from which are now little less than 8,500,000^. a year. The greater part of this sum is derived from the opium exported to Eastern Asia, and chiefly to China. Less than 200,000Z. is obtained from opium issued to the excise department for consumption in India. The revenue from opium is raised in two ways. In Bengal a strict monopoly is maintained by the Govern- ment ; the poppy may not be grown and opium may not be prepared except for the Government. The 242 FINANCES AM) PUBLIC WORKS OF INDIA. cultivation of the poppy is voluntarily carried on in certain districts, under a system of advances, without interference in details, nor is any pressure exercised for its promotion. Its extent depends chiefly on the increase or decrease of the price ojGfered by the Govern- ment for the produce, the rate being regulated so as to secure the quantity required for manufacture. The crude opium thus obtained is carefully prepared at the Government factories, sent to Calcutta, and sold there by auction without reserve to the highest bidders. The quantity sold annually is now 56,400 chests, or 4,700 at each of the monthly sales which take place regularly throughout the year. The Government is pledged not to alter this quantity without giving at least twelve months' previous notice. The difference between the cost price of the opium and the auction price constitutes the revenue from Bengal opium. Another part of the opium revenue is raised by the levy of a fixed duty on all opium exported from Bombay. This opium, commonly known as Malwa opium, is produced in the Native States of Central India. The British Government has no concern with either the cultivation of the poppy or with the preparation or transport of the drug ; it exercises no control over the quantity exported, otherwise than by the levy of the duty on every chest of opium before its export from Bombay is allowed. The present rate of duty is Ks. 700 per chest. The average quantity annually exported is now about 45,000 chests. Thus, rather more than half the total quantity of the opium exported from India is derived from the Government monopoly in Bengal, and rather less than half from the produce of the Native States of Central India. There is a general impression that this source of GROWTH OF OPIUM EEVE>TE. 243 revenue is peculiarly uncertain, that its fluctuations have been extremely great, and that its maintenance is in a high degree precarious. That such opinions were fifteen or twenty years ago to some extent justified by the facts cannot be denied, but there is no room to doubt that nearly all the serious oscillations Avhich at that time took place in the opium revenue were directly caused by administrative mistakes, and by the absence of any settled pohcy on the part of the Government. At the present time the only serious doubts in regard to the stability of the opium revenue are those suggested by the hostihty of influential classes in England, a hostihty inspired by respectable motives, but based on ignorance or complete misconception of the facts, though not for that reason less formidable. Between 1794 and 1838, when the commercial mono- poly of the East India Company was abohshed, the gross opium revenue rose pretty steadily from an insignificant sum to more than 2,000,000?. sterling. In 1839 the first Chinese war took place ; this caused a temporary de- pression, which, however, was of short duration. By 1842 the revenue had recovered its position, and it went on steadily and constantly rising until 1855-56, when it amounted to 5,197,000/. During this period there were only two fluctuations of importance ; the first in 1847-48, when the second Chinese war reduced the revenue, for a single year only, by nearly 1,000,000/., and the other in 1850-51, when the rebelhon in China led to a not very serious disturbance in the regularity of its progress. Until 1855-56 no important branch of revenue could, in any country, have increased more steadily. The supply of opium brought to sale in Ben- gal had been gradually increased, the number of chests rising from 18,362 in 1842 to 33,561 in 1852. During K 2 244 FINANCES AND PUBLIC AVORKS OF INDIA. this period the fluctuations of price were small. In 1843 the price per chest was Es. 1,345 ; in 1852 it was Es. 1,110. After 1852 a great change came over the manage- ment of the opium department. For reasons which are not apparent, the system which had worked so satis- factorily was abandoned ; frequent vacillations of policy took its place, and then began the great fluctuations in the opium revenue from which came that reputation of precariousness which has not yet been lost, although under a better system it has ceased to be deserved. In the three years follo^ving 1852 the sales were increased veiy rapidly, the number of chests sold in 1855 having been 53,319, an increase of nearly 20,000 chests in three years. In 1856 the number was again diminished to 41,492, in 1857 it Avas 43,903, in 1858 it was 32,676, in 1859 it was 27,173, in 1860 it was 21,363. After this the number of chests sold was raised again as rapidly as it had before been reduced. In 1861 it was 21,423, in 1862 it was 29,393, in 1863 it was 39,240, in 1864 it was 49,646, and in 1865 it was 64,111. In 1866 it was once more suddenly reduced to 40,000, and in 1867 raised again to 47,999. That the violent fluctuations in the quantities sold during this period of twelve years should have been accompanied by equally violent fluctuations in the price at which the opium was sold was no more than might have been expected, a rise taking place as the quantity was reduced, and a fall as it was increased. Thus the price, which had fallen to Es. 737 a chest in 1855, on the great increase of the sales in the two preceding years, rose to Es. 1,871 in 1861,^ wdth the great reduc- ' For three months in this year the prices were Rs. 2,280, Rs. 2,470, and Bs. 2,507. FLUCTUATION'S IN BENGAL EBVENUE. 245 tion of quantity, and fell again to Rs. 956 in 1865 with the next great increase. This time was one of constant and yiolent speculation in the export trade, caused almost entirely by the absence of any settled pohcy on the part of the Government as to the quantity offered for sale year by year, and the fluctuations in the opium revenue were, as a necessary consequence, very great also. The gross revenue from Bengal opium was during this period as follows : — 1866-56 . . £4,172,000 1862-63 . . £4,813,000 1856-67 . . 3,825,000 1863-^34 . . 5,347,000 1867-68 . . 5,216,000 1864^65 . . 6,266,000 1858-59 . . 4,671,000 1865-66 . . 6,390,000 1859-60 . . 4,314,000 1866-67 . . 4,948,000 » 1860-61 . . 4,200,000 1867-68 . . 6,565,000 1861-63 . . 3,914,000 Its amount directly depended on the price and on the quantity of the drug brought into the market. The price in great measure followed the quantity, which depended on the extent of the crop and produce, and this in turn varied with the season and the area under cultivation. The opium crop is very much influenced by irregularities of season, which are incessant, while the area under cultivation at this time constantly changed, being regulated on no uniform system. The true principles upon which the opium revenue ought to be administered were first clearly laid down by Sir Cecil Beadon, Lieutenant-Governor of Bengal, in a minute dated April 18, 1867. ' Vacillation or uncer- tainty,' he wrote, ' in regard to the quantity of opium to be provided and brought forward for sale, not only acts injuriously upon the market and encourages 1 From a change in the commencenient of the financial year, 1866-67 ^paljraced only eleven months. 246 FINANCES AND PUBLIC WORKS OP INDIA. gambling, but deprives the State of the full profit of its monopoly, and causes great fluctuation in the revenue. It also deranges the condition of agriculture over a wide extent of country, and discourages the ryots from engaging in a cultivation which, though more profitable than that of ordinary crops, they may at any time be required to abandon. It is not desirable that the area under poppy cultivation should be in excess of what on an average of years is found sufficient to produce the desired quantity of opium. ... If in any year the produce of opium exceeds the quantity which it is thought desirable to bring forward for public sale, the excess should be held as a set-ofi" against the temporary increase of expenditure involved in its purchase, and as a reserve against faUure in future seasons ; but if in any year the crop be a short one, and there is no such reserve, the quantity to be brought forward for sale must of necessity be limited to the actual supply, and, though there may be some saving in the expenditure of the year, the net revenue must either decline or be maintained only by such an increase on the seUing price as will stimulate competition from abroad. Unfortunately the vicissitudes of season are so great, and the crop so precarious, that it is impossible to estimate beforehand, within a range of several thou- sand chests, what the actual produce of a given area wiU be ; but though the yield under the most favourable circumstances cannot exceed a certain limit, it may, under very unfavourable circumstances, such as a pro- longed drought or the prevalence of hail-storms during the brief gathering season, be reduced almost to nothing.' Sir Cecil Bead on showed that the quantity of opium brought to market ought to vary very Httle from year to year, and that "with the maintenance of a permanent ESTABLISHMEJTT OP A EESEEVE STOCK. 247 reserve, from which the deficiencies of bad seasons would be supplied, the regulation of this quantity could always be secured. He showed that the quantity sold ought to be determined by the price obtained, and that the price to be aimed at was one that should neither provoke the competition of foreign countries in the Chinese market, nor stimulate the production of opium in China itself. His conclusion, based on all available facts, was that Es. 1,200 per chest might be looked on as a safe average price, but that anything much above this was dangerous to the revenue. He considered that at the time he wrote, in 1867, not less than 48,000 chests should be brought to sale annually, and that when a sufficient reserve stock had been accumulated this quantity ought to be gradually and cautiously increased. Thus, he beheved, the stabihty and steady progress of the opium revenue would be insiu-ed. The wise policy recommended by Sir Cecil Beadon was accepted by the Government of India in 1867, and it has been acted upon ever since. Owing, however, to bad seasons, it was a long time before the necessary reserve stock could be collected, and it was not until 1875-76 that full effect could be given to the new system. Its intro- duction was completed by the notification of March 8, 1879, when the Government abandoned the system of varying yearly quantities, and announced that a certain fixed amount would be brought to sale every month, and that this amount would not be altered without due notice. This policy has been highly successful, and there can be no doubt that the great and constant mcrease of the opium revenue for some years past has been to a large degree due to the steadiness of the supply brought into the market, which the accumulation of a reserve 248 FINANCES AND PUBLIC WOKKS OF INDIA. stock has rendered possible, and to the consequent com- parative steadiness of price and diminution of mischievous speculation in the trade. The Government, in this respect, now acts on the principles which are uni- versally observed in the supply of agricultural produce by prudent traders. A wine merchant, for instance, would find it impossible to carry on his business if he acted on the plan formerly followed by the opium department in India, and neglected to keep in store a stock sufficient to guard- him against the accidents of season. The foregoing observations refer exclusively to the Bengal opium revenue. The Bombay portion of the revenue has been much more stable. The quantity exported has not varied greatly or suddenly from year to year, whUe a fairly gradual increase has taken place. Nor have Bombay prices been subject to violent change, though they have been perceptibly affected by great fluctuations in the Bengal market, and have thus acted on the export trade, and therefore on the revenue. The uncertainties of the gross revenue receipts directly due to the want of method in the Bengal administration during past years, have in this manner been not a Httle increased. Wliatever may have been the case before the present system was estabhshed, it is a complete error to suppose that the opium revenue has at the present time any special character of uncertainty ; on the con- trary, during the last twelve years there has been no branch of the revenue which has been generally more steady, and during the last five years its growth has been rapid. The gross and net opium revenue in each year since 1869-70 have been, according to the pubhshed ac- counts, as follows; — CHAEGES OF CULTIVATION AND MANUFACTURE. 249 Gross Net 1869-70 £7,953,008 £6,132,387 1870-71 8,045,459 6,031,034 1871-72 9,253,859 7,667,187 1872-73 8,684,691 6,870,415 1873-74 8,324,879 6,323,395 1874-75 8,556,629 6,214,782 1875-76 8,471,425 6,252,026 1876-77 9,122,460 6,280,781 1877-78 9,182,722 6,621,337 1878-79 9,399,401 7,669,032 1879-80 10,319,162 8,249,808 1880-81 10,498,000 8,466,000 These figures show that the net revenue presents rather larger fluctuations than the gross, but that the progress of the revenue receipts has been in reahty con- tinuous and steady notwithstanding these fluctuations The fact is often not duly appreciated that the fluctuations which, from time to time, are seen in the account of the net opium revenue are caused to a very great extent, not by fluctuations in the Chinese demand or in the price obtained, but by the greater or smaller out-turn of the crop, and the consequent variations in the expense of gathering it ; that is to say, that they are often not due to fluctuations in the income, but in the charges upon it. The greater part of the expenditure is due to the cost of purchasing and manufacturing the opium in Bengal. But (as was explained in Chapter V.) the actual expenditure in each year does not depend on and has no direct relation to the quantity of opium sold in that year. Advances on account of the crop are first made in August or September, when preparations for the sovdngs commence, and these advances are con- tinued, from time to time, until all the opium is de- livered, weighed, and taken over by the Government Opium Agent, that is, until May or June. It is evident that the expenditure must vary with the extent of the 250 FINANCES AND PUBLIC WORKS OF INDIA. crop, and since the year of cultivation is not conter- minous with the financial year, the expenditure incurred in the financial year is on account of two crops; the chief part of the expenditure on the crop actually sold in any financial year will have been incurred in the previous financial year, and the actual expenditure in the financial year chiefly depends on the character of the season commencing six months after the estimate is framed. The quantity of a crop depends entirely on the season, and the seasons are very variable. For instance, in 1875-76 and 1876-77 the seasons were favourable, and the amount of opium produced in each of these two years was about 72,000 chests, whUe in 1877-78, there was a poor crop, from which only 47,700 chests were manufactured. These facts were reflected in the expenditure incurred, which was 2,841,647^. in 1876-77, 2,661,266^. in 1877-78, and only 1,698,730/. in 1878-79. The result of these variations is seen in the recorded net revenue of the three years, which vsras as follows : — 1876-77 . . . :£6,280,781 1877-78 .... 6,621,337 1878-79 .... 7,699,032 It might be supposed from these figures that there had been in the last year a great and sudden increase in the demand for opium, but in reality there was no increase or fluctuation at all. The high net revenue of 1878-79 was due to the shortness of the crop and the consequent diminished expenditure, while the net revenue of 1876-77 and 1877-78 was greatly reduced by the bumper crops of the years next preceding. If we adjust the expenditure to the real cost of the opium sold during the three years, we find that the real net revenue remained steady, as follows ; — ■ NET RECEIPTS FROM SALES 251 1876-77 1877-78 1878-79 . £7,069,633 . 7,208,820 . 7,276,610 It was before stated (as was explained in Chapter V.) that during the last twelve years we have paid 1,105,299/. more than the actual cost of the opium sold, and that this sum is represented by the reserve stock of Bengal opium actually existing at the end of 1880-81. Unless these facts are properly appreciated, it is not possible to understand the real position of the opium revenue, nor can any comparison be made between the amounts yielded in different years. Setting off each year the actual cost of the opium sold against the amount received from the sale, the real net revenue for each of the last twelve years has been as follows : — 1869-70 . . :e6,170,484 1875-76 . . 6,496,450 1870-71 . . 6,117,919 1876-77 . . 7,069,633 1871-72 . . 7,161,438 1877-78 . . 7,208,820 1872-73 . . 6,829,226 1878-79 . . 7,276,610 1873-74 . . 6,468,396 1879-80 . . 7,981,682 1874-75 . . 6,583,164 1880-81 . . 8,409,763 Going further back, and taking the figures as they appear in the pubhshed accounts, the progress of the net revenue during the last twenty years has been as follows : — Total net revenue. Annual average. 1861-62 to 1866-66 . . £27,261,241 £6,450,248 1866-67 1 „ 1870-71 . . 31,668,832 6,333,767 1871-72 „ 1876-76 , . 33,317,805 6,663,561 1876-77 „ 1880-81 . . 37,188,968 7,437,792 There has thus been a constant increase in the net revenue from opium, and the annual net receipts are now nearly 2,000,000/. more than they were twenty years ago. In the last three years the increase has ' In this year there were only eleven months, which reduces the annual average for the five years by ahout 10O,00OZ. 252 FINANCES AND PUBLIC WORKS OF INDIA. been very marked ; no reason is apparent why it should not be mamtained. These facts conclusively show that the opinion fre- quently expressed as to the instability and precarious character of the opium revenue is, so far at least as the present time is concerned, completely incorrect, and that no branch of the revenue has shown a more steady development. They show also that there has been no reason for the practice constantly followed for many years past, and constantly urged upon the Government of India by successive Secretaries of State, of greatly under-estimating the opium revenue in making the financial arrangements of the year. This practice has been the consequence of the mistaken ideas that have prevailed in regard to the instability of this branch of revenue, and those ideas have been encouraged by the constant divergences between the estimates and the actual receipts from opium, which are the necessary consequence of deliberate under-estimates. There is no single year since 1870-71 in which the opium estimate has not proved greatly too low. The deficiency in the estimate has never been less than 270,000/., and its average amount in the last twelve years has been 941,000Z. In the Budget estimates for 1881-82, lately published, the net opium revenue is estimated, in ac- cordance with the Secretary of State's orders, at 6,500,000Z. This is less than the average revenue of ten years ago ; it is 1,500,000/. less than will probably be realised, and at least 1,000,000/. below what would have been an estimate of moderation and caution. There is no justification for continuing this practice. Even if it be admitted that there is real cause for doubting whether the opium revenue wiU be perma- nently maintained on its present scale of productiveness, KiSES TO OPIUM EEVENUE. 2^3 it cannot for a moinent be asserted that any danger exists of its immediate and sudden collapse, and deli- berately to under-estimate it is as great a mistake as deliberately to under-estimate any other branch of the revenue. It is, of course, impossible to speak with equal confidence of the future, but the Indian opium revenue runs, in my own opinion, one serious risk only, and this arises, not from any action likely to be taken in China, but from the well-meaning but misinformed ■prejudices of those people in England who believe it to be morally wrong that the Government should derive a large part of its income from such a source. It is proved to demonstration that although excess in opium, so far as the effect on the individual consumer is concerned, is as bad as excess in alcohol, for it can- not be worse, opium is to the immense majority of the Chinese, who use it in moderation, as harmless as any other of the stimulants which enter largely into the consumption of the world. Excess in opium-smoking is less common in China than excess in drinkinw in Great Britain, and, however ruinous it may be to the individual, it is much less injurious to his neighbours. It destroys his health, but it does not lead to violence and to crime, and it seems certain that the consumption of opium in China is infinitely and beyond all com- parison less productive of evil than the consumption of alcoholic drinks in our own country. So long as the principle of repression by the State in these matters is not accepted for our own countrymen. Englishmen should surely hesitate before they proceed to apply it arbitrarily to others. Opium, like all other stimulants, is mischievous when taken in excess, and harmless or beneficial when taken, as it ordinarily is, in moderation. Evidence can 254 FINANCES AND PUBLIC WORKS OF INDIA. be produced to any extent on both sides of this question, but it is not proposed to quote it. One fact, however, must be noticed which has an important bearing on the subject, because it has received httle attention in the discussions regarding the results to which the moderate consumption of opium leads. There has practically been very little restriction, either under the Native Governments or under our own, on the cultivation of the poppy in the Punjab, and there has always been a very large consumption of opium in the province, especially among the Sikhs, who are prevented by rehgious prejudices from smoking tobacco. The opium is chiefly consumed in the form of a decoction of the poppy heads called post. Its use, although general among the Sikhs, has never been asserted by any competent authority to be injurious ; the people who use it are physically the first race in India, and it would be difficult to find finer-looking men in any part of the world. ' It is the abuse,' wrote the Financial Commissioner of the Punjab, ' not the use of the products of nature that deserves the condemna- tion of the morahst. From the poppy is extracted a valuable sedative, largely used by the Sikh nation, than whom there is not a people of India of finer physical development, of more manly character, more excellent health, or more prolonged hfe.' The same may be said, with httle exaggeration, of the Chinese. The common notion that China mainly depends on India for her supply of opium, and that if Indian opium ceased to be imported the Chinese would cease to con- sume the drug, is a complete delusion. India, Lord Mayo observed, possesses conditions of soil and climate which give her the monopoly of opium of the highest cachet. She is in this respect situated as France is in CHINESE CONSUMPTION. 255 respect of wines. The superiority of her produce enables it to defy competition in the Chinese market, but the Chinese would no more give up the consumption of opium if the Indian supply were to faU, than the people of Prance would cease to drink wine if the rare vintages of Burgundy and Bordeaux were no longer to be produced. Opium was largely consumed in China long before the trade in Indian opium became import- ant, and the behef that it was the introduction of large quantities of opium from India which led to the general use of the drug in China is altogether without truth. The richer classes in aU parts of China, and more par- ticularly in the maritime provinces, consume Indian opium, but the bulk of the opium-smoking popula- tion has always been dependent on the suppHes mo- duced at home. If everything that is said regarding the demorahsation of the Chinese by opium were true instead of being, as it is, without foundation, the fact would remain that the total abandonment of the Indian opium revenue would confer no benefit upon China, for the consumption of opium would remain, for aU practi- cal purposes, as great and general as before. Nor is there any solid foundation for the common behef that the Chinese Government is anxious to pro- hibit and discourage the cultivation and consumption of opium. It is doubtful whether at any time any serious objection was felt to it by the Chinese authorities on moral grounds, although these were often urged, as a matter of expediency, in their controversies with the British Government. It is historically false, although frequently asserted, that we have made war with China with the object of forcing our opium upon her against her will, and in spite of her protests that the opium trade was demorahsing her people. The first Chinese 256 FINANCES. AND PUBLIC WORKS OF INDIA. war was caused by tlie desire of the Chinese Government to prevent the exportation of silver, which was believed to be impoverishing the country. The second war had nothing to do with opium. But, whatever may have been the case in former times, it is certain that there is now no wish on the part of the Chinese Government to put a stop to the trade. It obtains a large revenue from duties on Indian opium, and as this goes directly into the central treasury at Pekin, it is one of the most certain and highly-prized sources of the State income. It is far more difficult for the Central Government to get the benefit of the taxes levied by the provincial authorities on the home cultivation of the poppy. The Chinese Government sees that the Government of India derives an immense revenue from the opium exported to China, and it is naturally and not unreasonably anxious to obtain for itself a larger share of profit. This, and not the prohibition of the trade, is what it is really aiming at, and it would be right and politic for our Government to consider in a liberal spirit any pro- posals brought forward with this object, the adoption of which would not seriously injure Indian interests. A very significant statement of the views of the Chinese Government was made by the ministers in January 1881 to Sir Thomas Wade, and quoted by the Marquis of Hartington in his speech on April 29 in the House of Commons. 'I went,' Sir Thomas "Wade re- ports, ' on the 16th to speak of various matters. Four ministers received me. Adverting to opium, I observed that the authorities in some places were taxing opium, native and foreign ; in others they were trying to in- crease both sale and consumption of both. Without at all denying the right of the Chinese Government to do as it chose, I said I should wish to know which course OPIUM IN CHINA. 257 the Government approved. They said the question was embarrassing. The Chinese Government would be glad to stop opium smoking altogether, but the habit was too confirmed to be stopped by official intervention. No idea of abohshing the trade at present was in the mind of the Government. Alluding to the desire of well-disposed people at home to see England with- draw from the trade, I asked if it would be of any use to diminish yearly the exports from India. They said, so long as the habit exists, opium will be procured either from India or elsewhere. Any serious attempt to check the evil must originate with the people themselves.' The conditions under which opium is produced and consumed in China, and the results of the introduction of Indian opium, have lately been described by a writer who is evidently well acquainted with all the facts, and possesses the great advantage of knowledge acquired on the spot ; and his accounts are so full and to the point that it wiU be useful to quote them here : — ' The British public is told that England taught China to smoke opium, and thereafter insisted upon supplying her with the drug at a handsome profit to the Government of India, at first whether the Chinese Grovernment would or not, and latterly by virtue of a tariff rule legalising its importation attached to the Treaty of Tientsin, which was extorted from the terrified Chinese commissioners by force of arms ; that Lord Elgin, in extorting the permission through his secretaries, was simply carrying out the brutal and bullying policy of the English Grovernment of the day, whose servant he was, but that the policy itself was to him distasteful and to the Chinese plenipo- tentiaries odious; that the production and consumption of opium by its subjects have always been abhorred by the Chinese Grovernment, and that they have shown this by their persistent and consistent efi'orts, at all times and in all pro- vinces, to root up the poppy crops ; that, deeply sensible of the evils which opium-smoking entails on the country, they have S 268 FINANCES AND PUBLIC WORKS OF INDIA. ever been vigilant to minimise the mischief by limiting the consumption to the amount of the Indian drug imported ; that the whole policy and the only policy of the Chinese Grovernment with regard to native opium has been and is one of hostility, prohibition, and punishment ; that these efforts are rendered futile and this policy is paralysed by the increased importation of the Indian drug ; and that, in sum, Christian England, turn- ing a deaf ear alike to the prayers of the Chinese Government and the groans of the people, is directly responsible for the slow poisoning of heathen China. ' Now the instincts of an ordinary Englishman, whether with regard to his family, his country, or the world generally, are in the main those of the bonus paterfamilias of the Roman Law, and an accusation of this kind brought against his country, es- pecially when reiterated with all the fervour of religion and the vehemence of burning truth, will certainly arrest his attention. Neither the fervour nor the vehemence has of late been want- ing. The proceedings of the society whose gospel I have just given are rapidly reaching the stage of organised agitation, and as public opinion in England, given the initial impetus, forms and shapes itself with dangerous rapidity, this question of the Indian opium revenue may come prominently before ParUament and the country at any time. To help my countrymen to decide whether we are as a nation the immoral wretches the anti-opium society say we are, I have been at some pains to collate certain broad facts regarding the production and con- sumption of opium in China, a knowledge of which will tend to illumine the question by the light of common sense. ' The habit of opiiun-smoldng is common all over China, but it is in the West, in the comparatively unknown half of China west of the 110th meridian, that it is most prevalent. In some parts of Western Hu Pei and Eastern Szeehuen it is all but universal ; there are few adults in any station of life who do not take an occasional whiff, and the very streets of the towns and villages reek with opium fumes. The practice is there indulged in in the most open manner, and no more stigma or disgrace attaches to it than to smoking tobacco. Mr. Watters, Her Majesty's Consul at Ichang, made careful inquiries last year into the origin of the practice, and he found that it had been LOCAL PKODUCTION AND CONSUMPTION. 259 indulged in for several hundred years, long before either the present reigning dynasty or foreign merchants and their opium were ever dreamt of. The custom, generations ago, passed into the fainily sacra, and at funerals in the West of China, among other gifts which are transmitted into the next world, by burn- ing paper fac-similes of them in this, for the solace of the departed, is a complete set of opium-smoking requisites — pipe, lamp, needle, &c. By the people themselves the habit, so far from being regarded as a curse, is looked on as sine qua non for a Chinaman who wishes to make the best of both worlds. The whole of the opium consumed in the West is locally pro- duced, and Indian opium does not come higher up the Yangtsze than the districts contiguous to the port of Hankow, nor is it imported by any channel into Western Hu Pei, Szechuen, or the other provinces of the West. Above and beyond the enor- mous quantity there grown for local use there is a large trade in the drug, mostly contraband, from West to East. Indian opium is consumed in the provinces adjacent to the treaty ports, and, being an expensive article as compared with native opium, is mostly smoked by the well-to-do classes. The common people in these provinces smoke the native drug, which is either grown on the borders of Kiang Su and Ho Nan or is smugo-led overland from the West. All Western China, therefore, and the lower classes in Eastern China smoke native-grown opiiim, and it is most important for English people who are asked at meetings to say whether they think Indian opium is forced by our Grovemment on the Chinese or not to know to what extent and under what official conditions the production of native opium is carried on. ' Eegarding the opiimi districts of Eastern China — that is, the borderland of Chih Li, Ho Nan, Shantung, and Kiang Su — I have no personal knowledge. But with the West, and especially the section of it I have mentioned as the centre both of consumption and production of the native drug, I have not only had some acquaintance myself, but I have lately been able to avail myself of the experience of the two Englishmen who have had the best opportunities and means of procuring infor- mation regarding the native opium of the West — JMr. Colbome Baber, who was for four years Consular Agent in Szechuen s 2 260 FINANCES AND PUBLIC WORKS OF INDIA. watching the trade there, and Mi-. Watters, who was our Consul at Ichang, the port of Western Szechuen, until the other day. I can, therefore, speak with authority and confidence. The production of opium in Szechuen has been exceedingly under- estimated hitherto. Mr. Davenport gives it as 50,000 chests for 18Y8, basing his estimate probably on Chinese official infor- mation. But all such statistical information on this point is misleading. I have been assured by officials both of Szechuen and Kweichowthat for every pimd (133 lbs.) of opium returned to the Government, 2^ to 3 piculs are produced and sold con- traband. Mr. Baber, living and travelling among the Szechuen people, has been able to hear and see for himself, and he has obtained ample evidence that the production of Chinese opium in this one province is greater than the whole Indian crop, Malwa, Patna, and Benares put together. Of the amount pro- duced in the hill country of Hu Pei, Mr. Watters has not been able to give me any figures, but he says that in Ichang alone there is an opium restaurant to every thirteen inhabitants, where nothing is consumed except the native drug, produced in one or other of the four western provinces, and that in the out- lying parts of the two adjacent prefectures the officials admit of a production, on which they receive revenue, of 2,000 picxds. All over Western China the conditions of poppy culture, as far as the officials are concerned, are those of perfect freedom, and even open encouragement. All the grower has to think of is his profit. Opium is a more risky crop than cereals, but it pays seven times as well. If he chooses to run the risk of a failure in the crop, or of inability to buy rice with the money he gets for his opium, he is at liberty to grow opium if he likes. In ordinary circumstances a poppy crop subjects the grower to no interference on the part of his officials beyond paying the cus- tomary taxes : and in many districts where opium in manu- facture or transit is the sole source of revenue its culture is encouraged. * There is one risk, however, which the native grower of the poppy must take into account, although it is a small one, and that is the risk of destruction of his crop by an official in some part of whose jurisdiction there may be a famine. When cereals fail in China the places which have, cannot come to the EFFECT OF SMOKING IN CHINA. 261 relief of those which have not, and neither money nor opium can be exchanged for bread, owing to the defective means of inter-communication in the country. It is customary in such circunistances to order the rooting up of the poppy crop, and the orders are carried out in proportion to the sincerity and energy of the official. But as soon as the time of scarcity is past the poppy is allowed to bloom over the land again, and the reforming official, whose thorough-going patriotism has in the meantime been reported to and dilated on by the anti-opium society, reaps the usual reward in an enhanced revenue. Pro- clamations against the culture of the poppy, whether emanating from high or low officials, the grower may at all times disregard or ' contract ' himself out of by valuable consideration in the shape of bribes. During the past twelve years I can only recol- lect one case where a crusade against the poppy was carried on by an honest and a determined reformer with a single eye to the good of his country, and being honest and determined he was thoroughly successful, as a local official in China must be in any legitimate scheme of local government he may choose to enforce with energy. ' Eegarding the effect of opium on the Chinese nation, there is by no means a consensus of opinion that it is thoroughly bad. That it enslaves, enfeebles, and may kill all who take it in ex- cess is incontestable. That it impoverishes all except the well- to-do is equally incontestable. But there are two things that may be said in favour of it. As it is a pleasure, or a vice, which it is quite possible to enjoy moderately, the vast majority of smokers take their opium as most Scotchmen do their whisky — in moderation ; and a Chinaman stupefied is a much less terrible person than a Scotchman drunk. ' Be this as it may, so long as the Chinese do not interfere with the production of opium within their own borders in any manner which can be considered either genuine in purpose or effective in deed, the question of the supply by India to China of opium hardly comes within the domain of practical politics. So long as the Chinese not only allow the free cultivation of the poppy by their people, whether in the west or the east of China, but regard native-grown opium as a valuable and legitimate source of revenue, the cry that England is forcing opium on 262 FINANCES AND PUBLIC WORKS OF INDIA. China is unfair and untrue, and statements such as that made by a now responsible member of the present Grovernment, that ' the opium traffic gi-avely imperils our friendly relations with the Chinese Empire,' are unmeaning. The present attitude of the central and pi-ovincial Grovernments of China regarding native opium, as judged by their acts and forbearances, not their words, and the present state of poppy cultivation in Western China, must be taken into account by anyone who wishes to decide for himself the question which the Society for the Suppression of the Opium Ti-ade is placing before the country ; and the society itself, in not fully informing itself of either one or the other, seems to be basing its ease more on the sands of prejudice than on the rocks of truth.' In a subsequent communication the same writer makes the following statements : — ' All over the west of China, in the provinces of Szechuen, Kweichow, and South-Western Hu Pei, opium cultivation is everywhere tolerated, and in most places encouraged by the provincial officials. The production there is not only sufficient for the entu-e consumption of a population among whom the habit of opium-smoking is universal and who have never even heard of Indian opium, but is leaving a yearly increasing surplus for the supply of the east. Although this is mostly carried from west to east in a contraband manner, the quantity sent is enormous and is driving out the Indian drug in the inland cities of this and the neighbouring provinces. Two travellers, missionaries belonging to the China Inland Mission, have re- cently arrived from Bhamo, on the upper Irrawady. They re- port the pro^-ince of Yunnan to be rapidly recovering from its state of waste and desolation, and the universal form of the new cultivation to be a winter crop of opium. In February last the pro\ince was ablaze with poppies. The fact is that the supply of opium from India is a small part of the total con- sumption of this country ; it is mainly obtained from her own fields, and the cultivation of and trade in the drug are partici- pated in by the Government of the country, in the west at least, in the most open manner. Under the circumstances, the language which the Grovernment at Pekin have recently VIEWS OP CHINESE GOVEENMENT. 263 adopted with regard to the modicum of the drug coming from India, and which they have taught their representatives abroad to use, and their acts in the case of the opium clause of the Commercial Treaty with the United States, is a hypocrisy which deserves a stem rebuke. China, in the matter of opium, in reproducing her grievances of thirty years ago as the trials of the present, is imposing on the world. While her high authorities at the capital pose as plaintive and helpless sufferers from the Indian import, her officials and people throughout the regions of the empire remote from foreign gaze are cultivating opium everywhere. In these provinces the power of the Government is even more absolute and complete than it is on the sea-board, and there is no excuse for a language and a foreign policy so grossly and outrageously inconsistent with the state of things tbere. The imposture has met with success in the case of the treaty with the United States, but it is to be hoped that the recent accounts of travellers and foreign officials, of the extent of opium cultivation in the provinces which are still the by-ways of China, will warn ourselves and other nations who may be disposed to base a policy in the East on the philan- thropy of the West, that such philanthropy is wasted on the China of to-day.' ' A careful inquiry into the effect produced by the Indian opium trade on the people of China, in all the parts of that country within our reach, leads conse- quently to the conclusion that if, in deference to the prejudices to which allusion has been made, India is deprived of the revenue which she now obtains from opium, an act of foUy and injustice will be perpetrated as gross as any that has ever been inflicted by a foreign government on a subject nation. India now possesses the rare fortune of obtaining from one of her native products a great revenue, without the imposition of taxes on her own people, and we are asked to sacrifice ' Letters from the ShaDghai Correspondent of the Times, March 31 and September 28, 1881. 264 FINANCES AND PUBLIC WORKS OF INDIA. the manifest and vital interests of those people, to whose good we are pledged by the highest duties, in hope of protecting others, against their will, from doubtful evils ; in other words, to inflict certain injury where we have the power, in pursuit of a benevolent chimera which must elude us. Truly, to use the words of Condorcet, ' L'enthousiaste ignorant est la plus terrible des bStes feroces.' For such reasons it is hardly necessary to discuss the validity of the arguments of those who contend that, in the interests of morality, the Government of India should substitute an export duty as in Western India, for the monopoly in Bengal, and still less to enter into the question whether the opium revenue ought not to be abandoned altogether, and the cultivation of opium be prohibited in our own and in the native states. With reference, however, to the first of these ques- tions, it seems clear that unless the production of any staple on which taxation is imposed is, by some natural causes, absolutely Umited, a State monopoly is the most repressive and the severest of aU fiscal restraints. If, therefore, it were desirable freely to promote and develop the export of opium from India to the utmost, it might deserve consideration whether the interests of the country and of the trade would not require or justify the great sacrifice of direct revenue which the abandonment of the monopoly would, certainly in the first instance, and in aU probability permanently, in- volve. But if, in deference to feelings which, though mistaken, cannot practically be ignored, it were admitted not to be desirable largely to increase the supply of opium to China and other countries in Eastern Asia, then it seems indisputable that the last course to pursue EFFECTS OF THE INDIAN MONOPOLY. 265 should be to give up the Bengal monopoly and throw open the trade. An export duty could not possibly be regulated with that undeviating maximum severity of pressure which a monopoly secures. If it is legiti- mate, then it is also desirable, that we should obtain from opium the highest possible revenue, and this end can only be attained by a monopoly. If, on the other hand, it be true that the interests of morahty are in- volved, then those interests and the interests of the treasury coincide in demanding the maintenance of the monopoly. For to abandon the monopoly would be to sacrifice a great revenue with the probable result of a speedy development of the opium exports. In either case the substitution of a monopoly of Mdlwa opium for the present export duty, under conditions suitable to the joint interests of the British and Native Governments, would be preferable. As a consequence of the discussion on the Opium question in the House of Commons last session, the Secretary of State has lately invited the attention of the Government of India to the general position of this branch of the revenue, more particularly with reference to the possibiUty of transforming the present monopoly in Bengal into a system of excise. The qiiestion is not a new one, and until now the suggestion referred to has received very httle support in India. My own opinion is decidedly adverse to entertaining it, but beyond what has been said on the general subject it is not necessary now to go. The question of the relative fiscal advantages to British India of the Bengal and MAlwa systems is one of great importance, and the facts on which the answer to the question depends wiU be explained. 266 FINANCES AND TUBLIC WORKS OF INDIA. A chest contains, everjAvliere, the same gross weight of opium — namely a fraction over 140 lbs. avoirdupois weight. This is equal to a Chinese picul (looj lbs.), plus 5 per cent, which is appropriated by the middle- men in trade perquisites. The different chests, however, contain different weights of Avhat is technically called ' fine^ opium,' as follows : — lbs. avoirdupois. A chest of Behar, consistence 75, made at Patna contains . 105*107 A cliest of Benares, consistenee 70, made at Ghazipur contains 98*1 The ' consistence ' is the percentage of ' fine opium,' excluding all water. The weight of fine opium in a chest of MAlwa opium varies, because this opium is not prepared and packed under any responsible supervision or upon any uniform system ; but the fixed rate of duty favours a high consistence, and it is usually assumed that Mdlwa opium contains from 90 to 95 per cent, of fine opium. At the lower of these two consistencies, a chest contains 126-128 lbs. In other words, a chest of Behdr opium contains, at most, '83, and a chest of Benares opium, at most, -78, of the contents of a chest of MAlwa opium. Thus, in order that the three kinds of opium might contribute, equally, to the British Indian Treasurj', it would be necessary that, for every Es. 100 of duty levied on a chest of MAlwa opium, a profit of, at most, Es. 83-5-4 should be obtained on a chest of Behar opium, and a profit of, at most, Es. 77-12-5 on a chest of Benares opium. The actual cost of a chest of BehAr opium, including a liberal allowance for interest on the capital employed, ' ' Fine opium ' is opium dried to powder on a steam table at 200°Falir., and then weighed whilst a little warm, i.e., before moisture can be reabsorbed from the atmosphere. — Opium Manual, 1875 edit., paras. 68 and 73, PROFITS FROM BENGAL AND MALWA OPIUM. 267 and for all indirect charges, is Es. 436, and of a chest of Benares opium Rs. 373.^ The following table shows the least duty which it would be necessary to levy on a chest of Mdlwa opium to obtain from it a revenue as large as that derived from a chest of Bengal opium at various prices : — COHRESFONDINO Price op a CHEST OF Ddty ox a chest op Behdr opium. Benares opium. Sldlwa opium. Rs. Bs. Rs. 936 840 600 978 879 650 1,019 917 700 1,061 956 750 1,103 995 800 1,144 1,034 850 1,186 1,073 900 1,228 1,112 950 1,269 1,151 1,000 1,311 1,190 1,0.50 1,353 1,229 1,100 1,394 1,267 1,150 1,436 1,306 1,200 1,478 1,345 1,250 1,519 1,384 1,300. With these facts before us, we must remember in proceeding further to consider the fiscal advantages of the two systems, that, apart from the direct revenue which reaches the treasury, the cultivation of the poppy, both in Behdr and in the North-Western Pro- ' Cost of a chest of Behdr opiwm. 68 seers 2 cHttacks opium @ 75%'eonsiatence = 73 seers @ 70% consistence, — @ Ks. 5 a seer . . . 3Co Cost of manufacture and packing, interest on capital, per- centage for penaons and leave allowance of officers, &c. . 71 430 Cost of a chest of Benares opium. 68 seers 2 chittacks @ 70% consistence, — @ Rs. 4^8 a seer . 307 Miscellaneous items as tefore . , . . .66 373 268 FINANCES AND PUBLIC WORKS OF INDIA. vinces, is, notwithstanding the monopoly, very profit- able to the agricultural population directly engaged in it, and to the landholders who obtain a high rent for land upon which the poppy is grown. This is an established fact, denied by no one. The cultivation is extremely popular, and there is no doubt that it leads to no objectionable consumption of opium by the people who carry it on. On the other hand, although we fix the export duty on MAlwa opium at our discretion, we have never objected to the Native States in which the opium is produced obtaining revenue from this source. Opium has always been one of the chief branches of their income. It is impossible to say how much per chest is, on an average, thus levied ; we do not know the true cost of the production of a chest of opium in MAlwa ; and the numerous Native States concerned impose their dues partly in the shape of increased revenue upon lands on which the poppy is cultivated, and partly as transit duties. If it should be found possible, at some future time, to substitute for the present system in Mdlwa a monopoly, the profits of which might be divided in suitable proportions between the British Government and the Native States, there would be great advantages in the change ; but there are serious difficulties to overcome before it could be made. Meanwhile, it is clear that, chest for chest, the Bengal opium monopoly yields us much more revenue than the Mdlwa export duty, so that we gain largely upon every chest of Bengal opium which is substituted for Mdlwa opium. This may be shown as follows : — About 45,000 chests of MAlwa opium are now exported yearly, upon which we levy, at the present rate of duty (Ks. 700 a chest), 3,150,000Z. At the rates obtained at EXPOET DUTY ON MALWA OPIUM. 269 the sale held in November, 1880, in Calcutta, the profits on the same quantity of Behdr opium would have been 5,081,400/., and of Benares opium 5,635,300/.^ Even at the much lower average prices of the whole year 1879-80, the profits would have been, at Behdr prices, 4,158,000Z. and at Benares prices, 4,402,000/.^ These calculations include the recent increase in the price paid for Behdr crude opium, and aU indirect charges. Significant as these figures are, they do not tell the whole tale. There is every reason to beheve that the taxation ofMdlwa opium by the Native States is not sufficient to make the whole burden upon it equal to that borne by Bengal opium under the monopoly. To whatever extent the aggregate British and native duties on Mdlwa opium fall short of the Bengal monopoly profits, the Mdlwa opium must compete on unfairly favourable terms with Bengal opium, and the tendency of this competition must be to reduce the Bengal monopoly profits. Accordingly, the established pohcy, in the manage- ment of the opium revenue, is to regard our chief interest as concentrated in the Bengal monopoly, and to regulate our action in respect to Mdlwa opium with ' Thus calculated : — 46,000 chests @ 90 % consistence = 54,000 chests @ 75 % = 67,857 chests @ 70 % consistence. At the sale ih Nov. 1880. Durdjo the whole TEAK 1879-80. BeMr. \ Benares. BehAr. Benares. Es. Es. Es. Es. Average price of a chest . . 1,377 1.347 1,206 1,134 Cost price . 436 873 436 373 Profits .... . 941 974 770 761 64,000 chests x 941 = Ks. 5,08,14,000 and x 770 = Ks. 4,15,80,000 67,867 chests x 974 = Rs. 6,63,53,000 and x 761 =Rs. 4,40,29,000 270 FINANCES AND PUBLIC WORKS OF INDIA. a primary regard to that interest. For this reason, on a comparison of the prices of Mdlwa and Bengal opium, the duty on Mdlwa opium was raised, in July, 1877, by Es. 50 a chest, and, again, in September, 1879, by another Rs. 50 a chest. The export duty on a chest of Mdlwa opium is now Es. 725 when paid at Ajmir ^ and Es. 700 when paid elsewhere. At present Bengal prices, a chest of Mdlwa opium is taxed Es. 429 less than an equal quantity of Behdr opium, and Es. 552 less than the same quantity of Benares opium. The high level of Bengal prices which has lately prevailed has been regarded as to some extent accidental, and to it has been attributed the dulness of the Mdlwa trade. A further increase to the Mdlwa duty was therefore not proposed. But, if present Bengal prices should be maintained, and, especially, if the Mdlwa trade should revive without a simultaneous collapse of Bengal prices, there is no doubt that the duty on Mdhva opium should be further increased. It is difficult to lay down any principle upon which to fix the difference which should be allowed in favour of Mdlwa opium as a margin for Native State taxation, but probably it need not, under existing conditions, be more than Rs. 250 a chest ; that is to say, the duty on Mdlwa opium should, as a rule, exceed the present rate of Es. 700 in the proportion of Es. 100 for every Es. 83-5-4 by which the permanent average price of Behdr opium exceeds Es. 1,228 a chest. On the other hand, the existing duty of Es. 700 need not be reduced unless the average price of Behdr opium falls permanently below Es. 1,186 a chest. The policy of maintaining a reserve of Bengal ojjium, ' The exports from Ajmir are iusLgnificant. The dutj' there is enhanced, because we do not wish to divert opium to Ajmir from the neighbouring Native States. EESERVE STOCK SUPPLY AND SALES. 271 in order to prevent fluctuations in the supply sold month by month, has already been described, and is not now, it is hoped, likely to be seriously questioned ; but there is stiU enough speculation in the opium trade to make it probable that, from time to time, pressure wUl be put upon the Government to induce it to revert to the plan of yearly notifications, with all its attendant in- conveniences. A deaf ear should be turned to all such demands. The chief hope of getting rid of the specu- lative- element in the trade lies in a steady perseverance in the system of fixed monthly sales, subject to as unfre- quent variations as possible. The Government of Bengal has sometimes been dis- posed to favour a dangerous reduction in the amount of the opium reserve. Such influences also should be re- sisted. The minimum reserve on December 31 should be 30,000 chests, besides the whole of the crop last gathered, and a still larger reserve might be desirable. The reserve on December 31, 1880, was only 25,183 chests, and it is not yet clear that it will be possible to maintain permanently the present fixed monthly sales of 4,700 chests ; experience only can decide this. The supply of Bengal opium should certainly be developed to whatever extent may be found possible. This matter has, from time to time, received much attention. Some years ago, the Opium Agent at Ghdzipur was deputed to inquire whether the poppy could be profitably cultivated in the Punjab and Sindh. His reports were not encouraging, and, according to present information, it seems Ukely, not only that the production of Bengal opium cannot be much increased, but that in order to maintain the present production, it may be necessary to increase the price paid to the culti- vators for crude opium. The price was raised in 1880 272 FINANCES AND PUBLIC WOEKS OF INDIA. in the Behdr Agency, from Es. 4-8 to Rs. 5 a seer of 70 per cent, consistence. There should be no hesitation about any needful increase of price, as occasion arises. The views of those who object on economical grounds to the extension of the cultivation of opium need not be discussed at length. About 500,000 to 550,000 acres of land are now cultivated with poppy in Bengal, on much of which a second crop is grown. The poppy takes the place, for the most part, of garden crops, not of cereals. The appropriation of half or three-quarters of the productive capacities of half a million of acres, or, say, including MAlwa, of a million of acres or more to this valuable commodity, is far from being a matter for regret upon economic principles ; on the contrary, the discovery of fresh staples, other than food crops, which can be profitably grown in India, a country so essentially dependent on its agricultural produce, is a constant desideratum. It has been contended by some authorities that a larger net revenue would be obtained by the sale of a limited supply of Indian opium at a higher price, than by the sale of a larger supply at a lower price. It is not worth while to examine this hypothesis. The Government of India wisely concluded, many years ago, as already noticed, that its opium revenue would be endangered if the price of Bengal opium should rise, for any length of time, above Es. 1,200 a chest ; but, with all its efforts to extend the cultivation and discourage speculation, it has not been able to prevent this limit being constantly passed. It can hardly be conceived that the Government of India will ever be so foohsh as to restrict its opium exports otherwise than under necessity. In conclusion, it must be urged that the opium re- ADMINISTRATION OF OPIUM REVENUE. 273 venue should be directly administered by the Govern- ment of India itself, and that, while the co-operation of the local governments should be encouraged and even insisted upon, these Governments should not interpose betvp^een the Government of India and the Opium Agents. The care and ability with which the Government of Bengal has discharged its duties in respect to the man- agement of this department is fully acknowledged ; but its hands are full of other work, and an increasing proportion of the Bengal opium is produced beyond the limits of Bengal. The interests at stake are so vast, and the risk of some misunderstanding, involving a disturb- ance of established policy, is so considerable, that it cannot be doubted that the management of the opiuni revenue should be in the immediate charge of the Government of India, every precaution being taken to preserve its traditional policy unbroken. Illustrations could be given of the dangers to which the opium revenue is exposed. On one occasion, not very long ago, orders were actually issued for the re- duction of the cultivation in Bengal, which, if they had not been cancelled, would in all probabihty have pre- vented the formation of the long contemplated reserve and the recent large increase of the revenue. It is very desirable that, while leaving all needful freedom to the Government of India as to details. Her Majesty's Govern- ment should peremptorily forbid any innovation in the management of this department without the previous sanction of the Secretary of State in Council. The con- servative instincts of the India Office would in this case have a very valuable influence. CHAPTER XV. THE CUSTOMS DUTIES. GEIfERAL KATES OF DtTTT BEFOEE ] 875 — ^EETtlTCIIOKS MADE BY LORD NOKTil- BEOOK — PTTBLIC OPINION IN INDIA INDITFEEENT OR ITNFAVOTJEABLE TO FREE TRADE — LORD SAIISBUEY's ORDERS FOR REMOVAL OF IITPORI DUTIES ON COTTON GOODS — DEOLAEATION OF PRINCIPLES BY LORD LYITON's GOVEENSnENT IN 1878 — SPECIAL IMPORTANCE OF FREE TRADE TO INDIA — DIFFICin^TY OF FRAMING AN UNOBJISCXIONABLB CITSIOMS TARIFF — REMOVAL OF IMPORT AND EXPORT DUTIES TS 1878 AND 1880 — DUTY ON RICE ALONE REMAINS AMONG EXPORTS — LORD SALISBURY'S ARGUMENTS FOR REMOVAL OF COTTON DUTIES — HIS ORDERS REPEATEDLY CONFIRMED BY HOUSE OF COMMONS — ^FIRST STEP TAKEN BY EXEMPTION OF GOODS WITH ^VHICH INDIAN MILLS COULD COMPETE — FURTHER EX- EMPTIONS IN 1879 — THEIR EFFECT — ENORMOUS INCREASE OF IMPOETS OF DUTY-FEEE GOODS — INCPJ)ASED PEOSPBEITY OF INDIAN MILLS — NECES- SITY FOE EARLY EXTENSION OF REMISSIONS TO ALL GREY GOODS — AFTER WHICH COMPLETE EXEMPTION SHOULD FOLLOW — REMAINING CUSTOMS DUTIES THEN OF SMALL IMPORTANCE — ALL INDIAN PORTS SHOULD BE IHEOWN OPEN. Great changes were made during the Viceroyalty of Lord Lytton in tlie customs tariff, and in the practice which the Government of India had previously followed in regard to its commercial pohcy. The merits of those changes have been, and will be, very differently estimated, but no one doubts their importance. They must produce, for good or evil, great effects on the commercial and manufacturing interests of India, and on the financial position of the Government. There has been much acrimonious discussion of these questions, and much has been said in the heat of controversy, which reasonable men will agree had CUSTOMS DUTIES BEFORE 1875. 275 better be forgotten. In order to avoid the repetition of such errors, it is desirable to enter as httle as possible into fresh argument, but rather to give a dispassionate account of what has been done or proposed, and of the results actual or anticipated. It is not necessary to follow, in any detail, the history of the commercial legislation of India during the last ten or twenty years. It has already been referred to in Chapter 11. Until 1860 almost everything imported or exported was taxed. In 1860 the general rate of duty on imports was 10 per cent, ad valorem, and on exports 3 per cent. Various changes, of which some only of tlie more important need be noticed, were subsequently made from time to time. In 1864 the general rate of duty on imports was reduced from 10 to 7^ per cent. Between 1860 and 1867 many articles were exempted from export duty, and in the latter year a lar^e number of minor articles were placed on the free list of imports. In 1871 the articles subject to export duty were reduced to eight in number, — cotton goods, grain, hides, indigo, lac, oils, seeds and spices. In 1875 imjDortant changes in the tarifl'were made by the government of Lord Northbrook. The general rate of duty on imports was reduced from 7^ to 5 per cent., and the only articles which remained liable to ex- port duty were rice, indigo and lac. This Avas the state of things when Lord Lytton became Viceroy. In his speech in the Legislative Council, on the 5th August, 1875, Lord Northbrook gave an explanation of the general views which he held on the subject of cus- toms duties in India. He in no way expressed approval of customs duties in themselves as a means of raisincr revenue in India. He accepted them as the lesser of two evils, and did not disguise his regret that in his T 2 276 FINANCES AND PUBLIC WORKS OF INDIA. opinion circumstances prevented him from carrying out thoroughly in India those principles of free trade, the universal truth of which he fully recognised. In this aspect of the subject there was httle or no differ- ence between the principles of Lord ISTorthbrook and those of Lord Lytton, although there was a wide dif- ference in the action taken by them. While Lord Northbrook admitted the objections to which customs duties were open, he considered that we could not afford to abandon the revenue which they yielded, and that as it was impossible to replace them by other taxes which would not be more objectionable, they must be retained. These views found general acceptance in India both among the official and unofficial classes. As a general rule, subject to rare exceptions, few people in India think much about economic questions, and public opinion regarding them is almost always in favour of the policy of leaving things alone, which too often is also the most ignorant and unenhghtened pohcy. This reproach has no special applicability to India, for, ex- cepting perhaps England, there are few countries which do not equally deserve it. Hence the practical apphca- tion to the Indian customs tariff of free trade prin- ciples might have been delayed for an indefinite period, however satisfactory had been the general condition of our finances, had not the interests of the Enghsh manufacturers of cotton goods forced the matter into prominence. Whether it might not be right to impose fresh taxes for the purpose of getting rid of the cotton duties, or other parts of the Indian customs tariff, if they could be got rid of in no other way, is a question on which opinion differs, but it need not now be discussed. Lord PRINCIPLES OP LOED LYTTON's GOVERN.MENT. 277 Salisbury, when he was Secretary of State for India, and Lord Lytton as Viceroy, repeatedly declared that no such course would be adopted by the Government. Nor was it suggested by those who thought it might have been legitimate, because they were satisfied that these and other necessary fiscal reforms could be carried out without fresh taxation. This anticipation has been justified by the event. Lord Salisbury, however, was not satisfied with Lord Northbrook's conclusions. In a despatch dated May 31, 1876, he declared his conviction that the true interests of India, as well as the legitimate claims of English industry, required a reconsideration of the matter ; that the complete removal of the duties on cotton goods was essential as soon as the condition of the finances would allow, and that they could not be relied upon as a permanent source of revenue. Lord Lytton was prepared to act in complete ac- cordance with these views, and if his Government had not fallen upon evil times of famine and of great financial disturbance caused by the depreciation of the value of silver, there would now be no cotton duties, and not many other customs duties, in India. It Avas not untU the beginning of 1878 that any action be- came possible, when an important step was taken by the pubhc definition and authoritative declaration of the principles, which the Government adopted and in- tended to carry out gradually as circumstances allowed. This declaration was made in Sir John Strachey's financial statement for 1878-79, as follows : — ' The G-ovemment deems it right to place on record the principles on which its action is at the present time guided, and by which it desires to be guided in the future. ' It is not necessary now to discuss the advantages to a 278 FINANCES AND PUBLIC WORKS OF INDIA. country of free trade and the disadvantages of protective duties. It is sufficient to say that these have been admitted for many years by the statesmen who, of whatever party, have guided the policy of the United Kingdom. In pursuance of the principles thus accepted, the tariff of the United Kingdom, which, less than thirty years ago, subjected to duty more than one thousand different articles, has been brought down by various stages to some half dozen, of which the only important ones are wine and spirits, tea and tobacco. At the same time all export duties have been abolished. 'The principles on which the customs legislation of the United Kingdom has been based are now admitted axioms by all who recognise the theoretic advantages of free traTie. They must be regarded as a part of the national policy which Great Britain has finally adopted, and which the Secretary of State for India, with the deliberate approval of the House of Commons, has required the Government of Irtdia in this country to carry out. ' These principles are, as regards imports ; — '1. That no duty should exist which affords protection to native industry ; and, as a corollary, that no duty should be applied to any article which can be produced at home, without an equivalent duty of excise on the home production ; also, that no duty should be levied except for purely fiscal pm-poses. ' 2. That, as far as possible, the raw materials of industry and articles contributing to production should be exempt from customs taxation. ' 3. That duties should be appUed only to articles which yield a revenue of sufficient importance to justify the inter- ference with trade involved by the machinery of collection. ' As regards exports — that duties should be levied on those commodities only in which the exporting country has practi- cally a monopoly of production. ' These principles are of general application ; but, in the case of India, they possess a peculiar significance. India is a country of unbounded material resom-ces, but her people are a poor people. Its characteristics are great power of production, but almost total absence of accumulated capital. On this account alone the prosperity of the country essentially depends on its NECESSITY OF FREE TRADE TO INDIA. 279 being able to secure a large and favourable outlet for its surplus produce. But there is a special feature in the economic con- ditions of India which renders this a matter of yet more pressing, and even of vital importance — this is the fact that her connection with England, and the financial results of that connection, compel her to send to Eiurope every year about 20,000,000Z. sterling worth of her products without receiving in return any direct commercial equivalent. It is this excess of exports over imports which, in the language of the econo- mists, is described as tribute. It is really the return for the foreign capital, in its broadest sense, which is invested in India, including under capital not only money, but all advantages which have to be paid for — such as the intelligence, strength and energy on which good administration and conamercial prosperity depend. From these causes the trade of India is in an abnormal position, preventing her receiving, in the shape of imported merchandise and treasure, the fuU commercial benefit which otherwise would spring from her vast material resom-ces. ' The comparatively undeveloped condition of the trade of India may be illustrated by the following figures : — -The value of the imports and exports, taken together, per head of the population is in the United Kingdom about 201. In British India it is about 10s. The customs revenue on the few articles now retained in the import tariff of the United Kingdom is about 12s. per head ; while that of India, on all the articles of its lengthy tariff, is about 3c?., showing that small as is the proportion of the foreign trade of India to that of England, the proportion of customs revenue derived from it is smaller still. ' Here then is a country which, both from its poverty, the primitive and monotonous condition of its industrial life, and the peculiar character of its political condition, seems to require from its Grovernment, before all things, the most economical treatment of its resources, and, therefore, the greatest possible freedom in its foreign exchanges. ' Under these circumstances, what are the conditions of production and consumption in India ? How far is it possible to construct a tariff of import and export duties which will 280 FINANCES AND PUBLIC WORKS OP INDIA. comply with the accepted canons of taxation? And how far does the existing tariff conform to those canons ? ' In answering these questions, it will be found that India, by the extent and favourable conditions of its territory, is capable of producing almost every article required for the use of man. If, therefore, the import customs tariff be maintained, it will involve the evils of protection, unless an excise duty to countervail the customs duty be imposed upon almost every item which the tariff now includes. Now, as excise duties are generally costly, vexatious, and inconvenient forms of taxation, and would be in most cases impracticable in India, this of itself is a reason against the permanent retention of the existing customs tariff, and one which interposes a very serious difficulty in the way of constructing one that shall be free from objection. Since almost every article that is now on the tariff, or that could be named, is either produced or is capable of being produced in India, it follows that import duties must in every case be actually or potentially protective, while, with the ex- ception of liquors and salt, none of them are subject to an excise. ' Again, the people of India are too poor to consume many luxuries. The import trade merely consists of what may be considered either the materials of industry or the necessaries of life. It will accordingly be found that nearly all the heads of customs revenue which are of any importance are derived from one or other of these descriptions of commodities, and that the revenue derived from other articles is so insignificant as neither to justify the machinery of collection nor the interference with the trade. 'The total amount of import duties was, in 1876-77, 4,l70,947i., or, deducting erroneous collections, refunds and drawbacks on re-exportation, 4,098,296?. : of this latter sum there was realised — From salt . . . . £2,491,010 From liquors . . . 331,761 Total . . £2,822,771 On these articles there is an internal excise duty countervailing the customs duty. ' Deducting the duty on these two articles, there remains EXISTING DUTIES GENERALLY INDEFENSIBLE 281 1,275,525Z. Deducting again from this the revenue realised from cotton goods, or 811,340L, there remains 464,185L, which is thus distributed : — Copper . . £65,624 Iron 17,096 Other metals ..... 30,020 ^112,740 Silk, raw and manufactured .... 43,727 "WooUen manufactures .... 38,068 Provisions 32,901 Apparel . 25,658 Hardware and cutlery- 21,049 Spices 18,724 Sugar 13,886 Glass . 13,244 Eailway materials 11,335 Articles, eacli group of which gave less than 10,000i. 132,853 Total . £464,185 ' Many of the numerous articles in the last class yield each an insignificant revenue, and nearly the whole are, or can be, produced in India. The duties on them are thus indefensible in principle, and cannot consistently be maintained longer than financial exigencies require their retention.' When making this declaration of principles the Government of India added that it would not hasten, by imposing fresh taxation, the fiscal reforms thus de- clared to be necessary, and that it confidently expected that the normal growth of the revenues would place at its disposal the necessary means. In March, 1878, twenty-nine out of the sixty-two major heads under which the customs tariff was classi- fied, comprising a larger number of sub-heads and a multitude of articles, were swept away. This remission of duties involved an estimated loss to the revenue of 51,4:001. The inland duties on the export of sugar to Native States, to which reference has already been made, were at the same time abolished, with a loss of 160,000Z. In February, 1880, the export duties on indigo and 282 FINANCKS AND PUBLIC WORKS OP INDIA. lac were removed. The average amount derived from the export duty on indigo was 42,000Z. The export duty on lac yielded about 9,000Z. With the exception of the duty on rice, no export duties now remain on the Indian tariff. The effect of the duty on the manufacture of indigo may not actually have been great, but the progress of scientific discovery is now so rapid that any day this industry might have been seriously threatened by some chemically prepared substitute, and we should then have been exposed to the deserved reproach of having stimulated competition by the suicidal folly of our fiscal legislation. Even as these words are written, this possibihty has been so far realised that the artificial preparation of indigo has become a fact, though its high price for the present may preclude its use. Export duties enjoy the credit of having deprived India of an almost exclusive trade in saltpetre ; they were taken off when it was too late to repair the mischief, and the Government of India did not choose to run ally longer a similar risk with indigo. The only remaining export duty is that on rice, grown for the most part in British Burma, but partly in Bengal and Madras. It yielded in 1879-80 a revenue of 590,000/., and in 1880-81, 718,000/. The economical objections to this duty are undeniable, and it is to be hoped that the time is not far distant when it Avill be abolished, and an amount equivalent to the duty levied in British Burma raised by a readjustment of the land revenue. Sir C. Aitchison, the chief com- missioner of the province in 1878, said : ' The country is now in a state of transition, making gigantic strides every year. Existing taxes do not apparently check that progress to any appreciable extent. I would, EXPORT DUTIES KEMITTED. 283 tlierefore, let well alone ; but hereaftei', when the country is fairly populated, when the enormous area of cultivable waste is brought under the plough, and the province has become ripe, generally, for a regular revenue settlement, I am of opinion that the rice duty and the capitation tax ought to disappear and give place to an improved system of land assessment.' At the same time, there can be no doubt that the export duty on rice is, at the present moment, practically less objectionable than many of the import duties. Al- though it cannot be said that India and Burma have a complete monopoly of the supply of rice to Europe, they have something closely approaching to it, and so long as this is true the injurious effect of the duty on Indian interests is less serious. It is impossible, however, to say how long this may continue ; the export duty on rice should certainly not be counted upon as a permanent source of revenue, but while more urgent fiscal reforms remain to be carried out, there is no immediate necessity for surrendering the large sum which it yields. The measures taken with a view to the removal of the duties on cotton goods were of far more importance than those just described, both on account of the large interests directly at stake, and the indirect consequence almost necessarily involved, of the ultimate complete extinction of all Indian customs duties. The reasons which led to the adoption of those measures were stated by Lord Sahsbury in a despatch to the Govern- ment, of India, and are quoted at length in a note to this chapter. They were most forcibly and lucidly stated, and wiU, without any doubt, be conclusive to every one who accepts the principles of free trade. Lord Salisbury's orders were emphatically confirmed 284 FINANCES AND PUBLIC WORKS OP INDIA. by a Eesolution of the House of Commons, adopted without a division on July 11, 1877, in the following terms : — ' That, in the opinion of this House, the duties now levied upon cotton manufactures imported into India, heing protective in their nature, are contrary to sound commercial policy, and ought to he repealed without delay so soon as the financial condition of India will permit.' The position of the import trade of British cotton goods must here be explained. The Indian manufacture is at present confined to the coarser yarns, and to goods made of such yarns ; it was clear, therefore, that the 5 per cent, import duty served to protect these yarns and goods against competition from without. It was asserted by many that the duty was so low that it could have no appreciable effect, but that it was protective in theory was denied by no one, and the Government of India considered that the first step towards the gradual removal of the cotton duties should be the remission of this undoubtedly protective portion of them. The Indian manufacturer could compete with certain descriptions of grey or unbleached English cotton goods, which contained only the coarser yarns such as the Indian mills could produce. It was, therefore, decided to begin by exempting some of these classes of goods which were similar in character to goods actually manufactured in India, and which did not contain finer yarn than that known as 30s. This measure was carried out in March 1878, at the same time with tlie remission of the duties on minor articles above referred to. The step thus taken was avowedly of a temporary and tentative character ; the estimated loss of revenue was only 25,600Z., and it affected only those qualities KEJIOVAL OF COTTON DUTIES. 285 of goods on which the duties, were directly and ob- viously protective. With any indii'ect protection which may have been given to the duty-free locally made fabrics, by displacing, to some extent, the finer dutiable imported goods, there was no attempt to deal. The scope of the measure thus adopted was pur- posely very limited ; it produced httle effect, and the Government of India, in the beginning of 1879, appointed a Commission, under the presidency of Mr. T. C. Hope, to inquire further into the subject, in consultation with the mercantile community, from which various repre- sentations had been received. Their report showed that although the orders of the previous year had worked without much trouble or complaint, they were clearly open to this serious objection, that ' there was Uttle essential difference between the cloths which had been exempted, and large classes of cloth, otherwise styled, which had not '; and the Commission stated its opinion that ' the only effective remedy obviously is to treat similarly, whether by exemption or taxation, all cloths of the same texture, irrespective of the lengths and widths in which they happen to be made up, or the names by which people may choose to call them.' The course thus proposed by the Commission had been more or less explicitly recommended by the Chambers of Commerce of Manchester, Bengal, and Bombay. Some important facts were also estabhshed in illus- tration of the necessity of early action to relieve those imported goods which were exposed to local com- petition. It was shown that the faUing-off in the im- ports of the coarser goods, on which much stress was laid by Lord Salisbury in the despatch mentioned above, was stiU going on, although there had been a large increase in the importation of goods of finer 286 FINANCES AND PUBLIC WORKS OF INDIA. qualities. The effect of the import duty in leading to these results was estimated differently by different authorities, but the fact was indisputable that a branch of the trade which was once important had greatly fallen off, while on the other hand the Bombay mills had not only, in the four past years, increased their exports of yarn and piece goods to foreign countries by 26 per cent, and 51 per cent, respectively, but had more than doubled their exports to other parts of India. The total value of those exports, Avliich was 432,000Z. in 1875-76, had risen to 945,000^. in 1877-78. The Eeport of the Commission was pubhshed with the Financial Statement for 1879-80, -and its recommendations were adopted by the Government. It was decided to remit the duties on all grey goods, consisting of yarns not finer than 30s, a step which would remove the more urgent and immediate causes of complaint, and could be afforded at an annual loss of revenue estimated to range from 150,000^. to upwards of 200,000Z. Although, from the fact that India was at the time engaged in war and other adverse circumstances, tlie state of the finances was not such as to render this loss of revenue unimportant ; yet the measure was held by Lord Lytton to be so necessary, both on economic and political grounds, that it could not rightly be delaj-ed, and it was carried into effect on March 13, 1879. This important step was taken by Lord Lytton, in opposi- tion to the opinion of a majority of his Council, but on the advice of Sir John Strachey, the Financial member. It was approved, on April 4, 1879, by the House of Commons in the following Eesolution : — ' That the Indian import duty on cotton goods, being unjust alike to the Indian consumer and the English producer, ought PARTIAL EXEMPTION OF GREY GOODS. 287 t.o be abolished, and this House accepts the recent reduction in these duties as a step towards their total abolition, to which Her Majesty's Government are pledged.' It was stated by one of the dissentient members of the Governor-General's Council, that there were not ' a dozen officials in India who do not regard the pohcy which has been adopted in this matter, as a policy which has been adopted, not in the interests of India, not even in the interests of England, but in the interests, or the supposed interests, of a pohtical party, the leaders of which deem it necessary at any cost to retain the pohtical support of the cotton manufacturers in Lancashire.' Making allowance for some exaggeration of expres- sion, this statement doubtless contained a good deal of truth as to the state of pubhc opinion. The official and non-official classes of EngUshmen in India have never been favourable to fiscal reforms based on the princi- ples of free trade, and the natives of the country, even the richer and better educated, have not, with rare exceptions, arrived at the most elementary knowledge of such questions ; nor were there wanting among all these classes those whose prejudices could attribute none but pohtical or party motives to the advocates of the reduction of the cotton duties. The nature of this opposition satisfied Lord Lytton that he must carry out the measure himself, or acquiesce in nothing being done at aU. He believed that the essential interests of India required it, and he was not to be deterred by the imputation of base motives. The case was one of those which had either to be settled by a bold and enlightened Viceroy, or be allowed to drift on to the serious discredit of the Government and injury of the country. 288 FINANCES AND PUBLIC WORKS OF INDIA. The measures thus taken were avowedly first steps towards that total abolition of the duties to which the Government of Lidia is pledged, and which it has been ordered by Her Majesty's Government and by Parhament to carry out. They were intentionally given a form which at the outset placed them almost beyond the reach of opposition, except from avowed partisans of protection, though it did not affect their ultimate efficacy. If the object in view had been the mere reduction of the duties, and their maintenance for an indefinite period at a lower rate, it would have been a better mode of procedure to have made a general reduction of the duties on all classes of goods, instead of remitting the whole duty on the coarser kinds and retaining it on the finer. But as it had been decided that the cotton duties were producing mischievous effects on great Indian and Enghsh interests, that their maintenance for any length of time was impossible, and that their abohtion could be effected without financial risk, it followed that the sooner they were removed the better. The knowledge that by the particular method chosen for dealing with them the difficulty of main- taining any part of them in any shape would be in- creased, was no objection, but rather a recommenda- tion, to those who had made up their minds that every- thing was an advantage which helped to hasten the completion of a necessary reform. The results have been greater and have come sooner than was foreseen, but they have entirely con- firmed the accuracy of the conclusions at which the Government of India arrived. All present grounds for the complaint that we were levying protective duties in favour of the Indian mills, in their competition with Enghsh manufacturers, have been removed. Some RESULTS OF EXEMPTIONS. 289 classes of English goods are unduly favoured in comparison with other classes of English goods, but no protection remains for the special benefit of goods now produced in India. It was anticipated by Mr. Hope's Commission and by the Government of India that the remission of duty on all goods made of 30s and under ' would probably soon effect a complete revolution in the piece goods trade.' In support of this opinion the Commission quoted the following passage from a report by Mr. Pritchard, the Commissioner of Customs in Bombay : — ' The remission will operate to create a new class of shirtings made of yams 28 by 29 or 30, instead of the present standard quality of 32 by 36. This will pass free of duty, and, if it finds favour in the market, will take the place to a large extent either of the longcloths or of the shirtings now used, or of both.' The Commission also quoted the following opinion of a mercantile firm : — ' There can be no doubt that a trade in cloth made of yarn just within the limit of exemption of duty would be fostered, and which might gradually become of considerable importance. Such cloth would probably be appreciated by consumers for its intrinsic value, as well as for its comparative cheapness, owing to there being no duty upon it ; and, if this should be the case, it might do away with the importation of cloth made of yarns varying from 32s upwards.' The immediate consequence of the exemption from duty of all goods containing no yarn of a higher number than 30s was the rapid development of the manufacture and import of a new class of goods made of 30s and lower counts. In consequence of their superior relative cheapness, these duty-free goods rapidly became popu- lar, and, the experiment having thus proved successful, the tendency is now to make of the coarser yarns all u 290 FINANCES AND PUBIilC WORKS OF INDIA. cloth for which they can be used, and to substitute the coarser for the finer fabrics formerly made of yarns ranging from 30s to 40s. Within one year after the removal of the duties, this process had reached such a point that the duty-free shirtings and longcloths consti- tuted more than 74 per cent, of those kinds of imported goods, and the dutiable qualities of some other classes of goods had almost disappeared from the market. This rapid development of the trade in the class of goods exempted from duty has ever since gone on at an accelerated rate, and no one can now assert, as used formerly to be often asserted, that the 5 per cent, duty was so small as to have no appreciable effect upon the trade. The changes that have taken place are illustrated by the following facts and figures. The year 1878-79, which immediately preceded the remission of duty on aU the coarser sorts of grey cotton goods, was one of restricted and depressed trade, and the value of the imports of cotton manufactures, in particular, was smaller than it had been for many years. The following table shows the quantities and values of the various descriptions of cotton piece goods imported into India for the six years ending with 1880-81: — 1875-76 1876-77 . 1877-78 . 1878-79 . 1879-80 . 1880-81 . Grey White Coloured Yards Value Tarda Value Yards Value 856,564,622 840,605,329 992,537,679 776,120,394 908,630,133 1,170,467,629 £10,639,712 10,125,258 11,562,862 8,648,844 10,391,903 13,644,719 174,290,998 193,463,866 215,624,360 192,008,379 226,483,857 285,358,911 £2.687,706 2,887,534 2,936,108 2,559,904 8,053,067 3,690,800 165,208,307 162,240,661 160,548,913 100,377,489 198,457,802 318,051,644 £2,837,250 2,709,820 2,454,103 2,688,335 3,129,947 5,147,639 It will be seen that there was a general recovery or increase under each head in 1879-80. The remis- sion of duty came into force from the commencement of that year, but during the first three or four months LARGELY INCREASED IMPORTS. 291 the manufacturers and importers had not had time to arrange for supplying the market with goods of the kind exempted from duty. While for the first quarter of the year the proportion of duty-free goods to the whole quantity of shirtings and longcloths imported was only 16 per cent., it rose rapidly after August, and by the end of the year it had reached 82 per cent. Thus it was only during the last three quarters of the year that the remission of duty had any very great effect. ' The effect of the remission, however, was not so much to encom-age a general increase in trade as to induce manu- facturers and importers to substitute goods of the coarser and duty-free kinds for the medium and fair qualities which had formerly, when aU classes were alike subject to duty, formed the bulk of the trade. In this respect, the results were much more decisive than was anticipated. It was of course expected that a certain proportion of the goods ranging from 30s to 40s would, in future, be made of yams of 30s and under, so as to bring them within the limit of exemption. But what has actually occurred has been a complete revolution in the course of the trade in grey goods. ... The removal of the duty on certain classes has enabled those classes to practically thrust out of the market the kinds still liable to duty, so far as these dutiable goods were consumed by the mass of the population.' ' During 1880-81 the same process continued. This is illustrated by the following table, showing the quan- tities of duty-free and dutiable grey piece goods im- ported into India in this and the two preceding years ; — Quantities in Yards. 1878-79. 1879-80. 1880-81. Dutyfree . . 21,796,881 374,360,464 815,792,705 Dutiable . . 753,323,513 534,269,669 354,674,924 Total . . 776,120,394 908,630,133 1,170,467,629 ^ Review of the Maritime Trade of British India for 1879-80, by Mr. J. E. O'Connor, published by the Government of India, Department ol Finance and Commerce, 1880. ■D 2 292 FINANCES AND PUBLIC WORKS OF INDIA. It will be seen at a glance that, while there has been a large increase in the total quantity of grey goods imported, the increase in the duty-free goods has been enormous, and that they alone now exceed in quantity the total imports of two years ago, and bid fair to supplant the finer sorts which are still liable to duty. In the imports of the superior classes of piece goods known as white and coloured, on which the duties were not remitted, there was, as shown by the table given above, a large increase in 1879-80 ; and the increase in 1880-81 was still greater. Simultaneously with the increase in the import trade, the cotton mUls in India have been highly prosperous, and the evil consequences to this growing industry which we were often told would follow from the reduction of the import duties, have proved wholly imaginary. In 1880-81 the value of the exports of Indian cotton yarns and piece goods was 1,908,240Z., against 1,621,747^. in 1879-80, and 1,397,979^. in 1878-79. There has been a large increase in the number of looms and spindles working, and in the number of hands employed. Notwithstanding the remission of duty on the coarser kinds of grey goods, the increase of imports, especially under the head of coloured goods, has been so great that the total revenue yielded by all cotton goods in 1880-81 was 732,265^., being sensibly in excess of the amount received in 1879-80, viz., 681,768/., and little below the receipts of 1878-79, 771,280/. The average amount received in the four years before any remission of duty was made was 890,362/., so that the revenue from all cotton goods for 1880-81 is about 158,000/. less. The average amount of duty collected on grey piece goods, for the four years ending with 1878-79, was 490,000/., while the amount of duty collected on this AMOUNT OP DUTIES COLLECTED. 293 class of goods in 1880-81 did not exceed 167,000Z. The measures whicli have been described have therefore resulted in relief to the trade, and loss to the revenue of about 320,000^. ; and it would apparently cost about 170,000Z. more to complete the exemption from duty of all grey goods, without reference to the quality of the yarn of which they are made. But the loss would in fact be much less, for the supersession of the dutiable by the duty-free goods still goes on, and it is understood that the duty derived from grey goods in the current year will be less than 100,000/. This further exemption ought to be made as soon as possible. The necessity of distinguishing the grey goods still Hable to duty from those which are duty-free, necessarily causes consider- able trouble to manufacturers and importers, and many complaints have been made. Clearly, the present state of things is not satisfactory. As observed in a letter addressed to the Government by the Bengal Chamber of Commerce, the old conditions described by the Government in 1879, when it declared that ' it is not reasonable that certain goods should be admitted free while large quantities of goods of almost precisely the same character in everything but name remain hable to duty,' stiU exist, with this difference, that the hardship is now not caused by the competition between Lanca- shire and the local mills, but by competition amongst Lancashire manufacturers themselves. Nothing but financial necessity, which does not now exist, could justify the retention of the remaining duties on the finer qualities of grey goods. When these are given up, there will remain the duty on twist and yarn, on white and coloured piece goods, and on other sorts, which in the four years ending 1878-79 yielded, on an average, 360,000/., and yielded, in 1879-80, 400,000/. It is tc 294 FINANCES AND PUBLIC WORKS OF INDIA. be hoped that this also may soon be abandoned, and it will then probably be found that the effect on these branches of the trade has been hardly less remarkable and satisfactory than that which has followed the remission of the duty on the coarser quaUties of goods. There has been a general consent of opinion among the most competent authorities, that one result of the remission of the duty on the coarser kinds of cotton goods has been that the poorer classes of Indian con- sumers obtain cheaper and better goods than they ever obtained before. The following quotation is taken from a letter written by one of the most important firms in Bombay : — ' The dutiable goods have gone so generally out of consump- tion latterly that the manufacturers for the Indian markets do not make them, and the prices quoted are only for old stocks of goods made before the full incidence of the remission was felt. . . . It is difficult to speak too strongly of the benefit that the con- sumer has derived from the change. The natives get cheaper, better made, and more durable cloths than they ever did be- fore, and the remission of the duties has acted as a direct incentive to the manufacturer of bona fide cloth, as contrasted with the adulterated articles.' The great development of almost all branches of Indian trade during the last two years has, no doubt, been due to general causes ; but the foregoing facts show that removal of the import duties on the grey cotton goods has largely increased their sale, and that the Indian consumer has been greatly benefited by their free admission. At the same time that this result has been obtained, none of the remissions and reductions of duty made during the last twelve years have had any serious effect in diminishing the customs revenue as a whole. This will be seen from, the following TOTAL ABOLITION OF DUTIES INEVITABLE. 265 figures, which show the gross receipts from the sea customs duties, excluding salt, for each year : — Import duties generally 7J % : — 1869-70 , . :e2,431,167 1870-71 . 2,401,696 1871-72 . 2,339,186 1872-73 . 2,447,629 1873-74 . 2,402,388 1874-76 . 2,476,502 1876-76 . 2,489,897 Import duties generally 5 % : — 1876-77 . 2,258,754 1877-78 . 2,441,547 1878-79 . 2,273,307 1879-80 . 2,229,947 1880-81 . 2,490,036 It appears clearly from this review that the policy followed by the Government of India during the Vice- royalty of Lord Lytton was one of absolute free trade, without reservation or qualification, and financial neces- sities alone prevented that poHcy from being carried out to the fullest extent. The proceedings of the last three or four years have, however, succeeded in ren- dering inevitable the almost total abolition of the customs duties, which of all Indian taxes are probably the worst. The cotton duties are virtually dead, and the other im- port duties cannot long survive them. How long a period may elapse before such a consummation is reached cannot be predicted, but the time is not very far distant when the ports of India will be thrown open freely to the commerce of the world. The people of India consume at present hardly any foreign luxuries ; and cotton goods, which are among the necessaries and not among the luxuries of life, are the only articles of foreign production which come largely into their consumption. There is no present possibility of deriving a large customs revenue from 296 FINANCES AND PUBLIC WORKS OF INDIA. anything else. Putting aside the duties levied on salt and alcoholic liquors, which stand on special grounds, and on which internal excise duties corresponding with the customs duties are, and must continue to be, im- posed, there will remain, when the cotton duties are removed, a very small amount of revenue derived from import duties It is not likely to exceed about 500,000/!., and apart from all other reasons in favour of a policy of absolute free trade, it will not then be worth while to keep up large estabhshments for the collection of so insignificant an amount. Further facts bearing on this subject will be given in the next chapter, and it will be shown that it is reasonable to anticipate that no permanent loss of revenue would be caused by such a general abohtion of all customs duties in India, since any such loss would before long be made good by the expansion of trade and by the increase of the rail- way traffic receipts of the Government. The reforms which have now been described will be remembered hereafter in the economical history of India, and they will be set down among the honourable titles of Lord Lytton's and Lord Salisbury's administra- tion. They will be remembered not only because they were the first application to India of the principles of free trade, but also because they have been carried out in a manner which has made the adoption of any other pohcy virtually impossible in the future, and has ren- dered it almost a matter of certainty that, within a short period of time, the absolute freedom of Indian commerce will be accomplished. • The authors of this book may be pardoned for recollecting the part they have taken in this work, and while on public grounds they must regret the almost universal opposition and disapproval in spite of which the policy they have LORD SALISBURY'S DESrATCII ON COTTON DUTIES. 297 SO long maintained has been carried out, they cannot pretend that their personal satisfaction in the success which has been gained already, and in the greater future success which is inevitable, has been diminished by such considerations. Non tarn portas intrare patentes Quam fregisse juvat. NOTES TO CHAPTER XV. I. Extract from a Despatch from the Marquis of Salisbury, Secretan'y of State for India, to the Government of India, dated May 31, 1876. I NEVEE shared the belief which appears to have been en- tertained by the Grovernment of India, that in this question there was any kind of real conflict between the interests of India and of England.' On the contrary, while I was glad to feel assured that the measures which I recommended would have had for one of their effects the satisfaction of legitimate claims on the part of a most important British industry, I be- lieved still more strongly that they were primarily required in the interests of the people of India. I will not dwell again at length upon the political reasons which furnish, in my judgment, the weightiest arguments in favour of the course which I have urged upon Your Excellency's Government. I need hardly insist further upon the danger of keeping open between two great communities of Her Majest\''s subjects an irritating controversy, which can be closed by one, and only one, solution. It is difficult to overstate the evil of permitting an industry so large as the cotton manufacture in India is certain to become, to grow up under the influence of a system which a wide experience has proved to be unsound, and which is opposed to the deliberate policy of England ; nor can 298 FINANCES AND PUBLIC WORKS OF INDIA. I view without serious apprehension, unless it should be the result of natural causes, the gradual contraction of a trade which constitutes one of the strongest bonds of material union be- tween England and India. But the lu-gency of these considera- tions is not denied by your Grovernment ; and I feel convinced that they will commend themselves to Your Excellency's mind with ever-increasing force. The view of the Grovernment of India appears rather to have been that the import duties on cottons, although protec- tive in theory, are not so in practice, except to a very limited extent ; that they are therefore not injurious to India, nor contrary to Imperial policy ; that they yield a revenue which cannot be spared ; that, regarded as purely fiscal duties, they constitute a more convenient tax than any which can be sub- stituted for it ; and that the relief which their remission might afford to a particular branch of British trade affords no suf- ficient ground for subjecting the people of India to a less popular form of taxation. It is manifest that the strength of this chain of reasoning entirely depends on the assumption that the cotton duties are not protective. If this assumption is unfounded, the argument of the G-overnment of India, derived from a supposed conflict of interest between India and England, falls to the ground, and the political objection to which I have referred revives in its full force. It is therefore to the examination of this question that I shall now address myself. The opinion of the Grovernment of India as to the operation of the cotton duties is stated to be derived from a report of a committee appointed to revise valuations and consider sugges- tions for the amendment of the tariff. The method adopted by this committee in estimating the effect of these duties appears to have been to consider ' what proportion the particular goods which have to meet Indian competition bear to the whole cotton import duty ; ' and having satisfied themselves by an analysis of the importations of cotton goods, that only about four lakhs of rupees were levied on this particular class of goods in the year 1873-74, they an-ived at the conclusion ' that to demand that, because one class of goods, represented by four lakhs of rupees duty in all India, has in one STATISTICS OF INDIAN COTTON TRADE. 299 part of India to meet a local competition, the Government shall remit the remaining seventy-seven lakhs which competition can- not affect, was, in their opinion, quite unreasonable, and rendered it unnecessary even to inquire whether the finances could afford the remission.' Upon this the Government of India, in their despatch of February 25 last, remark as follows : — ' We agreed with the committee that no suflBcient reason had been shown for the removal of the import duties on cotton yarn and piece goods. The report of the committee showed that the cotton goods imported into India mainly consist of the higher qualities which cannot be manufactured from the cotton grown in India. Those who have the best opportunities of knowing the facts stated that the attempts made by Indian manufacturers to make the finer descriptions of cotton manu- factm-es and yam from Indian cotton had proved unremunera- tive, and had been abandoned. We believe that this has arisen, not as Your Lordship appears to think, from the imper- fect development of the Indian manufactures, but from the inferior quality of the Indian raw cotton. It was shown by the committee that, in regard to the great bulk of the trade in cotton goods, the importers were subject to little or no com- petition from the Indian manufactures.' These remarks are followed by a statement of the statistics of the cotton trade, which show that, in the four years from 1862-63 to 1865-66 the average value was 12,150,000^. ; that value was in the next four years 17,966,000L, and in the last four yeai-s 17,970,000L, which, allowing for a reduction in valuations in 1869, would represent an advance of 250,000^. in the latter period against an advance of 5,8 16,000J. in the former period. It is true that, in the year 1874-75, the value of the imports increased to 19,387,000L, which is, as your Government state, the highest return for any year since 1859 ; but in a review of the Indian Trade and Navigation Accounts for 1874-75 by the Department of Agriculture and Commerce, contained in your despatch of February 25 last. No. 7, Statistics, I find that the trade of this year is described as having been notoriously of an unsound and unprofitable kind, and the more recent accounts appear to show that it has not been sustained. I fail, therefore. 300 FINANCES AND PUBLIC WORKS OF INDIA. to perceive any evidence of adequate or satisfactory progress in the general features of this branch of trade as exhibited in the foregoing figures. With regard to the arguments of the Tariff Committee, I must observe that the facts which they adduce in support of their conclusion prove by themselves absolutely nothing. The case of the importers of British cottons is that the trade in the coarse and low-priced goods has been so seriously injured by the operation of the duties, that it has in conse- quence become a comparatively small branch of their trade ; and it is replied that, because the trade is comparatively small, it is unreasonable to ask that the duties shall be regulated with reference to it. From this point of view, the argument of the committee would have been still stronger if this branch of trade had been altogether destroyed by the duty ; for it might then have been said that it was idle to discuss the question of a tax on a trade which had no existence. In other words, the more fatal the effect of the duty, the more complete would be the justification of its retention. I should have been glad if your Government had supplied me with official means of inquiring how far the allegations of the importers have a foundation in fact, by supplying a statement of the importations of the particular goods in question, not only for one year, but for a series of years preceding 1873-74, as it is only by a comparison of its present with its past amount that any conclusion can be drawn. Tears Cloth 1 Yarns T cloths Long- cloths Domestics Mules above 20s and under 30s Mules 20s and under Water 20s and under 18-iS . ... 1859 1860 1868 1869 ... 1870 1871 . ... 1872 . . . . 1873 .... 1874 . ... Average per year— 1858, 1869, 1860 . Average per year— 1872, 1873, 1874 . Pieces 914,381 910;4Sl 1,132,406 1,023,336 818.730 1,080,743 530.797 627,831 697,531 688,873 Pieces 609,268 804,705 229,727 113,348 178,715 94,746 105,596 83,229 86,303 148,376 Pieces 169,362 179,409 190,233 119,980 35,314 46,792 45.914 9,639 6,306 10,950 Lbs. 965,050 925,085 510,440 412,245 300,170 342,115 236,720 458,270 219,860 137,190 Lbs. 691,500 445,040 396,130 80,510 46,920 96,990 96,690 15,000 47,110 27,350 Lbs. 1,253,.510 1,443,206 1,297,880 507,48(1 524.940 S67;480 762,840 198,316 78,670 337,390 985,766 604,045 381,230 105,969 179,604 8,965 800,191 271,773 477,756 29,810 1,331,631 204,792 DECLINE OP TEADE IN COAKSER GOODS. 301 But in tlie absence of official data, I have referred to a table fui-nished by the Bombay Chamber of Commerce in their letter to the Tariff Committee, of January 29, 1875, which is said to be compiled from Custom House retm-ns, and the substantial accuracy of which I have no reason to doubt. Comparing, then, the average per year of 1858, 1859, and 1860, the three years immediately preceding the American war, with the average per year of the last three years, viz., 1872, 1873, and 1874, we find the following decrease in each of these descriptions of cloth and yarns, viz. : — • T cloths ..... 381,111 pieces Longcloths .... 27.'5,261 „ Domestics .... 170,699 „ Mule twist, above 203 and under 30s 528,418 lbs. Mule twist, 20s and under 447,916 „ Water twist, 203 and under 1,126,739 „ These figures conclusively show that, so far as the import trade of Bombay is concerned, a serious decline has taken place in this branch of trade during the period in question ; but their significance is increased by the consideiutions urged in the fol- lowing extracts from the letter of the Chamber : — ' It should be remembered that this absolute decrease has occurred, after a lapse of fourteen years of profound peace and secm-ity, in the cloth and yarns principally consumed by the poorer classes, whose condition, it is well known, has immensely improved from a variety of circumstances, and during which period railway communication throughout the country was yearly extending. In 1860, 836 miles of railway only were opened in British India. In 1873 the number of miles of rail- way open had increased to 5,872. The progress of education, closer and more frequent contact with more advanced commu- nities, and the wealth accumulated by the cotton cultivators throughout the Presidency during the American war and for several years subsequently, when the prices obtained showed enormous profits on the cost of production, combined to increase the demand for cloths and yai-ns of these descriptions to an ex- tent far exceeding the demand which would have arisen at the crdinai-y rate of progress in ordinary years. ' The Chamber apprehend that, under the circumstances, a very great increase indeed in the present imports of low cloths 502 FINANCES AND PUBLIC WORKS OF INDIA. and yams over the imports of the years immediately preceding the American war would be necessary to show that the import duty has not been operating as a protective duty, unless experi- ence proves, after the abolition of the import duty, that local mills are able to compete successfully on equal terms with the English manufacturers. As it is, it may be fairly assumed, however, that the duty is maintained at the expense of the con- sumers, principally the poorer classes, against whom it tells in this instance with particular hardship in a prime necessary such as clothing, and that it is injurious to the thousands of village handloom weavers throughout the country who are prevented from using the English yarns, which they might prefer, and are compelled to pay a higher price for what they do use, in conse- quence of its operation.' I have taken from the same source, viz., customs retm-ns, the following comparative table of the imports into Bombay of the finer cloths and yarns during the years 1872-74 and 1858-60, from which it ajjpears that the progress of the trade in piece goods has been considerable : — Statement of the Inci-ease of Imports into Bombay of Fine Cloths and Yarn during the Years 1872-74, as compared with the Years 1858-60. (From Cnstom-house Returns.) Tears Shirtings Tarns Printers, Jaconets, and MadapoUams Mnle 40s and up-n-ards Water 30= and upwards 1858 1859 1860 Total 1872 1873 1874 Total Average per year, 1858, 1859, 1860 1872, 1873, 1874 Showing an increase of per year . | Pieces 3,553,198 4,724,414 6,540,166 Lbs. 3,513,075 ? 6,829,010 4,028,499 13,817,778 13,307,583 6,280,269 6,395,941 6,697,472 4,-330,202 4,492,509 4,690,642 19,373,682 13,513,353 4,605,926 6,457,894 4,456,861 4,504,451 1,851,968 Pieces of cloth 47,590 Lbs. yarn COMPETITION OP INDIAN MILLS. 303 A similar result is shown by an examination of the returns of the importations of cotton piece goods into Calcutta, at which place they have not been hitherto exposed to the competition of native mills. From these it appears that the value of these imports has increased in fourteen years 77 per cent., while the corresponding advance in Bombay has been only 12 per cent. It is difficult in the face of these indications to doubt that the protective action of the present tariff has had a marked effect in contracting within its present limits a trade which, if it had not been impeded by this obstacle, would have expanded to m.uch larger dimensions. But clearly as the protective operation of the duties is trace- able in the past, I cannot but apprehend that their effect in the future will be even more decisive. I have no belief in the existence of any cause of permanent disability on the part of the Indian mUls to meet foreign com- petition to a far greater extent than has hitherto been in their power. On the contrary, the information which I have received leads to the conclusion that the conditions of Indian production are such as to afford grounds for believing that the scope of the protective action of the present cotton tariff will at no distant time be so extended as to affect a very large proportion of the whole trade. It is estimated that about one-half of the cotton manufac- tures consumed in India is supplied by foreign importations, nearly the whole of which consist of British goods, representing an average annual value of 17,000,000Z. From the statements to which I have referred, it appears that two-thirds of this vast import trade, or at least a trade of a value of 10,000,000L, is threatened by a competition which is rapidly becoming formidable, and which is artificially sheltered by a protective duty. When the inevitable increase of consumption of mUl-made cotton goods in India, consequent on the extension of the rail- way system and improved communication of all kinds, is taken into account, it becomes evident that, long before the point has been reached at which this large portion of the British export 304 FINANCES AND PUBLIC WORKS OV INDIA. trade will have been superseded altogether by the products of the Indian mills, the area of the consumption of native products will have been so much enlarged that the people of India will be compelled to pay, for a first necessary of life, a price enhanced by all the incidents of protection ; that a large industry, which it is of the first importance to place upon the soundest founda- tion, and the prosperity of which is a matter of national interest, will have grown up in India under influences which experience has shown to be in the highest degree injurious to its healthy and natural development ; and that a revenue upon which the Grovernment has been led to rely will year by year elude their grasp, until it altogether disappears. Whether, then, the question be regarded as it affects the consumer, the producer, or the revenue, I am of opinion that the interests of India imperatively require the timely removal of a tax which is at once wrong in principle, injurious in its practical effect, and self-destructive in its operation. II. Extract from a Speech by Lieut. -General R. Strachey in the Legislative Council of the Governor-General of India, March 31, 1871. The first measure which the Grovernment of India should seriously take up, after a permanently healthy condition of the finances has been established, is the complete reform of the tariff, and the removal from it of the blots which so greatly disfigure it. The worst of these blots no doubt are to be found in the export tariff. And I should perhaps explain to the council why I have said that export duties are essentially bad, for no doubt those who first imposed them, and now retain them, thought and think better of them than I do. I regard it as an axiom in taxation that it shall, as far as possible, fall on the fund destined to supply consumption, and not on that which supplies production. An export duty necessarily falls on the producers. GEN'EEAL STRACIIEY ON INDIAN TKADE. 305 To tax the export of rice is to do what is virtually equivalent to rendering the soil on which that rice was grown less produc- tive. To tax the export of cotton goods manufactured in India is to do what in its result in no way differs from any material obstruction thrown in the way of such a manufacture. By the imposition of such taxes, the inducement to the production of the things taxed is reduced in India, and an additional stimulus is given to competition in other countries. It is of course true, that among export duties that is least noxious which is imposed on any article having a virtual monopoly in its markets. But as a fact all experience proves that nothing has such a monopoly. India can tell the tale of its saltpetre trade destroyed by export duties. Is India also to destroy its export rice trade ? "Will it stimulate to the utmost the production of other dyes to compete with its indigo ? Will it drive its own sugar out of its own markets for the benefit of the Mauritius ? Even in that commodity of which India apparently has the most important monopoly, opium, the competition of the local Chinese market is already beginning to be felt, and there are th-ose who foretell the ultimate destruction of our export of this drug. Only to-day I have read of a commencement of opium production in the United States of America. But what- ever is the immediate consequence of export duties in special cases, it is quite certain that the necessary tendency of the growth of knowledge, the spread of conmaerce, and the increase of competition, is to bring all producers more and more nearly to a level, and to reduce more and more the special advan- tages of any of them. Under such a competition, the law which has for other purposes been called a law of natural selection, will eventually destroy the industry which is weighted the heaviest, and export duties will thus constantly be tending to destroy the commerce of the country that imposes them. The gross receipts from the export duties for the year 1870-71, reckoned from the actual accounts of the first eight months by adding one half, would be 528,000L Of this, two articles, grain and seeds, paid 46-5, 500L, and all others 62,500L Among these last have a place, by a refinement of barbarity, two of the very few manufactures of which India can boast. Cotton goods and leather pay 21,000i. together. Indigo, oils, X 306 FINANCES AND PUBLIC WORKS OF INDIA. lac, and spices, articles requiring either to be manufactured or specially dealt with, to fit them for the market, figure for 28,500Z. I confess that I am at a loss to supply the arguments by which the retention of such duties can be justified in pre- ference to refusing an infinite variety of petty administrative demands, among which I am quite content to class require- ments for public buildings and such naatters, which have been allowed to swallow up the money that, to my mind, would so vastly better have been applied to getting rid of these senseless and positively mischievous hindrances to the growth of the wealth of the country. . . . I do not know that I should be disposed to agree with my honourable friends who have spoken of the grain duties as being those which most demand attention, though I fully assent to their condemnation of them absolutely. I regard that duty as the worst, which is most in the nature of a class duty, and which at the same time is least productive. Now all these little productive export duties are essentially class duties, and inflict special injury on a small body of persons employed in particular trades. Inasmuch as the rice duty falls on a large area it is less obnoxious and not more, and it partakes more of the character of a general tax on agriculture. I fear that the true reason we hear more of it than of other worse duties, is that it affects a greater number of influential persons who can complain, and not that it is really more obnoxious to censure. And here I would say a word as to how bad a test of the character of a tax is mere absence of complaint. The sugar production of the Xorth-West Provinces, to take an instance that has been lately referred to in this room, may be utterly strangled by export duties levied hundreds of miles away in the Punjab, Central Provinces, and Eajpootana, of which the grower of the cane probably never even heard. And so it may readily be with all industry. The poison is absorbed into the system imperceptibly, and the victim dies without a struggle it is true, but not the less surely. The sugar duties of which I have just spoken are ■without doubt the most discreditable relic of the dark ages of taxation that yet subsists in India. A 10 per cent, ad valorem duty is EXPORT DUTIES. 307 deliberately retained on the export of British sugar into Eajpootana, and into our own territories on the wrong side of the customs line drawn across Northern India, by a Govern- ment which has for many years past preached to the very states on whose borders this tax is levied the impropriety of doing this very thing which is justified in our own case, because it yields 120,000L or 130,000Z. which it would be inconvenient to give up. I have rejoiced to hear the head of the Government (the Earl of Mayo) say that he thinks this is among the matters first to be put to rights, in any future revision of the public burdens, and I cannot see how there can be a difference of opinion on the subject. These sugar duties have been defended, by persons who should have known better, on the ground that no one complained of them. It shows a truly melancholy want of insight into, or consideration of, the action of such imposts, on the part of those who supervise this part of the administration, to find these duties in existence at the present day, and I trust that another year may not elapse before some step at least is taken towards extinguishing them. And before I leave these export duties, let me ask why is it that the cotton goods manufactured on one side of the Hooghly are taxed, while the jute on the other goes free? Why does the cotton grown side by side with the indigo escape the duty which the other staple pays ? The reply is obvious. The customers of the jute mills and the purchasers of the cotton live in England, and can make themselves heard, and hav- made themselves heard and feared. Here, for such reasons as I have mentioned, and in the absence of the natural defenders of the suffering interests from the councils of the Government, the true principles of taxation have too long been neglected for the sake of obtainiag a revenue really insignifi- cant in amount, and the necessity for which might quite easily have been avoided by proper firmness in refusing the expansion of expenditure. But I fear that my bill of indictment against the customs duties does not end with the export tariff. As I before said, the true test of character of a customs duty is that it shall fall on consumers. Now there are several items of the import tariff, and one an important one, that does not comply with X 2 308 FINANCES AND PUBLIC WORKS OF INDIA. this condition. The first on the list is metals. It is true that iron is taxed lightly at 1 per cent., but all other metals are taxed at 7^ per cent., and almost in all cases such metals are in truth used in manufactures, and are not in any true sense articles of consumption. Naval stores come under the same description, also hides, and paints, and colours, and there may be others, which for the m.ost part stand at 7^ per cent. Railway materials, I need not say, come under the same condemnation, but this duty is yet more objectionable, for it is either paid by the Government in the form of guaranteed interest in ease of materials used on an open line, or if for a new line it is charged to the capital account of the railway, and is converted into debt bearing interest at 5 per cent, for ever. Now that the Grovernment is about to commence railway construction, the absurdity of this duty will perhaps become more obvious, and I hope that it will not make its appear- ance in another tariff. The aggregate of the five items which I have named is 225,000i. Excluding these items, I find that the ten largest amounts, of which the lowest is 15,000Z., yield together 1,444,000^., and that all the rest, thirty-nine in number, together give only lS4,000i. The whole list comprises fifty-four items. I cannot consider that it is desirable to maintain such a tariff as this, several of the items of which do not produce 1,000L Among the most miserable of the list are the last two additions to it, the mere mention of which will, I think, sufficiently indicate the spirit which has governed the commercial policy of the Grovernment in late years — corals and lucifer matches. Many of the items in the import tariff are, moreover, open to objection as being class taxes. Such are the duties which exclusively, or nearly exclusively, fall on the Europeans resident in India, and of these a long list might be enumerated. Although it would, no doubt, be indefensible to place Europeans in a better position than the natives of the country in these matters, yet to do the converse is still more indefensible ; and I consider that many of these duties press most unjustly on the class to which I belong, and I think that I should be neglecting my duty in this council, and to that class, if I did not say it in perfectly plain terms. The European has at least IMPORT DUTIES. 309 as much claim to my sympathy in matters of taxation as the sugar grower of Northern India, or the indigo grower of Bengal, or the cotton spinner of Bombay. In all these cases, I affirm,, are grievances in the matter of taxation far more onerous than those of which we have, within the last few weeks, heard so much, and having this distinctive character that they are as real as the others were imaginary. And I may add that, for my own part, I should be glad to hear the voice of the House of Commons require the Government of India, if it were necessary, which I hope and indeed believe it will not be, to do what is necessary for the removal of evils such as I have mentioned in the interest of Great Britain, for she has a great interest in them, and may justly defend it, as well as in the interest of India itself. I am, of coiurse, quite aware that it is not possible in a summary way to take ofif these duties, and I am anxious not to be supposed to suggest such a course. But what I say is, that the first occasion should be taken to reduce the list, and to carry out the other reforms of which I have spoken ; and that such an occasion can only be found by a resolute determina- tion on the part of the financial administration that there shall be no addition to the expenditure which shall prevent these necessary fiscal reforms. A distinct and positive policy must be adopt/Cd and acted up to, or nothing in this direction will be possible. I am too well aware of the incessant and insidious demands for money for mere administrative purposes, and I know the difficulty of resisting these demands, and I repeat, therefore, with special emphasis, what I believe to be the only rule of action that can lead to success. Neither am I satisfied that even this amount of reform is all that we can fairly hope to see carried out. I go further still. And in the first place, I reject entirely the doctrine that we do well to maintain a high rate of duty on the piece goods imports. Whether Manchester be selfish or not — and no doubt it has been loudly asserted — it is not for me to say ; but this I know, that the men of Manchester gave England free trade, and understand the real requirements of commerce and progress vastly better than those statesmen who put export duties on 310 FINANCES AND PUBLIC WOKKS OF INDIA. such products as tea, and coffee, and grain, as well as on the few manufactures India ever had, and who maintain transit duties in the heart of our own provinces to this very day. I say, then, that those who ask for a reduction of the duty on piece goods may at all events possibly, and to my mind actually, have a very substantial ground on which to base their argument, quite apart from mere personal interest, though no doubt this is one of the motives of those who object to high duties, and a motive which is a perfectly proper one. The truth is — and it lies on the surface — that exports are best paid for by imports, and that if a fair return in the shape of imports is not taken, the export trade is carried on at a disadvantage. Everything which enlarges the consumption of imports opens the way for a further production of expoi-ts. Now, obviously the best way of enlarging consumption is to reduce price, and even a very small fall of price may in a very important degree influence the total amount of trade. In the particular case of piece goods, moreover, every increase of con- sumption tends to add to the demand for the raw material, and thus in another way to stimulate Indian production. And let me here further remark that it by no means follows that a duty is not mischievous because it only adds one, two, or three per cent, to the cost of goods. It is precisely these small amounts which in the end determine whether trade is possible or not ; and in the present condition of commerce, with its vast extent and close competition, it is altogether erroneous to say that a duty is not important because the rate is low. Nor does this finish my demands in behalf of the commerce of India. I do not affirm that it can at present be said to be within the limits of the practicable to make all the ports of India entirely free ; but this is certain, that there is hardly any sacrifice of present administrative progress that I can conceive of that would not be a reasonable price to pay for the vast benefit of complete freedom of the export and import trade of India. The customs duties at the present time are not of a magnitude to render this idea in any way chimerical. . . . I need not speculate on the probable results of such a policy, if carried out ; but I may point to the wonderful effects SIE JOHN STEACHEY ON COTTON DUTIES. 311 of the adoption of a modified form of free trade by England, and say that it seems to me certain that the greatest benefit would be obtained by following a like course in India. III. Extract from, Financial Statement by Si/r John Stracheyfor 1880-81. Although I do not intend to discuss the propriety of the course that has been followed in regard to the removal of the duty on cotton goods, I must ask Your Excellency's permission to say a few words on what is, in some respects, a personal matter. We are constantly told that these measures have been adopted in disregard of the interests of the people of India, and in obedience to the selfish demands of the Manchester manu- facturers. If we had, indeed, manipulated, in the interests of England or of any political party in England, the tsixes paid by the people of India, our conduct would have been not only shameful and odious, but absolutely criminal, and I, as Your Excellency's chief constitutional adviser in the financial measures of the last two years, must have borne my share of the re- sponsibihty. But for myself, who have taken part in these measures, I wish to say that I hardly rememb' jthe time when I did not argue, in the interests of India, lor the removal of these and all other restrictions on her commerce. I advocated the abolition of these duties before, to the best of my belief, Manchester had herself discovered that she was injured by them, and before Lord Salisbmy had proved in his despatches, in a manner which seems to me unanswerable, the serious injury which they were inflicting upon this country. As I said in my first financial statement three years ago, I would not have accepted my present ofiice if i had not hoped that I should have an opportunity of co-operating with Your Excellency in carrying out what I may say without exaggeration have been the convictions of a lifetime. I have had that opportunity. The cotton duties are, in my opinion, virtually dead. CHAPTER XVI. FOEEIGN TRADE. VALUE OF rSDIAN TRADE SUfCE 1834 — COMPAEIBON WITH BNGLAlirD — ESCES3 OP EKPOKTS EXPLAIITBD — AlfALOOJ WITH tTNITED STATES — EVIDENCE OP PKOSPERITT RATHBE THAN REVERSE — TOTAL TRADE IN RELATION TO POPCLAIIOIf — COMPARED WITH STATES OF BUEOPB — INCREASE SINCE 1810 — RECENT INCREASE GREATLY DUE TO EXIENSION OE KAILWAtS RESULTS OF CHPAP TRANSPORT — COMBINED WITH REDUCTION OF CUSTOMS DUTIES — INTERESTS OF TRADE DEMAND FURTHER REMISSIONS — NECKSSARY GRO^VTH OP RALLWAX REVENUE WITH INCREASED TRADE — LOSS OF CUSTOMS DUTIES PROBABLY AT ONCE COMPENSATED THUS — EXPANSION OP IMPORT AND EXPORT TRADE EXTENDS TO ALL CLASSES OP GOODS — PROOF OF GENERAL INCREASED PROSPERITY — MUTUAL INTEREST OF ENG- LAND AND INDIA 10 EEMO'\'E OBSTRUCTIONS TO TRADE CAUSED BY CUSTOMS DUTIES. There is no more striking evidence of the progress of the material wealth of India than that furnished by the record of its foreign trade, as shown in the table at the end of this chapter. The general volume of the trade of India at ihe present time approximates nearly to that of Great Britain between 1830 and 1840, but with the important difference that the Indian exports exceed the imports by about the same amount as that by which the British imports exceeded the exports. The British exports appear to have been in excess of the imports until about 1825, when the imports began to prevail more and more, and the excess at length reached the enormous value of 150,000,000Z. or 160,000,000^. sterhng. Supposing the values recorded in the trade returns RECENT EXPANSIOX OF TRADE. 313 to be substantially correct, which there is no reason to doubt, the excess of the value of exports over imports indicates approximately the sum which India sends to England to pay for all charges connected with the administration, the interest on English capital invested in India, and the profits of private trade and savings from salaries remitted by Englishmen, less the new capital sent out from year to year for investment in the country. The period from 1854 to 1864 was the time when the capital for the guaranteed railways was being raised. About 80,000,000Z. was borrowed or raised in England; 30,000,000Z. chiefly to meet the heavy charges of suppressing the Mutiny, and 50,000,000^. subscribed as railway capital for investment or expendi- ture in India, and there was hardly any surplus of exports during this period. In 1869 the hea^'y outlay on the guaranteed railways was coming to a close, and the system of construction by the State was beginning ; and since that time, the large sums which India has had to pay as interest, now amounting to more than 5,000,000Z. yearly, have exceeded the capital supphed from England for investment. The great rise in the export trade dates from that time, and for the last ten years the excess of exports has averaged about 16,000,000Z. sterhng, of which perhaps half may be regarded as the return on capital invested in railways and commercial enterprise, and half as the charge on account of the administration of India, which has to be met in England. It has frequently been alleged that this excess of the exports over the imports signifies a drain on the resources of India which, to use the words of one of those who thus argue, ' must stop all real improvement, and eventually bring the country to pauperism.' The 314 FINANCES AND PUBLIC WOEKS OF INDIA. most conclusive argument, perhaps, that can be brought against such a view is the practical one, that the nation which probably of all others at present gives the greatest signs of progress and of increase of wealth and general prosperity — the United States of America — exhibits a balance of trade similar to that of India, but with a stiU greater relative excess of exports. In round numbers the average values of the exports and imports of the United States for the five years ending with 1880 were 140,000,000^. and 106,000,000/. sterhng respectively, showing an excess of exports of 34,000,000/. The foreign trade of India for the last five years is almost exactly half this amount, but with an excess of exports of only 15,000,000/., the propor- tions of the excess to the total export values being about 22 per cent, for India, and 24 per cent, for America. It seems, indeed, hardly necessary to discuss seriously such a doctrine as this, which would inevitably lead to the conclusion that Great Britain, by the enormous excess of its imports, is rapidly bringing to pauperism the countries from which those imports are received, and is stopping all real improvement in them. The obvious truth is that the accumulating wealth of Eng- land seeks useful employment all over the world, and that the legitimate returns on the capital thus in- vested flow back in the form of the excess imports, to which India and the United States of America, with many other countries similarly situated, contribute their shares. So far as the excess of Indian exports is due to the investment of English capital in that country, it is difficult to conceive conditions under which the remit- tance of interest on such capital judiciously applied MEANING OF EXCESS EXPORTS. 315 could be onerous to the country which pays it; for the investment must necessarily lead to the outlay of a much larger sum than the interest sent away, which only represents the profits, the other portion of the gross receipts which suppUes the cost of production or work- ing expenses, remaining in the country. Thus, in the case of the guaranteed railways, about 100,000,000/. of capital has now been raised and spent in India, and say 5,000,000Z. a year has to be paid in England as interest on that capital; the railways pay this 5,000,000Z. by earning a gross income of 10,000,000/., of which 5,000,000Z. is spent in wages or other working ex- penses, and affords increased profitable occupation to the people of the country. The persons who voluntaril}'^ pay the 10,000,000/. for the use of the railways are themselves largely benefited by them, and would have had to pay much more had they been obliged to use ruder means of conveyance. The remittance of 5,000,000/. of interest to England, therefore, indicates the investment of a sum of money in India which, so far from causing a drain on the country, confers in numerous ways great direct and indirect benefits on it. The same may be said of the smaller investments in tea and coffee, indigo, cotton mills, and other industries which are mainly supported by British capital, the interest remitted on which does not imply the impover^ ishment but the enrichment of the country. As to the other half of the excess exports, which goes to pay the cost of English administration necessarily incurred out of India, there can be no room for doubt that it is to the advantage of India to pay the sum reaUy necessary to secure its peaceful government, without which no progress and no accumulation of wealth would be pos- sible ; and so long ' as this condition is not violated it is 316 FINANCES AND PUBLIC WORKS OF INDIA. not material whether a part of the charge has to be met in England, or whether it is all paid in India. The aggregate export and import trade of India now amounts in value to nearly 140,000,000Z. sterling ; twenty-five years ago it had not reached 50,000,000/. Though the progress of India has been great, the trade, in relation to the population, is, however, still far behind that of even the more backward European countries, as the following figures (showing approxi- mately the facts between 1878 and 1879) will in- dicate : — Hate Country Population Imports Exports Total per head £ £ £ £ a. Great Britain 34,000,000 363,000,000 249,000,000 612,000,000 18 France 38,000,000 184,000,000 127,000,000 311,000,000 8 2 United States of America 47,000,000 107,000,000 141,000,000 248,000,000 5 6 Russia . 85,000,000 65,000,000 68,000,000 133,000,000 1 11 Austria . 37,000,000 58,000,000 70,000,000 128,000,000 3 7 Italy . 27,000,000 51,000,000 44,000,000 95,000,000 3 10 Spain . 17,000,000 16,000,000 17,000,000 33,000,000 1 19 India . 252,000,000 49,000,000 67,000,000 116,000,000 10 The imports of merchandise have increased from 14,000,000Z. in 1856 to 53,000,000Z. in 1880-81, showing an increased purchasing power of close upon 30,000,000/. yearly. The exports, which in the first- named year were 23,000,000/., rose in the last to 74,500,000/., showing an increased power of produc- tion of 50,000,000/. sterhng. The steadily increasing amount of the imports during the last forty years aflfords conclusive proof that the power of purchasing for internal consumption, so far from having been imduly pressed upon by adverse influences, such as over-taxation or any general deterioration of condition, has been constantly improving. The decennial in- POWERS OF CONSUMPTION AND PRODUCTION. 317 creases of the imports of merchandise have been as foUows: 1841 to 1851, 3,000,000^.; 1851 to 1861, 12,000,000Z. ; 1861 to 1871, 11,000,000Z. ; 1871 to 1881, 18,000,000^. It is surely time that the misconceptions on these subjects, if indeed they do not rather deserve the name of misrepresentations, should be abandoned. It is inexcusable on the part of any one who professes to enUghten the people of England on the condition of India, to allege that when persons in authority have referred to the excess of exports over imports as being ' without any commercial return,' they have admitted that the transaction has been without any proper consideration, and therefore injurious to India. And the confusion of thought thus displayed is com- monly combined with another fallacy. It is tacitly assumed that some condition of things would be pos- sible under which, by reducing to a ' minimum the cost of good government,' this excess export of produce could be avoided and its value retained by the people of India. Now it is obvious that the only way in which this could happen would be for India to- repay all the foreign capital spent on her improvement, and herself supply aU that is required in the future, at the same time furnishing a national government which should give all necessary securities for the peaceful and progressive administration of the country. When this becomes possible the time may arrive when India, without relapsing into barbarism and losing its foreign trade entirely, wiU find that her exports no longer exceed her imports. That the development of Indian trade, to which attention has been directed, has for the most part been due to the increasing wealth of the country, and to the 318 FINANCES AND PUBLIC WORKS OP INDIA. greatly improved means of communication both by sea and land, and especially to tlie extension of railways, cannot be questioned. In 1856 the first few miles of Indian railways had just been opened, and the total receipts from the goods trafiic were only 47,000/. In the last year for which we have complete accounts (1880) the goods receipts were nearly 7,700,000/., the quantity of goods carried having been almost 11.^ million tons. It is interesting to inquire, and the inquiry has an important bearing on all questions relating to Indian trade, what relative effect customs duties and the coat of inland transport have on the probable sale of im- ported merchandise. Taking cotton manufactured goods as an illustra- tion, we shall find that the value of 1 lb. of cotton manufactures may be roughly taken on the average at about half a rupee ; 1 maund, or say 82 lbs., will be worth Es. 40, on which the duty at 5 per cent, will be Es. 2, or annas 32 (4s.). Further, the transport of the same quantity by rail for 500 mUes will be about annas 10 (is. Bd.), or one third of the duty. Also the cost of cart transport being about four times that of transport by rail, the saving due to the introduction of railways is three times the actual cost by rail for 500 miles, or aboiit annas 30 (3s. 9d.). Hence it appears that the virtual effect of substi- tuting 500 miles of railway transport for cart transport is equivalent to taking off a duty of 5 per cent. ; and, considering the great distances to which cotton goods actually travel in India, it may be reasonably said that this fairly indicates the actual direct effect of the rail- ways on the trade in these goods during the last twenty- five years. EFFECT OF CHEAP TRANSPORT ON TRADE. 319 But there is a further most important result of cheap transport ; for the imports have to be balanced in value by the exports. The cotton manufactures are worth about 1001. per ton, while the average agricul- tural export produce can hardly be worth one-tenth of that sum : it foUows, therefore, that for every ton of the cotton manufactures imported, there, will be at least ten tons of produce exported. Taking the present value of cotton goods imported at 25,000,000^., and their weight at 250,000 tons, the export produce equal in value might weigh about 2,500,000 tons, on which the railway receipts wUl be about 2,000,000Z. The saving in the cost of transport of this produce by rail, over the old method by cart, would be about three times the actual cost by rail, or say 6,000,000/. Thus a most important stimulus is given by the railways to the import trade, by bringing a largely increased quantity of produce within the range of the export market, while the cost of the imported goods is at the same time reduced, and they are consequently brought within the means of an increased number of purchasers. The importance of these considerations, which of course apply to all descriptions of imports as well as to cotton goods, is so great that it is matter of surprise that they have hitherto received so small a measure of attention from the intelligent classes interested in the extension of British trade in India, and that the influence of these classes has not been more powerfully exerted for the purpose of stimulating the development of rail- ways, on which the increased sale of foreign manu- factures in the great continent of India so immediately depends. These general causes have been in operation for the last twenty-five years, during which the railways of 320 FINANCES AND PUBLIC WORKS OF INDIA. India have been by degrees coming into existence, and their effect has been largely aided by the gradual re- duction in recent years of the general scale of import and export duties. What that effect has been is shown by the figures already given ; and it may confidently be concluded that the further development of the com- merce of India will be found directly and intimately to depend on these two influences — the reduction of the cost of inland transport by the extension of railways, and the reduction or total aboUtion of the customs duties, whether on exports or imports. That a considerable increase of the export trade of India in the last few years may have been due to the faU in the value of silver in relation to gold, is more than probable, but the discussion of this subject will be more conveniently deferred to a later part of this work. And we are thus brought back to consider the serious question discussed in the preceding chapter, how far it may be desirable in the interests of the trade of the country further to give up or reduce the customs duties, and how far the financial exigencies of the Government wiU admit of such relief being given. The sole justification of the maintenance of any tax is that it is required in the general interests of the community. It would be a short-sighted and mischievous pohcy to allow the cotton duties or any other duties to stand in the way of the development of a trade measured in millions of pounds, unless the requirements of finan- cial equiUbrium could not dispense with the few hun- dred thousand pounds they produce. The remission of the remaining cotton duties might lead to a loss of 700,000Z., and if the other customs duties were given up there would be a further loss of 1,000,000/., or rather more. The inquiry, therefore, arises whether India GEOWTH OF RAILWAY REVENUE. 321 could safely accept the risk of this, and how such sums could be made good. The growth of the railway traffic following the in- creasing trade leads necessarily to the growth of the railway receipts, and to a corresponding addition to the revenues of the State. Experience shows that Es. 10 or 12, or say 11. of the conventional Indian currency, may be taken as the average sum earned from all sources per ton of goods carried on Indian railways. The number of tons moved has gradually increased from 1,800,000 in 1865, to 3,400,000 in 1872, to 8,800,000 in 1879, and to 10,450,000 in 1880, the last year for which full accounts have been pubhshed. The increase of every million tons to the traffic wiU add approximately 1,000,000Z. to the gross receipts. About half of this sum wiU be net profit, and of this not less than two-thirds would directly or indirectly add to the resources of the Government, either as a reduction of the payments for guaranteed interest, or as direct profit on the guaranteed or State lines. Hence, for every million tons added to .the goods traffic it would be reasonable to expect that 250,000Z. would be added to the revenue in the shape of railway receipts. There has been in the last five years an actual increase of 5,000,000 tons, and if a similar increase should take place in the next five years, the revenue would be increased by 1,250,000Z. from this source alone, of which but a small part would be absorbed by increase of interest charge. The steady and continued increase of the foreign and internal trade , of India gives evidence that such anticipations as these are reasonable and moderate. The tonnage of the shipping employed in the foreign import and export trade, which in 1856 was about 2,800,000, 322 FINANCES AND PUBLIC WORKS OP INDIA. had become 5,800,000 in 1877-78, and it now exceeds 6,000,000. The interportal or coasting trade employs about double that amount of tonnage. The foreign trade has increased in the last twenty -five years from 49,000,000Z. to 138,000,000/., and the interportal trade is now valued at nearly 60.000,000/. sterhng. It is not possible that such a growth of the foreign trade should go on — and there is every indication of its continuance — without a corresponding growth in the internal trade of the country, and every stimulus given to the foreign trade by the remission of the duties imposed upon it, must necessarily be immediately felt in an increase of the railway receipts and in the public revenues. From these considerations it is reasonable to anticipate that the repeal of the remaining duties on cotton goods would be immediately followed by an extension of the import trade, combined with a corresponding addition to the exports, and that this would soon lead to an increase of railway traffic sufficient to cover the first loss of revenue. Even, therefore, if the state of the finances were less satisfactory than it is, there need be no hesitation in immediately abolishing all the imposts with whicli this branch of trade is burdened. This same resource, the growing railway income, would also unquestionably, if it were prudently managed, afford within a short period of time the means of freeing the whole import trade of India from, taxation. It is impossible to doubt that the removal of all customs duties would have a very great and immediate effect upon Indian trade, and through it on the railway receipts and on the pubhc revenue. The hope has been expressed in other parts of this work, that nothing may be done to throw away or jeopardise that most important of the future re- sources of the Government in India, the profits from WILL COMPENSATE LOSS OF CUSTOMS DUTIES. 323 the railways. The revenue from this source is obtained with an amount of interference mth trade which is almost imperceptible, and in return only for services rendered and urgently needed ; and all efforts to stimu- late its growth would involve the satisfactory mainte- nance and extension of a cheap and efficient system of railway transport, on which the reahsation of such a revenue would directly depend, and which would be no less essential for successful and expanding com- merce. How far the anticipations of the further steady in- crease of Indian trade are justified by the facts will be seen from the following figures, which compare the imports of foreign merchandise and the exports of Indian produce in the last year, 1880—81, with the average of the five years 1874-7-5 to 1878-79, and the year 1856. In no single instance, excepting the exports of silk, is there anji-thing but a satisfactory in- crease. The following tables include all articles the annual values of which exceed 500,000Z. : — Imports. Uotton twist and manufactm-es . Metals Liquors Coal Sugar Woollen goods Railway plant and rolling stock sot goods . . . . » raw Provisions . . . . Apparel Salt Hardware . . . . Spices £0,362,000 1,543,000 755,000 112,000 168,000 134,000 347,000 1.39,000 274,000 2(56,000 328,000 275,000 123,000 Average of 5 Years Irom S74-75 to 1878-79 8,895,000 £26,579,000 3,265,000 3,780,000 1,336,000 1,387,000 835,000 1,240,000 819,000 1,611,000 780,000 1,299,000 757,000 1,118,000 747,000 1,350,000 653,000 1,067,000 765,000 920,000 565,000 658,000 556,000 666,000 442,000 552,000 401,000 543,000 324 FINANCES AND PUBLIC WORKS OP INDIA. Exports. Articles Opium . Cotton, raw . „ manufactured Kice Wheat Pulse Total grains . Oil seeds Jute, raw „ manufactui'ed . Hides Indigo Tea Coffee Wool Silk £6,201,000 3,315,000 2,598,000 174,000 124,000 Average of 5 years from 1874-75 to 1878-79 ;^12,175,000 11,515,000 905,000 6,363,000 1,344,000 256,000 1880-81 :el3,590,000 13,242,000 1,908,000 9,057,000 3,278,000 275,000 £2,896,000 1,273,000 329,000 432,000 2,424,000 63,000 120,000 483.000 1,040,000 £7,963,000 6,210,000 3,201,000 663,000 3,095,000 2,973,000 2,579,000 1,432,000 1,036,000 851.000 £12,610,000 6,345,000 3,935,000 1,127,000 3,733,000 3,672,000 8,054,000 1,600,000 1,224,000 771,000 It is materially impossible that the great progress thus shown, both in production and consumption, can have taken place without a corresponding development of the wealth and industry of the people ; and the well- known facts of the increase of the area of land under cultivation in all parts of the country, indicate the principal source from which that increased wealth has been derived, and to which that industry has been applied. That there are evils and difficulties from which some portions of the population suffer, is no doubt true for India as for every other country ; but that the very remarkable growth of all branches of the public income, Avhich has taken place simultane- ously with an equally striking advance in the internal and external trade, evinced by the imports and ex- ports and railway transactions, should be compatible with anything but an advancing condition of the people, is directly contrary to all experience and reason. PROOFS OF GENERAL PROGRESS. 325 The very evils, difficulties, and sufferings which it has been the lot of the people to endure, have afforded a proof of the improved condition of the community ; for they have shown how vastly the recuperative powers of the country have increased, the period of its greatest apparent prosperity having followed imme- diately on a period of the most exceptional calamity. In the face of these positive and continued proofs of general progress, it is irrational to give attention to vague assertions of deterioration, of which no definite evidence is forthcoming, and which are based on mis- conceived generahsations from local and partial evils, such as are to be found in every human society however advanced. And considering how little has yet been done to give India the advantages which are certainly to be secured by the adoption of improved -methods of husbandry, by the institution of industries suited to the local conditions of the country, and by calling in the aid of modern science and the outlay of sufficient capi- tal, the success already attained in the development of its resources is most encouraging for the future. There are some who doubt whether England will continue to stand fast in that faith in the efficacy of free trade which many, among whom the authors of this work desire to rank themselves, hold to have been one of the most powerful causes of the extraordinary advance in wealth which our country has made in the last quarter of a century ; but so long as she does, India offers a wide field for the application of that faith, and for the diffusion of the benefits which it wiU certainly confer on those who follow it. Though other countries be more or less closed to the industry of England by hostile tariffs, we possess in India a con- tinent the capacity of which, whether to supply us with 326 FINANCES AND PUBLIC AVORJCS OF INDIA. agricultural produce, or to receive our manufactures in exchange, has only just begun to be developed, and the extension of which depends on our own conduct in throwing down the artificial barriers which we still per- mit to stand in the way of the free growth of the trade of that country. The progress of this trade in the past year alone goes far to justify the belief that in this direction should be sought, and may be found in a comparatively short time, a most valuable set-ofl against any temporary check or diminution of the progress of British commerce caused by the oppressive tariffs of protectionist nations. The idea of tolerating, still less of stimulating, a war of tariffs between England and India is monstrous. Whatever may be our position in respect to other coun- tries or colonies, here at least such an insane policy should not be permitted. The future prosperity of India and England alike demand the most complete freedom of commercial intercourse between them. It is not easy to decide which country suffers most by the obstruction to the sale of its produce caused by customs duties, on the one side such as the Indian duties on the import of EngHsh manufactures, and on the other such as the English duties on Indian tea and coffee ; the duty on tea being at no less a rate than 50 per cent, on the value, and placing on this article alone a burden of more than one million sterling. In neither case can a plea of necessity be accepted, and to talk of reci- procity or compensating tariffs would be absurd. Both countries require free markets, and it is equally true for both that no form of taxation is so prejudicial as that which restricts the free interchange of the pro- ducts of their industry. Whether the subject be viewed from the side of the interests of India or of England, FREE TRADE BETWEEN INDIA AND ENGLAND. 327 the same conclusion must be come to, and it is singular enough that amid all the discussion which has arisen as to the exclusion of Enghsh goods from foreign markets by hostile tariffs, the mutually destructive customs duties of England and India should not have attracted more attention, and should have been tolerated so long. 328 FINANCES AND PUBLIC WORKS OF INDIA. bo to r3 to £3 a o o (^1 lO 1> 00 ^^ 03 (M (M (M oooo §oooo o o o o^ o o o_o_o, ^ t>ro t-Tco lo'ofo s CO OOOOrH iSOlOOrH OQOt^rH Oi— ICOCO 05^ H Is C3 M o <1 ooooooooo ooooooooo Oq-*CCi-I^CDCDCMCO i-T T^ ccT cT icT c3^ i>r t>r CO r-li-li-.CTlM-*lO>OCD ooooooooo ooooooooo O^O^O^Q^O^O^O^O^O^ lOOCMCSCqC-lOOii—t {>» "^ co^o o o^x^o^oo^ o oooooooo oooooooo o^o^c^o^o^o^o^o^ ^ O* lO" CO^ lO^ tC co" lo" lO > t^ CD CD^OS^r-^OO^Cl^CO^ ~ co~ >o' oT ■*" cq~ >o~ 5D~ o" KrHi-li-l*l010CO OOOOOOOOO ooooooooo ri ooooooooo^ ■^ ^ O ?ti ^-^ CT CO O i-H (M EH ,— (ooioiocoi— 'C^cq co-^c-iooooocoiocq t-To Q^ia^^ o o 00 r-tf-Hr-(Cq^^-^' O 1— ' iO CO .-H CM CO rH r-l Cq CO CO CO -* t- lO CO O -* OS C^ CM (M !-H CO CM rH <^ s o-*o^o-rco''rrH' CO CM T« 00 ■^o o o^o cq_ "o'cro'"rH'(M'io~cr CM O ^ r-( 00 CO -* CD^ CM^ CD^ CM^ Cj3^ CZ>^ "^ r-T c>r -^ crcroo t^CM lO a3_oo__t» oo^oo"-* o o o o o o (M 00 0C3^O^ cjq'cM'' U3 CD o o o o o o o o o o o oo o O^O^O^O^O^O^CD_ i-T i-T (35* u::rj>r lo" t>r TlH O o:) O lO O C35 i-j^ co^ -^ co^ co^ cD^ c:^^ 00* lO" i-T tC tT r-T OtT O O O O O O O o o o o o o o o o o o o o co^ CM-CM^r-Trfr-TcD'tC' CM O ->* CD O CD 00 CM TC Tl< ■■:i< 00 rH O «3 CO t^ CO 05 O rH t- w t>- 1^ t^ 00 en I I I I I I '^ lO CD t^ 00 O O l.-^ t^^ t^ l> t^ t- 00 00 00 00 00 00 00 00 CHAPTER XVJI OCTROI DUTIES OCIROr DTJTIES FOB, HUNICIPAL PTJEPOSES OEDEES IN 1868 10 PEEVENT ABirSES — ^EELAXBD IN 1871 — IJIGISIATION PEOPOSED IN 1879 — IIS OBJECTS AUtrSES POINTED OUT BX BOMBAY CEAMBBE OP COMMEKCE — EXTBJEITE CASE OP KARACHI — ^DECISION NOT TO LBGISLiTE NECBSSITr EOR FTJTUBJB ViaiLANCE. Closely connected with the subject of customs duties and trade, which have been treated of in the last two chapters, there is an important matter which must not be left unnoticed. For many years past the Government of India has recognised the necessity of placing better checks on the system by which, through a large part of India, octroi duties and tolls are levied for municipal purposes. It has been a constant complaint that these duties become taxes on goods in transit, and affect injuriously the general trade of the country. The orders on this subject issued by the Government of Lord Lawrence in 1868 contained the first clear statement of the principles by which the levy of octroi duties should be regulated. Their propriety has never been successfully impugned ; and they are quoted here : — ' Such duties should 'be restricted to articles actually consumed in the towns, and not im- posed upon articles of general commerce or suffered tq interfere with the natural course of transit trade. The Government of India has reason to believe that these 330 FINANCES AND PUBLIC WORKS OP INDIA. sound principles, the truth of which has been estabhshed by the prolonged experience of those countries of Europe in which octroi duties form commonly a source of muni- cipal revenue, have been frequently lost sight of, and that to meet the burden of an annually increasing expenditure upon police, education, or sanitary improve- ments, a wide-spread system of taxation has been intro- duced, injurious to interests on which the burden in a great measure falls, and standing in the way of the proper development of the commerce of the country. It is to little purpose that the Imperial Government reduces or abolishes customs duties in the interests of trade, if municipalities are permitted to levy duties on articles of comraerce passing through their Hmits. In all parts of India municipal taxation is largely on the in- crease ; and there is a growing tendency to overlook, for the sake of small local improvements, the real in- jury that is being inflicted upon important general interests.' These orders also laid down practical rules by which the levy of octroi duties and toUs was to be regulated. It was declared that duties on articles of consumption must faU entirely on the population of the town for the benefit of which they were levied, and that a jealous guard must be kept lest they should apply to any article belonging to the transit or general trade of the country. The articles on which duties might and might not be imposed were enumerated. Li the first class were articles of food or drink ; animals for slaughter ; articles used for fuel, for Ught- ing, or for Avashing ; articles used in the construction of buildings ; tobacco, and some minor articles of con- sumption. The second class, on which the levy of duties was prohibited, comprised articles liable to RULES FOR I,E^^^ OF OCTROI DUTIES. 331 customs duty and imported into India by sea — salt, opium, liquors, and drugs liable to excise duty. The articles subject to duty were so chosen that municipal taxation should not encroach on imperial taxation, and that, in the words akeady quoted, important general interests should not be overlooked for the sake of small local improvements. It was also required that provision should be made for the refund of duty when goods were re-exported from towns, for bonded warehouses, and other pur- poses. Eules were laid down regarding the levy of toUs, the principle being affirmed that they were not to be levied as a source of general municipal revenue, but only for the purpose of defraying the cost of construc- tion of particular works, or for their maintenance. These orders of the Government of India were re- ceived A\dth general opposition by almost aU the local authorities wherever octroi duties were levied ; and for this plain reason, that their execution involved, in many cases, a serious curtailment of existing municipal income. In consequence of the pressure brought to bear by the local authorities, some relaxation of the orders was unfortunately allowed, in 1871, and authority was given to add the following classes of goods to those on which duties might be levied : — Piece goods and other textile fabrics, and metals and articles of metal, provided that the duty should not exceed 1^ per cent, ad valorem. With these exceptions, the orders of 1868 were supposed to remain in force ; and for the last ten years the Government of India has been trying, not always very zealously, to get them carried out. The Government of India is, in theory, supreme ; but when its orders are regarded by local authorities and by Pro- vincial Governments as opposed to their interests, and 332 FINANCES AND PUBLIC WORKS OF INDIA. the subject to which they apply is one on which the Supreme Government itself shows signs of lukewarm- ness or divided counsels, it is not difficult to treat such orders with so much passive obstruction and indifference that they are very imperfectly executed. So it has been with the orders regarding octroi duties. Matters are undoubtedly better than they were, but they are still far from satisfactory. In 1879 the Government of Lord Lyttoncame to the conclusion that the only way by which a complete remedy for existing evils could certainly be found was by legislation, placing on all local authorities obligations impossible to be disregarded, which would prevent these duties operating as transit duties, or interfering with the general interests of trade, and which would guard against colhsion with imperial taxation, or with the general principles of our commercial policy. A Bill was accordingly introduced into the Legislative Council by Sir John Strachey for these purposes. The Secretary of State, however, doubted the necessity of legislating on the subject, not because he in any way differed from the conclusions of the Government of Lidia, or from any want of sympathy with the objects in view, on the importance of which he had often strongly in- sisted, but because it seemed to him that the Govern- ment of India would be able, by its executive authority, to accomphsh everything that was required. It may be doubted, judging from former experience, whether this expectation will be fulfilled ; but it is hoped that the Government of India will be more in earnest and more successful in the future than it has been in the past. Whatever measures, legislative or executive, be adopted, the necessity for reform in regard to this matter is obvious and pressing. The following extract ABUSES OF OCTEOI DUTIES. 333 from Sir John Strachey's speech, on introducing his Bill in 1879, will show the condition of things that has to be dealt with : ^ — ' I will first refer to representations which have been made from time to time by the Bombay Chamber of Commerce, a body which has always taken a most enlightened view of this whole question, and which has repeatedly pressed on the Grovern- ment (I wish their representations had had the success they deserved) the necessity for reform. ' In an address presented to your Excellency by the Bombay Chamber of Commerce in December, 1876, the Chamber made the following remarks : — ' " In the year 1875 the Chamber instituted an enquiry into the nature and extent of the transit and town duties levied by municipalities in the interior of this Presidency. The results of this enquiry induced the Chamber to urge upon His Excel- lency the G-ovemor of Bombay in Council the expediency of abolishing, in all municipalities of the Presidency, all transit duties and all town duties having the character of transit duties, and of confining town duties, in accordance with the principles of municipal taxation defined by the Grovemment of India in its Eesolution dated 15th November, 1868, to a few articles of local consumption, such as ghee, firewood, fruit, vegetables, fowls, eggs, and animals for slaughter, which did not enter into the general trade of the country. The Chamber, in its repre- sentation to the Grovemment of Bombay, showed that transit duties in their native form were levied in Karachi, Broach, and Surat ; that in nearly every municipality in the mufassil, the town duties levied were converted into transit duties by the- stringent and illiberal nature of the rules under which refunds- were granted ; and that the duties levied by certain municipal- ities on certain articles were very high. In Karachi, for instance, the town duty on wheat was 2^ to 3 per cent., and on wool 1 to 1^ per cent., of the value ; in Surat, the town duty on yam was about 3 to 3^ per cent., and on copper 5 per cent., in either case about the same as the imperial customs, duty ; while in AhmaddbSd the town duty on yarn was no. ' Speech in Legislative Ooiincil, November 14, 1879. 334 FINANCES AND PUBLIC WORKS OF INDIA. less than 6^ per cent., or nearly twice the imperial customs duty. ' " The town duty levied on yam imported into Ahmaddbid is particularly objectionable. It is, we believe, quite understood to be a protective duty in favour of the two mills in that town against other yarn, whether of English or of Indian manufac- ture : and constituted as the mufassil municipalities of this Presidency are, it illustrates the necessity of the strictest vigi- lance on the part of the Grovernment with respect to phe rate and incidence of every tax imposed by these municipalities. The town duty levied on yam brought into Surat is open to similar objections, and we have mentioned a few instances in which the town duties in other places are much too high. We earnestly hope that Your Lordship will order an immediate re- vision of all the taxes imposed by the municipalities of this Presidency to be made, abolishing aU transit duties, and all town duties having the character of transit duties, or which have a protective effect, and reducing those which are high, or press heavily on any article." ' A^n, on the 14th March, 1878, the Bombay Chamber of Commerce addressed the G-overnment. It said : — ' " It is, we believe, universally accepted that the great prin- ciples of an octroi duty are that it should be small, and that it should never be allowed to operate as a transit duty. Yet in numerous instances, whether the articles have already borne customs duty or not, the taxes levied, under the name of octroi, by district municipalities, are excessive, while the refusal to grant refunds when the articles are re-exported, or the limita- tions or restrictions imposed on the granting of refunds, have the effect of converting the town duties paid into transit duties." ' The Chamber then gave a list of cases in illustration of that statement, and they added : — ' " Numerous other instances could be furnished, but the Chamber has reason to believe that in almost every city and town municipality throughout the Presidency, excessive duties are levied, and on articles on which no municipality should have any right to levy a duty. It has, however, been specially brought to the Chamber's notice that at B5,rsi very heavy ABUSES OF OCTROI DUTIES. 335 taxes have been levied on machinery erected there, and that at Viramgaum a duty of 4 per cent, was levied on hoop-iron sent there for the purpose of binding bales of cotton, and no refund was allowed. At Wadw&n no duties appear to be charged on articles entering the town, but iron or similar articles cannot come out of it without being taxed at the rate of about 10 per cent. : a duty of Es. 600 would be levied on the removal of an old cotton press. Other impositions, and of a similar character, are, it has come to the knowledge of the Chamber, levied in many parts of the Presidency." ' I have quoted these passages only as illustrations of what is liable to occur at the present time, and of things that, at any rate, were actually occurring only a short time ago. I do not say that in these particular instances the state of things thus described now prevails. The Grovernment of Bombay, since Sir Eichard Temple has been in Bombay, has been paying great attention to this subject, both in that Presidency and in Sindh, and I believe that things are much better than they were. But although, as I say, I only give these as illustrations, it is im- possible to doubt that a more or less similar state of things exists in many places where octroi duties are levied. One of the most preposterous illustrations of this system was to be found not long ago at Karachi. Karachi, as we all know, has been — and we hope it will be a great deal more in the future — one of the chief ports for the export to Europe of Indian pro- duce. One of the great staples of the country, which has its outlet towards the sea at Karachi, is wheat, and with the object of removing all obstacles to the growth of this most important trade, the duty on the export of wheat was everywhere abolished by the Grovernment of India. Two yeai-s ago, it was found by the Government of India that one of the very largest sources of municipal revenue at Karachi was an octroi duty (levied at the railway station, and on goods which never came within muni- cipal limits, but were shipped directly from the station) at the rate of from 2^ to 3 per cent, on all the wheat brought down from the Punjab and Sindh for export to Europe. I think no terms can be too strong in reprobation of such a state of things. It has now happily ceased ; a better system has been introduced in spite of the strong protests of the municipality of Karachi 336 FINANCES AND PUBLIC WORKS OP INDIA. whicli naturally liked very much having its local wants supplied at the expense of other people. This is, of course, an extreme case, and I do not mean to say that such cases are common ; but, nevertheless, it is an illustration of what has been going on. ' Now, if such things be allowed, it is really useless for the Grovemment of India to attempt to establish proper principles of commercial legislation, and it may save itself the trouble of trying to reform its customs tariff; for when we have taken off duties and carried out the principles of free trade, at a serious loss perhaps to the imperial revenue, traders and manufacturers may find that, after all, they are no better off than before, and that heavier burdens than those from which they have been relieved have been imposed or are maintained by local munici- palities for local purposes. ' "We are often told that the great merit of taxation of this kind is that it is popular ; that the people have long been familiar with it ; and that it is inexpedient to force municipal- ities to substitute unpopular taxation for imposts that are not practically felt by the people. Now, up to a certain point, this is perfectly true. The Grovemment of India has no desire to embark in any general crusade against octroi duties. It has not objected to octroi duties when they are properly managed. Groing back to the principles laid down in 1868 by the Govern- ment of India, from which, in regard to this matter, there has since been no departure, it was said : — ' " If these principles be strictly acted upon, and the duties be moderate in amount, the Grovernor-General in Council is of opinion that there is in many parts of India nothing objection- able in this system of taxation for local purposes. In wealthy communities like those of Europe, it may be admitted that the balance of argument is in favour of raising municipal revenues by direct taxation only, and leaving the local trade entirely free. But in so poor a country as India, it will, in the judg- ment of the Governor-Greneral in Council, be more commonly the best course to combine direct with indirect taxation ; for by this means alone can a sufficiently broad base be secured for raising a sufficient income without undue pressure on indivi- duals. So long as octroi duties on grain and other articles of consumption are kept at a moderate rate, they do not injuriously DECISION NOT TO LEGISLATE. 337 afifect small retail transactions with which the poorer classes are mainly concerned. That such duties are commonly far more popular in India than any direct taxation is a strong argument in their favour, and the prejudice against them, founded on the common practice of England, should not be allowed to prevent their introduction under suitable limitations where there is reason to think that the general feeling would be to prefer them to other forms of taxation." ' The Grovernment of India stiU holds this view. It makes no objection to octroi duties so long as they are properly regu-. lated, but it refuses to allow them to become taxes on the general trade of the country. With reference to the question of their popularity, I may add that it often happens that the greater the popularity of those taxes the more objectionable they are, for often in practice this popularity — as in the case I have just given of Karfi,chi — only means that the people of the town have managed to provide for their own local wants without placing any burden on themselves ; that they have transferred their o^vn proper burdens to the shoulders of other people, and thus the popularity of the tax leads sometimes to its being grossly abused.' The foregoing remarks apply more especially to oc- troi duties strictly speaking, but it is understood that the system of levying tolls on vehicles and goods en- tering a town, in return for no services rendered, as a source of municipal revenue, has been carried in some parts of Southern India to an extent of which the Government of India was not aware when the Bill just mentioned was introduced, and to an extent which must certainly lead to the serious obstruction of trade. "When it was decided that these evils were not to be remedied by legislation, further executive orders were issued in the sense of the proposed Bill. The subject, however, is one which, to secure any effectual reform, demands not only the future vigilance of the Govern- ment of India, but also of those commercial interests 338 FINANCES AND PUBLIC WORKS OF INDIA. which are being injured to a far greater extent than they now suspect. It may seem, at first sight, a not very serious hardship that English piece goods, for ex- ample, which have paid nothing to the imperial customs, should pay a tax of 1^ per cent, on their value on entering a municipahty. Every one, however, who knows anything of the operations of trade will be aware how mischievous a tax of even this small amount may be ; and when octroi duties become transit duties, they may be levied in half a dozen places before the goods reach their destination, so that the taxes actually paid from first to last may greatly exceed the maximum amount which is nominally chargeable. CHAPTER XVIII. WEIGHTS AND MEASURES. RBFOEM OF WEIGHTS AND MEASURES NEEDED IN INTEEE3I OF TRADE — aiJESIION HAS LONS ENGAGED ATTENTION — ENaUIBY IN 1867 ITS EESITLTS CONDITION OF WEIGHTS AND MBAStTE-BS IN VAEIOTJS PEO- VINCES — TOTAL ABSENCE OF tTNIFOKMITT OE DEFINITE STANDAEDS— KEMEDIES PEOPOSED — ADOPTION OF ENGLISH POUND AS UNIT OF WEIGHT EEJEOIED— EEASONS FOE PEBFEEEING KILOGEAMME— NEAELT EQUAL TO OEDINAET INDIAN SEEK— CONVENIENCE FOE FOREIGN TEADE — CONCLU- SION ACCEPTED BX SECEEIART OF STATE — ^ACT PASSED IN 1870 TO ESTA- BLISH METRICAl BTANDAEDS — MODIFIED IN 1871 SO AS TO EXTEND ONLY TO WEIGHTS AND MEASUEES OP CAPACITY — ACT NOT BEOUGHT INTO OPEEATION BUT STILL IN FORCE — SERIOUS OBJECTIONS TO PEESBNT ABSENCE OP PEOPBE BTANDAEDS. Among the reforms required in the interests of Indian trade there is none more urgent than that of the •weights and measures ; a reform which has been talked about for years, and the real necessity of which every one admits, but which cannot get itself accomphshed. The powers of prejudice, and of those obstructions "which meet every change however beneficial, have in this case proved too strong to be overcome up to the present time. Although future Governments may find the subject as difficult to deal with as their pre- decessors have done, and although there seems little probability of immediate action, it may be useful to give some account of the conclusions which have been accepted in principle, though to no practical effect, by the Government of India. For more than forty years this question of weights' 340 FINANCES AND PUBLIC WOKKS OP INDIA. and measures has, from time to time, engaged the attention of the Government. The need of reform was a matter on which there had, for many years past, been no difierence of opinion. It was admitted on all hands that it would be difficult to exaggerate the in- convenience caused by the confusion and diversity of the existing weights and measures, or, what was still worse, the fraudulent practices from which the poorer classes are constantly suffering, owing to the want of all proper standards by which the weights and measures of retail dealers can be tested and regulated. But it was not until 1867, when Lord Lawrence was Viceroy, that it was seriously taken up with a determination to settle it. In that year a committee was formed to consider the subject, on the evidence from all parts of the country that had been collected for the purpose. The general condition of the weights and measures of India, as it then was and as it stiU is, was thus described by General Strachey, who had been nominated President of the Committee of Enquiry : — * The diversity among the weights and measures used in various parts of India is as great as is well possible. Through- out India the old standard of weight seems almost universally to have been the current coin of the locality, and the multi- plicity of coinages has been, and is still, accompanied by an equal or even greater multiplicity of weights. Not only do the weights vary from province to province, but from town to town, and even within the same town or rural district. Different weights are used in various trades in the sale of different com- modities, and in wholesale and retail transactions. ' In Northern India the usual unit of weight is the tola, which is the weight of the current rupee. The seer is a given number of tolas, varying from 70 to 100. The man (by the English commonly called maund) is usually 40 seers. The rupee of the British Government weighs 180 grains ; the seer of the British Government being 80 tolas is equal to 2-^g lbs. DIVERSITY OP INDIAN WEIGHTS AND MEASUEES. 341 avoirdupois, and the G-ovemment maund is 82-|lbs. avoirdupois, or lOOlbs. troy. Local seers and maunds vary on either side of 21bs. avoirdupois and 801bs. avoirdupois. ' Tii Southern India the original unit of weight commonly used was the pagoda, a coin no longer current. The common seer was 80 pagodas, and was equivalent to 24 current rupees. The maund of Southern India usually contains 40 such seers, and is commonly divided into eight viss, or five seer weights, and 40 poUums. The candi, of 20 maunds, is another weight in ordinary use. At Madras, the Grovemment some years back endeavoured to establish a local system of weights, on the basis of the rupee weighing 180 grains. The seer was not acknow- ledged in this system, but would be 0*61 71b. The viss was 3-0861bs. and the maund 24*6861bs. This system, however, never came into use. In practice the commercial maund in the town of Madras is taken at 251bs. avoirdupois, and the viss and candi are modified accordingly ; but beyond the muni- cipal limits other weights are used. ' The weight in common use in Burma is called viss also ; it is 3-65 lbs. and is subdivided into 100 ticals, each of 252 grains. ' In Guzerat a seer of 40 local rupees weight, a maund of 40 such seers, and a candi of 20 maunds are the common weights. These maunds vary from 37 to 441bs., and the seers are about lib. ' At Bombay the old seer was about 10 or 12 ounces avoir- dupois, being reckoned equal to 30 pice (copper coins). The maund being 40 such seers is nearly 281bs., at which it is now commonly reckoned. This maund is the usual one also on the Malabar coast, south of Bombay ; but the seer is the Madras one of 24 rupees weight, so that the maund consists of 46 to 48 seers instead of 40. At Bombay and in the Deccan the sub- division of the seer is into 72 parts, called tank. The Deccan seer is commonly 80 local rupees, or about 21bs. The maund varies greatly. In the Deccan the weights seem to merge into the Madras system on one side, and into the systems of Mdlwa and Northern India on the other. The candi, at Bombay and the neighbouring commercial centres, varies for almost each separate article of merchandise. 342 FI>fANCES AND PUBLIC WORKS OF INDIA. ' Measures of capacity are hardly known in Northern India. In Bengal and Southern India they are more frequently used, and, as a rule, are intended to be equivalent to certain deter- minate weights of grain. In Burma grain is universally sold by measure. There is, however, such great variety among measures bearing the same name that it would be useless to refer to them in detail. No liquid measures are believed to exist anywhere. ' The usual lineal measures are the cubit, or hS,th, and the yard, or gaz, the latter being divided in North India into 16 girahs or 24 tassus. The hILth varies from 14 to 20 inches, the gaz from 28 to 40 inches. Thirty-three inches is the length assumed for the gaz in fixing the official land measures in the North- Western Provinces. The coss is now sometimes taken to be 4,000 gaz, about 2^ miles, and sometimes half that dis- tance ; but 5,000 gaz, equal to about 4,500 yards, or 2^ miles, would seem to have been the old coss of North- Western India. ' Measures of area are commonly based on the h&th or gaz, but vary so exceedingly from one district to another that no general account can be given of them. Frequently the de- nomination of the land measures is the same as that of the grain measures, it being understood that the quantity of grain in a given measure will sow the area of land having the same name. It is common in Southern India to find the land mea- sure of the same name differ considerably, according as the crops are irrigated or unirrigated. For all Government pur- poses the English acre has now almost universally been adopted, and the revenue records are, I believe, almost everywhere drawn out on this basis, though the local measurement is at the same time still recognised. ' The immediate conclusion forced upon us, on a review of such a condition of things, is, that to establish uniformity it would be necessary to set aside what may practically be said to be the whole of the existing weights and measures of all sorts.'' The' Gommittee of Enquiry were not able to agree on the course to be recommended to the Government, ' Proposals relatitu/ to the Introduction of neio Standards of Weight and Measure in British India ; by Oolonel Strachey. Octolier, 1867. PROPOSED REMEDIAL MEASURES. 343 and alternative plans were proposed for remedying the existing evils by establishing a uniform system of weights and measures. The first of these proposals was based on the assumption that it was desirable to assimilate the Indian system to that of England, and the plan which received most favour among those who held this view was to take the Enghsh pound as the new unit of weight. The second proposal advocated the adoption of a new unit which should approximate, as closely as possible, to the existing Indian seer, the most generally known of all Indian weights. The average weight of the seer had been ascertained by enquiries all over India to be about 2ilbs. avoirdupois. This being almost exactly the equivalent of the kilo- gramme of the metric system now in force throughout the whole of civilised Europe, with the exception of England, it was proposed that a seer of this value, or 2-2051bs., should be the basis of the new Indian system. Although in deciding between two proposals of this description reasons of a theoretical or scientific character could not be disregarded, yet Lord Lawrence wisely insisted that it was essential that our conclusion should be based exclusively on a consideration of the convenience of the people of India, and that we are bound to select a system which shall be in all respects thoroughly and permanently convenient to them.^ The decision of the Government was communicated to the Secretary of State in these terms : — ' We are of opinion that the adoption of the English system of weights is not advisable. Neither the English pound, nor any multiple of it, can be a convenient unit of weight for India. It has been almost universally admitted that the new unit should 1 Despatch from the GoTernment of India to the Secxetary of State, dated Novemher 6, 1868. 344 FINANCES AND PUBLIC AYORKS OF INDIA. approximate to the existing Indian seer, the average weight of which is about 2^1bs. To reduce the seer to 21bs. would be extremely unpopular and objectionable.. On the other hand, the kilogramme of the metric system, which weighs 2-20olbs., at once provides a seer, which would certainly be as acceptable to the people as any that could be chosen. Further, we con- sider that on account of its simplicity and its symmetrical form, the metric system of weight, in its integrity, will be more convenient for India than any other. While it will be perfectly suitable for the internal wants of India, it will be in harmony with the system which has been already adopted in the greater part of the civilised world, and which may ultimately be adopted by England herself. In any case it will be more convenient for commercial transactions between England and India than any other system not really commensurable with that of England.' The foUoAving is a summary of the reasons which led Lord Lawrence's Government to these conclusions. The only system of weights recognised by the Government, but never generally introduced for trade purposes, was created by Eegulation VII. of 1833, a law which in fact served only as a basis for the currency. It adopted as the standard unit, the tola, equal in weight to the rupee, or 180 grains ; the seer was declared to consist of eighty tolas, and the maund of forty seers. Thus the seer was commensurable only with the troy pound, and was equal to 2-^lbs. avoir- dupois, and the maund was equal to 82|^lbs. avoirdupois, or lOOlbs. troy. Although these weights, being the only ones recog- nised or defined by any Indian law, were to some extent introduced in Government transactions, and adopted in towns containing a large English community, no serious attempt was ever made to bring the system into use in the country at large, and it has never been generally known or used. The seer of 80 tolas was incon- veniently less than the weights of that name in use in ENGLISH SYSTEM EEJECTED. 345 the country at large, and there can be no doubt that this insufficient weight of the Government seer is one of the main reasons Avhich have made it dishked by the people, and which have prevented it from being more commonly adopted.^ The system, which from an Indian point of view had little to recommend it, was, as General Strachey wrote in 1867, in its relation to English commerce inconvenient in the extreme. It is founded on troy weights, which are only used for the sale of drugs in retail, and of gold and silver, and it has no exact equivalent in avoirdupois weight, which is exclusively used in commercial transactions. For these reasons the universal adoption of this system did not seem desirable. No reasonable person would propose to adopt in India the EngUsh system in its integrity. Every one, even in England itself, has always admitted that the English system of weights and measures is, in itself, most complicated and inconvenient, and that the only reasons that can be given for maintaining it are that the unit (the pound) has been clearly defined, that the system has existed for centuries, and that the people of England have become accustomed to it. Any proposition to impose such a system on India would deserve- no discussion. A proposal which met with much favour, however, ' In the debate on this subject in the Legislative OouncU on September 6, 1871, the Lieutenant-Governor of Bengal, Sir George Campbell, said, with regard to the impropriety of calculating the seer at 21bs. avoirdupois, that ' he remembered in Lucknow serious discontent being caused by the introduction of a seer which weighed only 21bs. The local seer weighed a fraction over that amount. The dealers took advantage of the feet of a new seer being introduced, and charged the same price for the new seer as they had for the old, and so got the advantage of the difference between the two seers. Every purchaser accordingly found himself mulcted to a corre- sponding amount, and serious dissatisfaction resulted,' 346 FINANCES AND PUBLIC WORKS OF INDIA. was the adoption of the English pound as the new unit of weight, without the rest of the EngUsh system. Two pounds avoirdupois would then make a seer. The objections to this plan were considered by- Lord Lawrence's Government to be decisive. For, in the first place, the pound, although nominally the unit of English weight, is not conveniently commensurable with the ordinary weights used in wholesale dealings, with which alone external commerce is concerned. We cannot assimilate the Lidian weights to the ton and the hundredweight, the commercial weights of England, by any scheme which takes the English pound as its unit. To establish in India a system in harmony with the system of weights in use in commercial transactions between the two countries, we must take the ton and not the pound for our starting point. Further, the adoption of the pound as the unit of weight would be inconvenient to the people of India in their internal transactions, the seer of 21bs. being much smaller than the seer in common use. It cannot be said that the general behef of purchasers, that loss is entailed upon them by a diminution in the standard of weight, is merely fanciful. That belief is really an expression of the fact that prices often depend not only upon com- petition but on custom. By adopting for the new unit a seer equal to the kilogramme, or 2-2051bs., a weight was obtained which differed httle from the thousandth part of a ton, and the fiftieth part of the hundredweight, while it approxi- mated well with the average Indian seer. These views were otherwise supported in a minute ^ ' This quotation is taken from a minute dated August 4, 1868, with wHcli Sir Henry Maine expressed his couourrenoe ' on all points ; ' and the conclusions stated in it, so far as they referred to weight?, were entirely accepted hy Lord Lawrence. METRICAL SYSTEM PREFERRED. 347 written by Six Jolin Strachey, from which the following extracts are taken : — '.There can be little doubt that, in the interests of the people of India, the best unit of weight to adopt would be a seer weighing about 2^1bs. avoirdupois. Such a seer would be almost identical with the kilogramme of the metric system, which weighs 2*2051bs. All the advantages therefore which may be claimed for a seer weighing 2'241bs,, or the thousandth part of an English ton, as the unit of retail trade in India, belong equally to the kilogramme. The difference between the two is little more than half an ounce, or 1^ per cent., a quan- tity that, with ordinary scales and weights, and in the ordinary transactions of life, is hardly appreciable. So far as the unit of weight is concerned, it may be confidently affirmed that, for the purposes of retail trade, no value more generally convenient to the people of India, or more popular, could be given to the seer than the value of the kilogramme. ' It remains to consider the interests of the wholesale and external trade of India. ' If we were to look only to the present, we should come to the conclusion that the most convenient plan would be to take the English ton as the basis of our system, in the manner already suggested. But we must not look only to the present. In the interest of the people of this country it would, as Colonel Strachey has urged very forcibly, be altogether unjusti- fiable to make any organic change in the weights of India, unless we are satisfied that it will be virtually final, and that there is no probabihty that further organic changes will be required hereafter. ' It therefore becomes necessary to take into consideration the probabihties of England abandoning its existing weights, and ultimately adopting the metric system. ' Every country in civilised Europe has to a greater or less extent gone through the same process which we seem to be now going through in England. The first feeling which has every- where prevailed has been one of absolute and universal hostility to the introduction of any new system of weights and measures having its origin in a foreign country, however inconvenient the existing system may be. The next step has been that men of 348 FINANCES AND PUBLIC WORKS OF INDIA. science have come generally to the conclusion that the metric syst-em ought to be adopted. Then, after, for the most part, a long interval, the leading men of the commercial classes have said the same. Opinions in favour of the change have gone on gradually but constantly spreading, until at last the change has been, with more or less completeness, actually made. England will apparently be, before long, the only country in the civilised world which will not have assimilated its weights and measures to those of the metric system. It is shown by these papers that this system has been adopted in its integrity by France, Belgium, Holland, Italy, the Papal States, Spain, Portugal, Greece, Brazil, and the South American Eepublics ; and that Austria, the Southern States of Grermany, Switzerland, Sweden, Norway, and Denmark have adopted it in part. Even during the last few months, progress in the same direction has been going on. We have lately learned that Prussia and the whole of the States of the North German Confederation have, by a la^ passed by their parliament, adopted the metric system without modification, and that it will be brought into compulsory use from the commencement of the year 1872, and optionally from 1870. Considering the dislike which at the present time pre- vails throughout Germany towards everything that is French, there can be no more remarkable instance than this of the irresistible progress of the conviction that the metric system is the only system suitable to the wants of a civilised nation. . . . When we see what is going on in all parts of the civilised world towards bringing about conformity of weights and measures and coinage ; when we see how much progress has actually been made ; and when we consider the unanimity of men of science upon this subject in all countries (for, in spite of a few great English names that may be quoted in support of other opinions, this unanimity really prevails), it seems impossible to believe that England, whose system of weights and measures is pro- bably as inconvenient as any existing in the world, will remain permanently content to leave matters as they are. . . . The metrical system has the great practical advantage of being based on proper scientific principles, of being the only such system actually in use, and of being in operation, at least partially, over the most advanced part of Continental Europe. These advan- KKASOiSIS 1^'OR PREFEEBNCE. 349 tages are such as to satisfy me that it will never have any real competitor when the day for change has come. The true im- portance of international uniformity in these things is at last beginning to be properly estimated, and the movement which has commenced in its favour cannot cease until it has been suc- cessful. ... If the ultimate adoption by England of the metric system is inevitable, it would be altogether wrong to force India to adopt the existing English system. Even if my anti- cipations be thought too strong, and the probabilities of the introduction into England of the metrical system be really far more remote than I suppose, it can hardly be said that they are so remote that it would be reasonable to leave them out of consideration. It would be better to do nothing at all, and to let the weights and measures of India remain in their present state of confusion, than to run the risk of having, at some future time, to go through the process of altering, them again. ' If we take the kilogramme for our unit of weight, we may be satisfied that we are laying the foundation of a system which will be perfectly convenient for the internal wants of India; which will be in harmony with that of the greater part of the civilised world ; which will probably be eventually adopted by England herself ; and which in any case will be more conve- nient for the transactions between England and India than any other system can be which is not really commensurable with that of England. A very large and increasing part of English commerce is with nations using the metric weights, and this system is therefore necessarily familiar to all English merchants. To extend it to the Indian trade would be attended with less annoyance than to introduce any altogether new system. . . . ' The question may perhaps be raised whether it would not be better to defer any action until all doubt has been renioved as to the course that England will pursue. Now the adoption in India of the existing English system being out of the ques- tion, the practical issue thus raised is the following : — ' First, whether India should at once take as the basis of her weights the metric system, which she might do with complete internal convenience ; with a reasonable expectation that England herself will before long adopt it also; and with the knowledge that its introduction into India will in no way cause 350 FINANCES AND PUBLIC WORKS OF INDIA. inconvenience in commercial transactions with England greater than that which exists already ; or — * Secondly, whether all reform should be delayed for an indefinite period, with a view to India shaping its course in conformity with that which England may ultimately adopt. The urgency for the removal of the evils of the present state of things in India — evils universally acknowledged to be real and serious — has to be balanced against the possible inconvenience that may be caused by a future difiference in the system of weights in India and in England. This difference would certainly never be greater than that which has always existed, and which now exists, and in all probabihty it might before long entirely cease. ' The conclusion is easy that delay should not be permitted for such a reason. It is certain that the longer we delay in laying the foundation of a uniform system, the greater will be the difficulties with which we shall have to deal. The evils which result from the present state of things must necessarily be felt more and more with the improvement of the means of communication, and with the progress of the country in wealth, education, and civilisation. It is easier to make the commence- ment of a change now than it will be hereafter, when fresh in- terests have grown up, and when the power and inclination to create opposition to the introduction of any new system will have become far stronger than they now are.' For these reasons Lord Lawi-ence's Government reported its conclusion to the Secretary of State that ' the new unit of weight should be a seer equal to the kilogramme, or 2-20olbs. avoirdupois.' ^ The conclu- sion was approved by the Duke of Argyll, who was then Secretary of State, and in 1870 an Act was passed to give it the force of law. Lord Mayo was then Viceroy, and the Legislative Council had the advantage of the pre- sence of commercial members of much eminence. The measure received the warm approval of Lord Mayo, and it was passed by the Council without a dissentient voice. ' Despatch to Secretary of State, dated November G, 18C8. LAW INTRODUCING METEICAL SYSTEM, 351 It had been agreed by the Government of Lord Lawrence and by the Secretary of State that it was expedient, in the first instance, to deal with weights only, and not with measures of length, the latter being a subject of less urgency. It was, however, thought ■ desirable by Lord Mayo's Government, partly for tech- nical reasons, to take the opportunity of also defining in the new law the standard of length, on which, under the metrical system, the unit of weight depends. The metre was declared to be the official unit of length, because it was apparent that the unit of weight being that of the metric system, the unit of length must almost of necessity follow the same system. The Secretary of State, however, thought that the original conclusion was the better ; that no reference to measures of length should be made in the Act ; and he thought also that certain sections containing compulsory powers in regard to weights went further than was desirable. A new Bill was, therefore, introduced by Sir James Stephen, containing the modifications which the Secretary of State desired, and it became law as ' the Indian Weights and Measures of Capacity Act, 1871.' The Eegulation of 1833 having been repealed as obsolete, the Act of 1871 is the only law on the subject actually in force in British India. Its principal pro- visions are as follows. It declares that ' it is expedient to provide for the ultimate adoption of a uniform system of weights and measures of capacity throughout British India ; ' that the primary standard of weight shall be a seer, equal to the French kilogramme ; that the unit of weight shall be the seer, and the unit of measures of capacity a measure containing one seer of water ; that other weights and measures of capacity may be authorised by the Governor-General in Council, 352 FINANCES AND PUBLIC WORKS OF INDIA. subject to the condition that they must be integral multiples or sub-divisions of the prescribed units ; that proper standards and sets of weights and measures of capacity are to be provided for use in the various dis- tricts. The Act then declares, with various provisions which need not be quoted, regarding the appointment of warders, the verification of local standards, and other matters, that whenever the Governor-General in Council considers that proper weights and measures of capacity have been made available, he may order that, after a fixed date, all or any of such weights and measures shall be used in deahngs and contracts by any Government office, or municipahty, or railway company. This last provision defines the only power given to the Government for carrying the new law into effect. It was from the first decided by Lord Lawrence, and the decision Avas never altered, that the new system ought not, in regard to private trade and dealings, to be forced upon any class of the public, until that class was prepared to receive it with approval. Whatever new system might be adopted, this would be equally expedient. It is visionary to suppose that even if the Government were inclined to do anything so foolish, it could force upon the people of India, within any definite period, the adoption of any new system of weights and measures. The views of Lord Lawrence's Government in regard to the steps to be actually taken were ex- plained as follows in the minute already quoted : — 'All who have studied the subject have agreed that the proper way of beginning the introduction of any new system would be to adopt it in all Government and municipal depart- ments, and on the railways. When we consider the manner in which India is being covered with a network of railways and BUI' EFFECT KOT GIVEN TO IT. 353 canals, which will carry an enormous proportion of the trade of the country ; and when we remember the magnitude of the operation of the Government in the Public Works, the Commis- sariat, the Post Office, the Customs, and in other departments, it is reasonable to anticipate that, in a not very distant future, the country would have become so far accustomed to the new units, that the measures necessary for their general introduction could no longer be properly called compulsory. I believe that it may be confidently said that not many years would elapse before this would be true at least of the wholesale traders in all of the richest parts of India, and that they would gradually, for their own convenience, adopt the new system almost without pressure on the part of Grovernment. When the wholesale traders had become accustomed to the change, its gradual introduction into the operations of retail trade would be at- tended with comparatively Little difficulty.' In pursuance of this plan of proceeding, Lord Mayo opened communications on behalf of the Government with the principal railway companies. The East Indian and some other companies had gone so far as to alter their weighing machines to make them suitable to the new system, and Lord Mayo confidently expected to see the first steps towards this reform, in which he had taken a great interest, successfully carried out. After his death a stop was put to further proceedings, and although from time to time attempts have been made to renew them, they have always, through various causes, come to nothing, and matters remain in the same unsatisfactory condition in which they were found by Lord Lawrence fifteen years ago. We must be satisfied, for the present, with the knowledge that it is something even to have failed in the accomplish- ment of a wise undertaking, when the failure may help to prepare the way for success hereafter. It need only be said further that the existing absence of all recognised legal standards of weights and measures A A 354 FINAJfCES AND PUBLIC WORKS OF INDIA. in India is not merely extremely inconvenient and ob- jectionable for trade purposes, and conducive to frau- dulent transactions among an ignorant population, but also is most mischievous in relation to the collection of trustworthy statistics of any kind. It is to be hoped that a more intelligent view of this really important subject may before long prevail, and lead to the adop- tion in practice of the system which, having been authorised by the laAv, only requires the action of the Government in the manner that has been indicated to bring it into early general use. It may confidently be asserted that the acceptance of a sound and uniform system of commercial weights and measures would be hardly less important and valuable to India than was the adoption of a uniform system of currency. The pubhc inconvenience and injury caused by the neglect of this matter have gone on far too long, and must continue to increase as the country becomes richer and trade more active. CHAPTER XrS. POSSIBLE SOURCES OF NEW TAXATION. PEODucirrB TAXES nr india few — new sotteces of eeventje mat be FOUND — BATES ON LAND — IN BENGAL — THE PEEMANTINT SETTLEMENT — ITS SEEIOITS EVILS — BATES ON LAND IN OTHBE PEOVINCES — INCOME TAX — EEGISIEATION — EXTENSION OF PEESBNT SYSTEM DESIEABLE — SITOCESSION TAX — DIPFICTTLTIES IN WAT OF ITS ADOPTION — TOBACCO TAX — OBJECTIONS TO rr — STTGAE DTJTT — MORE PRACTICABLE — HOUSE TAX — NOT EEOOM- MBNDED ON MAERIAGES — RAILWAY lEAFFIC — OTHERS — CONCLUSIONS — NOTE ON DAEBHANGA ESTATE. Theke seems, as already explained, no present cause for anticipating that it Avill become necessary to impose upon the country any new or onerous taxation. On the contrary, there is every reason for believing that we shall continue to see a steady improvement in the finances, and a diminution of the public burdens ; provided always that we continue to improve the administration of the existing sources of revenue ; that we spare no efforts in developing the immense natural resources of the country ; and refuse to Usten, both to those who tellus that India cannot afford to provide herself with rail- ways and canals, and the other machinery without which it is impossible she should be really prosperous, and to those who, under the name of promoting indepen- dent enterprise, desire to divert to foreign capitalists the profits of such undertakings, which should become one of the most important sources of the national wealth. It may nevertheless be useful, independently of any A A 2 356 FIX^^^^CES AjS'D public works op INDIA. questions of present or future financial necessity, to place on record some account of the schemes by which it has, at various times, been suggested that the revenues might be improved by fresh taxation, for it is an obvious defect of the Indian financial system that the productive sources of taxation are so few. This defect is one of the inevitable consequences of the monotonous and primitive conditions of Indian social life and industry, and of the comparative poverty of the people, but it is, at the same time, an element of financial weakness which it is wise to bear in mind and, from time to time, to remedy, so far as this is possible without falhng into the far worse evil of worrying and alarming the people with new and un- necessary imposts. But although new forms of taxation may be difiicult to devise, it would be a great error to suppose that the limits of possible taxation have been nearly reached in India. The country is, beyond a doubt, one of the most hghtly taxed in the world, and there is not only no foundation for the assertion that taxation has of late years been increasing, but, on the contrary, it has positively been reduced. It may be added, that whether we look to the incidence of the land revenue, or to the total burdens imposed on the people, there is certainly no considerable native state in India where the taxation is so light as it is in our own territories ; and this relative advantage must in most places be much increased by the greatly improved means of com- munication, and the greater freedom and expansion of trade in the British provinces. It would undoubtedly be possible, therefore, to increase largely the income of the State without serious injury to the industry of the country, and without EATES ON LAND. 357 political danger, in the event of any great financial emergency ; such, for instance, as might conceivably, though most improbably, arise if we were suddenly to lose the greater part of our opium revenue, or if the difficulties caused by the faU in the value of silver in relation to gold should attain very alarming dimensions. Rates on Land. — ^Among possible sources of additional revenue the first to be considered is the Land ; and if circumstances should arise in which the application of heroic remedies became not only justifiable but neces- sary, there can be httle doubt, if regard be had to the true interests and reasonable wishes of Lidia herself, that one source from which those remedies would, in part at least, be drawn is the land of Bengal. Nearly ninety years ago Lord CornwaUis carried out the permanent settlement of Bengal. It is not overstating the facts to say that, in conse- quence of this settlement, which has been well described as ' one of the most unfortunate but best-intentioned plans that ever ruined a country,' ^ at least 3,000,000/. of revenue is lost every year with no compensating ad- vantage. According to the official returns the total rental of Bengal at the present time is more than 13,000,000Z., and it is certain that the actual rental exceeds rather than falls short of this sum. If land revenue were paid at the rate prevaUing in those provinces of Northern" India where the assessment is universally admitted to be light, the amount yielded by it in Bengal would be at least 6,500,000/., while a settlement made on, the system followed in the most prosperous parts of the Bombay presidency would yield a very much larger amount. The actual land revenue of Bengal being ' Niebulir, quoted by Mr. O'Kinealy. 358 FINANCES AND PUBLIC WORKS OP INDIA. only 3,700,000/., it is a moderate computation, and one really much below the mark, to say that we are now losing 3,000,000/. a year from this cause. The time will inevitably come when the intelligent portion of the community in the rest of India wiU ap- preciate the fact that, in consequence of an arrangement ignorantly made nearly a century ago, the richest class in the richest province of the Empire bears far less than its just share of the pubhc burdens ; that the other provinces, all of them comparatively poor in natural resources, are therefore paying several millions a year of taxation from which they would otherwise be exempt, and that, what they lose from this arrangement, the people of Bengal do not gain. When this is understood and admitted, except by the zemindars, in Bengal itself, the apphcation of the needful remedies will be an easier matter than it seems now. It must not be supposed, from what has thus been said, that it is desired in any way to deny or undervalue the moral obligation which rests upon us, of respecting the pledges given by Lord Cornwallis, at the permanent settlement, to tlie zemindars of Bengal. As Sir James Stephen has said in one of his admirable speeches : — ' Those to whom we succeed, and whose pohcy laid the foundations of the power which we possess, deliber- ately gave to a large and influential class of the popula- tion, over which we exercise that power, a pledge on the faith of Avhich relations have grown up which modify the whole framework of society. No one is more strongly impressed than I with the importance of scrupu- lously maintaining the pledges given at the period of the permanent settlement.'^ ' Speech in the Legislative OouncU, April 6, 1871. This opportunity way be taien of expressing the hope that Sir James Stephen will some day BENGAL PEEMANENT SETTLEMENT. 359 But what we are bound to respect are the rights which were really bestowed upon the zemindars, and which they have lawfully enjoyed ; and if the condi- tions of the permanent settlement be altered to the detriment of the zemindars, just compensation must undoubtedly be given to them for the loss of such rights, not for the loss of that gain which has been wrongfully usurped, and to which their claims have never been admitted by the Government or the law. The preposterous claim of the zemindars, based on non-existent and imaginary stipulations in the permanent settlement, to be exempted for ever from all liability to every form of taxation, whether for general or local purposes, on their property in land, though still vehe- mently asserted by members of this class, have passed finally away from discussion by reasonable men. The last ten years have seen the imposition, with the full approval of every Lieutenant-Governor, every Viceroy, and every Secretary of State, of cesses upon the land in Bengal for local and provincial purposes, yielding nearly 700,000/. a year. If the example be wisely followed hereafter, the application of heroic remedies, so far at least as merely financial considerations are concerned, may be avoided, however necessary they may be for other and possibly more important reasons. And to such reasons, though they lie beyond the strict limits of the present discussion, a short reference must be made. The Eeport of the Commission recently appointed to consider the question of the amendment of the rent law in Bengal, which included some of the pve us the means of easy reference to his speeches and minutes, which are now scattered about in inaccessible places. They will be a storehouse of practical wisdom to fiU interested in India, 360 FINANCES AND PUBLIC WORKS OP INDIA. ablest and most experienced men in the service of the Government of Bengal, and whose conclusions have been generally accepted by that Government, furnishes a melancholy commentary on the condition of things which has grown up under the permanent settlement in this great province, containing nearly 70,000,000 of people, the vast majority of whom are dependent on the land for their support. It would be out of place to give here any opinion on the particular remedial measures proposed. But there can be no doubt that if the views of the Commission were adopted, and the legislation which it advises were carried out, something like a re- volution would be brought about in the relations between the zemindars of Bengal and the cultivators of the soil, and in the social condition of the province. It will not be vdthout a long and arduous struggle that these ques- tions will receive even a partial solution. Meanwhile the bounty of nature happily counteracts the folly and injustice of man, and Bengal cannot cease to be the richest and in some respects the most prosperous pro- vince of India, although a large proportion of her people are condemned to poverty which, if justice had been done, they would not now be suffering, and although a large proportion of her wealth has been uselessly thrown away. The spirit of the views adopted to a great extent by the Commission may be gathered from the following passage, quoted from a paper appended to the Eeport by Mr. O'Kinealy, a distinguished officer of the province, and one of its members. The accuracy of his statements will doubtless be called in question by those who admire the permanent settlement and the existing system of landed tenure in Bengal, but they cannot be passed over in silence. ITS UKJUST AND INJURIOUS EFFECTS. 361 ' The Government revenue of the permanent settlement was about 2,858,000?., and eight-tenths of the gross rental. One- third of the land was waste, it is said. On these conditions, if the whole of Bengal had been under cultivation, the gross rental would be 4,764,000Z. According to the report of the Board of Revenue, it was in 1877 equal to 13,037,000?. In other words, the rates of rent which were intended to be fixed by the perma- nent settlement have been trebled, and the ryots are now being compelled to pay an excessive exaction of 8,273,000?. yearly. If this anntiity be valued at twenty years' purchase, it appears that we have deprived the cultivators of this enormous sum of 165,000,000?., and given it to the zemindars, who still cry for more. What large portions of this enormous income are squandered by "mismanagement, extravagance, and want of self-restraint " may be gathered by a reference to the Report on Wards' Estates for 1877-78 and other years. During the last few years the Grovemment has spent crores on famine. Every Administration Report since 1873 dwells on the bad feeling ex- isting, and the riots and murders which have occurred through disputes between landlords and tenants. An Act to prevent agrarian disturbances had to be passed, and a committee ap- pointed to enquire why the ryots in Behar had abandoned their holdings and fled to I^epal.' The not uncommon supposition that nearly the whole of the land of Bengal is in the hands of a comparatively small number of very rich zemindars is, of course, erro- neous. A great number of middlemen has grown up. But, notmthstanding the existence of a multitude of subordinate interests in the land, the fact remains that in the midst of the people whose condition has been described in the foregoing extract, and whose patient industry has created and maintains the great wealth of this magnifi- cent province, we have the spectacle of men whose annual income, given to them originally by the British Government in return for nothing, is sometimes reck- oned, not metaphorically but hteraUy, in hundreds of thousands of pounds, who discharge none of the duties 362 FINANCES AND PUBLIC WORKS OF INDIA. of landlords towards those whose rights have been confiscated for their profit, and contribute ahnost nothing towards the requirements of the State. A note to this chapter contains a Resolution lately published by the Government of Bengal, regardmg the vast estate of the Maharaja of Darbhanga, in Behar, which afibrds an excellent example of the consequences which have followed from the permanent settlement.^ The destruction or non-recognition of the rights of the masses of the agricultural population has been by far the most serious and lamentable of the evils which have followed in the train of the permanent settlement of Bengal. If it had given prosperity and comfort to the millions who cultivate the soil, there might have been sufficient compensation for tlie sacrifice of the revenue directly dei'ived from the land, but this sacri- fice, while it has failed to benefit the people of Bengal, causes permanent injustice to the whole of India, and unduly increases the burdens of the entire people. It is not only in Bengal that it would be possible, in case of serious emergency, to obtain, without injury to the agricultural interests of the country, a larger contiibution from the proprietors of the land. It would be cause for regret should it become necessary to place further taxation on the landholders of Northern India, and it is very unlikely that such necessity will arise during the currency of the existing settlements ; but it cannot be doubted that ample means to bear ' As an amusing but unfortunately true illusti-ation, the following story may lie quoted : — ' The bailiff of a wealthy landholder in Bengal lately wrote to his law agent in Calcutta as follows : " His honour my master pui-poses to raise the rents on his estate 5 per cent., in consequence of the recent providential fall of rain ; and 2 per cent, more to meet the cess which the Government has imposed on him in order to diffuse the blessings of educa- tion amongst his tenants." ' INCOME AND LICENCE TAXES. 363 additional burdens, if these should become unavoid- able, have been left to them by the liberality of the Government. In treating of the new famine taxation, and elsewhere, enough has been already said on this part of the subject. Income and Licence Taxes. — The income tax as it existed in 1870-71, yielded, at the rate of 3^ per cent, on incomes exceeding Es. 500, a httle more than 2,000,000/., and with the better administration which could be secured, it would certainly, at that rate, now yield very much more. A large sum could, however, without difficulty or the slightest political danger, be raised, in case of necessity, by the simple plan of increasing the existing Ucence tax and cesses. By doubling their present rate, which would still not bring them up to the rate at which the income tax was on more than one occasion levied, and extending their incidence to the official and professional classes in the manner that has been proposed, we should obtain at least 2,600,000Z. a year, or 1,500,000/. more than the revenue now derived from these sources. This is obviously the easiest and best way of obtaining, in case of emergency, an immediate increase of revenue, and it shows very strongly the importance of holding this resource in careful reserve. If the existing system .of direct taxation be wisely administered and improved, it wiU become, not only one of the least objectionable among present sources of revenue, but would, if neces- sary, be capable of great expansion hereafter. Registration. — There is one plan by which a not unimportant increase of revenue might almost imme- diately be obtained, and which is so httle open to objection that it might, in my opinion, be at once adopted. It was suggested in 1879 by Mr. F. K. 364: PINAXCES AKD PUBLIC WORKS OF INDIA. Cockerell, and consists in the development into a source of revenue of the present system under which fees are levied on the registration of documents.^ Under the existing law affecting registration in India, all written instruments are divided into two classes, — those which must be registered, and those of which the registration is optional. It may be said generally that the first class com- prises documents affecting immovable property, and that the second includes all other documents. Fees are levied on all instruments brought for registration. When registration was in its infancy, it was necessary to its success that it should be as cheap as possible, and the sj^stem has hitherto been worked on the assumption that it is not to be a source of revenue. It has now, however, been for some sixteen years in common use ; it has become thoroughly famihar to the people ; the practice of registration has become almost everywhere greatly develojaed, and there is no reason to fear that a moderate enhancement of the fees now charged would check its progress. There has been a general agreement of opinion, on the part of the Local Govern- ments and officers who were consulted, that these fees are a most proper source of revenue, and a committee of experienced officers, appointed to consider Mr. Cockerell's proposals, reported in favour of them. These proposals were, first, to aboUsh the limit of Es. 100, below which value the registration of documents affecting immovable property is not now compulsory, and thus to enforce the registration of all documents affecting such property ; and, secondly, to raise the fees for all registration, from two-fifths to one per ' The following account of ttese plans is taken from Mr. Bazett Colvin'a note on taxation in India, and very often in his own worda.^ KEGIStRATION. 365 cent, on the value of the property affected by the registration. As a financial measure, the first proposal has little importance, but on administrative grounds it is highly desirable that it should be adopted. It has been proved by experience in India to be necessary to provide for the authentication of all written instruments ; every Local Government in India has supported the proposal, and it can hardly be doubted that, apart from financial considerations, it will before long be carried out. The second proposal, that the fees on all registra- tions should be raised, is financially more important, and there has been a general consent of opinion among the authorities consulted that this measure might be adopted without objection. Mr. Bazett Colvin, who was President of the Com- mittee of Enquiry into the subject, has stated, in the note to which reference has been made, his reasons for believing that we might obtain in this way a gross annual revenue of about 700,000/., and, taking the probable expenditure at about 200,000/., there would be a clear gain to the treasury of say 500,000/. a year. It is possible that this estimate would prove too high at first, but, on the other hand, it is probable that it would ultimately be exceeded. This is one of the best suggestions yet made for adding to the revenue ; there is complete evidence to show that it could be collected without dissatisfaction, and that no important objection of principle to it exists. In France, the revenue derived from the registration of assurances amounts to upwards of 18,000,000/. a year, and although any comparison between the two countries would be absurd, there is in some respects, and especially in the minute sub-divi- 366 FINANCES AND PUBLIC WORKS OF INDIA. sion of property in land, an analogy between the social circumstances of France and of British India, from which instructive lessons may sometimes be drawn. Succession Tax. — A form of new taxation frequently talked about in India has been a succession tax ; but the belief in its expediency and suitability for India has been given up by every one who has studied it. Little can be said regarding it which has not already been said by Sir J. P. Grant, Sir Henry Maine, Mr* Colvin, and others.^ No machinery exists for collecting such a tax in India. In England, a legacy and probate duty is levied Avithout difficulty, because all property must pass at its owner's death into the hands of ex- ecutors and administrators, who have no interest in defrauding the State, and can be used as quasi-public functionaries for the collection of the tax. Almost all personal property in England takes the form of invest- ments, which constitute a debt payable to the deceased person's estate. The law has only to declare, as it does, that no debt due to an estate can be discharged except by payment to the deceased's personal represen- tative, and the debtor's private interest is at once enlisted on behalf of the public revenue. He will not expose himself to loss by paying his debt into the hands of any one but an executor or administrator. In India these conditions are almost reversed. Per- sonal property seldom takes the form of investments. Capital is laid out not iu scrip, stock, insurances, &c,. ' See in particular (1) Sir J. P. Grant, in letter from Government of Bengal to Government of India, dated May 29, 1860 ; (2) Memorandum on succession duties, by Mr. J. Straohey, dated October 19, 1866 ; (3) Minute by Hon. H. S. Maine, dated August 12, 1867 ; (4) Note on tbe possibility of furtber taxation in India, by Hon. B. W. Oolvin, 1880. Nearly all that is here said regarding a succession tax is taken from these papers, often in the words of their authors. SUCCESSION TAX. 367 but in cash, bullion, and precious stones ; nor is there any possession of these by temporary representatives through whom a duty can be collected. They pass, in domestic secrecy, on their owner's death, into the hands of his heirs, and are not even seen by anybody but the persons interested. Sir Henry Maine's conclusion was that ' no approach to fairness could be made in the assessment of such a tax, unless the procedure were made to the last degree inquisitorial.' This im- possibility of justly assessing personalty is alone an insuperable objection to a succession duty. Unless personal property can be reached, it would be paid almost exclusively by landed proprietors. Another important argument against a succession tax has been forcibly stated by Sir Henry Maine. It has been said that a tax on inheritances is levied at a time when its payment is little felt. This would not be true in India. Joint ownership by families, clans, and communities, still prevails largely. When a member of such a community dies, his co-proprietors gain so far as his requirements for personal expenditure go, but lose by the produce of his labour. In a poor com- munity his earnings usually exceed his expenses, and thus a man's heirs are commonly made poorer instead of richer by his death. The argument that a succession duty is a well-timed tax, which is often untrue in Eng- land, woidd be almost always so in India. No form of direct taxation Avould be more unpopular or more difficult to assess. One suggestion, however, was made by Sir Henry Maine which still deserves con- sideration. He said that, although a succession tax was unsuitable for India generally, it might be practic- able in Lower Bengal, where there is a nearer approach than elsewhere in India to the English law of probate 368 FINANCES AND PUBLIC WORKS OF INDIA. and administration, and a greater tendency to substitute the individual for the family as the unit of ownership. It must be added that the changes in the law of probate and administration, now under the considera- tion of the Legislature, may, in process of time, cause important change in the present condition of things ; better data than now exist for the assessment of per- sonalty may become available, and a succession tax may become, in many parts of India, a more suitable tax than it would be at present. Tobacco Tax. — Another tax which has been fre- quently recommended for India is a tax on tobacco. Everything seems at first sight to recommend tobacco as a subject of taxation. It is not a necessary of hfe. It is consumed by a very large proportion of the popu- lation, and the effect of a moderate duty would scarcely be distinguishable among the fluctuations to which the price of tobacco is constantly liable. Frequent atten- tion has been given to this subject, and during Lord Lytton's administration it was carefully reconsidered. The same conclusion, however, has always been come to, that the idea of raising a large revenue from this source must be abandoned. We may put aside, as impracticable, except under the pressure of some financial catastrophe so great that it would justify almost any experiment, the idea of estabhshing a Government monopoly of the sale of tobacco throughout India. Such a monopoly might doubtless, if it were possible, yield a large revenue, perhaps 3,000,000^, or 4,000,000/. a year ; but no ap- proach has hitherto been made to the suggestion of a scheme by which this could be done. The only other plan that has been seriously pro- posed, and the only one which has seemed to offer any TOBACCO TAX. 369 real chances of success, is to place a spec'uil tax on the cultivation of the plant. This is by no means impos- sible, but the objections and difficulties would be great. The amount and value of the tobacco produced on different soils varies so much, that a uniform rate on cultivation, sufficiently high to be profitable, could hardly be imposed without pressing very heavily on the poorer soils, while diiferential rates of duty would afford great faciUties for corruption and fraud. The yield of tobacco in Bengal is said to range from 1601bs. to 3,2001bs. per acre, and the cost of cultivation from Es. 4 1 to Es. 50 per acre, while prices vary from Es. 2 to Es. 22 per maund (821bs). It is another serious ob- jection, that, although ultimately paid by the consumer, the tax would have to be advanced in the first instance by the producer. It would thus be levied in the most inconvenient and objectionable way possible ; and con- sidering the comparative poverty of the majority of the Indian agricultural population, tlieir ignorance, and their general dependence on the money-lender, not only would this payment in advance of a tax which they had to recover from the consumer, be extremely dis- tasteful, but there can be little doubt that a portion of the impost, or an addition to it, would ultimately rest upon them, and that they would be unable to pass on the whole of the burden. All these objections would be increased, in many parts of India, by the great difficulty of preventing the introduction into the markets of tobacco from Native States, or by other methods of smuggling ; and to whatever extent tobacco that had not paid duty might enter into general con- sumption, the tax would to a corresponding extent fall upon the producer, and would be irrecoverable froni the consumer. The same would probably happen B B 370 FINANCES AND PUBLIC WOEKS OF INDIA. whenever accident of season or other cause might lead to the total or partial loss of the crop upon which the duty had been paid in advance ; for it would be hardly- possible, in practice, in most parts of India, to make refunds of the duty on such grounds. Another fact must not be forgotten. Tobacco is almost universally consumed, and is looked upon as almost a necessary of hfe. Whatever means were adopted, the tax would only be largely productive if it fell ultimately on the classes which form the great mass of the community. It would be paid by the same classes which now pay the salt tax ; and if it should become necessary to increase the burdens which they akeady bear, this object would be more easily and economical!)' gained, and with far less vexation to the people, by increasing the existing tax upon salt than by imposing a new tax upon tobacco. That any increase in the rate of the salt tax would be one of the greatest possible mistakes, unless in most exceptional circum- stances, and, on the other hand, that its present reduc- tion would be financially a most desirable measure, has been shown in another chapter. Sugar Duty. — Another tax which has been suggested is an excise duty upon sugar. ' If,' writes Mr. Colvin, ' it should be desired to raise a considerable sum of money by indirect taxation, an excise laid upon sugar, accompanied by a corresponding import duty, would no doubt supply it. There is, indeed, no other indirect tax which, if levied at an equal rate, would bring in such large returns. It would fall upon an article which is perhaps more of a luxury than anything else that is generally consumed in this country. Moreover, it would be a tax upon more than one luxury ; for in most, if not all parts of India, the tobacco that is SUGAR AND HOUSE TAXES. 371 smoked by the people is mixed with an equal weight of sugar. Smokers, therefore, would pay a tax, which would be equivalent to a tobacco tax, upon the sugar which they consume in this form, in addition to tlie tax levied from them for the sugar that they eat.' Mr. Colvin thinks that we may assume, although the data are very imperfect, that the total value of the sugar consumed in British India in a year is about 20,000,000/., and an ad valorem duty of 6 per cent, would yield about 1,000,000/. of revenue. The average incidence of such a tax would be less than three farthings per head of the population. It has been suggested that it might either be levied by a licence fee on the boihng pans, or by a hcence fee on sugar mills, or by an acreage rate on cane cultivation and date groves. This would be on the whole a better tax than one on tobacco, but it would be very unwise to adopt it without extreme necessity. It is unnecessary now to discuss its merits and demerits ; it is obviously open to nearly aU the objections which have been urged to a tax upon tobacco. House Tax. — In theory, a house tax has much to recommend it ; but it has been shown by experience that among all Indian taxes there is perhaps no one so universally unpopular as this. The following re- marks are taken from Mr. Oolvin's paper : — ' A house tax in India is peculiarly open to the great objec- tion which lies against direct taxation in all countries, viz. that it cannot be fairly assessed. As the tax is at present levied, it is assessed in one of two ways : either by a rate upon the assumed rental or value of the house, or by one calculated upon the supposed means of the house-owner. Now, in India, there is no certain rental on which to base a calculation. A house is built for occupation by its owner and his descend- ants; hardly ever for the purpose of being let. Renting, B B 2 o72 FINAXCES AND PUBLIC WORKS OF INDIA. except in large towns, is imknown, and there is no recog- nised letting value of buildings in other places. In the absence of any actual rents, the assessors are driven to con- jecture them. It is not to be expected that assessors, being at liberty to guess, should always care to guess fairly, and much injustice is done, no doubt wilfully. Even when they endeavour to be fair, the tax is not made palatable because its assessment may be equitable. A native of this country can never recognise any justice in an assessment so calculated. He can understand, though he does not like, a tax that is cal- culated on income, or one that is calculated upon actual expen- diture ; but a tax reckoned upon his imaginary rental seems to him to be neither one nor the other, but simply exaction. . . . It might be supposed that the house itself would furnish no bad indication of its owner's means. But in India, where men do not at once change their houses with their fortunes, this is not the case. It is notorious, on the contrary, that such a test would be very delusive. A prosperous trader in this country will often be content to occupy a mere cluster of sheds, whilst an honourable, but ruined, family will continue to live in a substantial house, built, by wealthier ancestors, long after it has become much too large for their diminished means. . . . Another important objection to a house tax is that, with all its unpopularity, it would not produce much. It would, I have no doubt, be found that the agriculturists must be exempted from it. They already contribute their fair share to the public revenue; and though it might not be unjust, perhaps, to impose a house tax on them, this tax could not, I am persuaded, be levied from them without danger. ... If the tax did not extend to the agricultural community, three-fifths of the whole number of taxpayers would be exempted. The proceeds of the tax would not be diminished in quite the same proportion, as the rate of incidence would be less in the country than in the towns ; but as much as one-third or one-half of the income would probably be lost.' Marriages. — It is unnecessary to discuss at length the propriety of a tax upon marriages, though some authorities have advocated it, on the ground tliat it OTHER POSSIBLE. TAXES. 373 would produce a large revenue and that it might check, to some extent, the excessive expenditure often incurred on marriage ceremonies in India. Mr. Colvin has clearly shown that such a tax could not yield much revenue, except at the cost of extreme unpopularity ; for to be profitable it must reach the masses of the people. It has been calculated that it would affect four millions of families every year, and that it would affect the entire population of the country, or thirty-six millions of families, in the course of every nine years, while three-fourths of it would be paid by the poorest classes in the country. These figures are alone sufficient to condemn the proposed tax. Railway Traffic. — The only other tax which has been suggested, which it is necessary to mention as a possible source of imperial revenue, is a tax on railway fares and freights, similar to that levied in France and some other countries in Europe. In the existing circum- stances of India, and considering that a large and increasing proportion of the railways belong to the State, this would be a questionable tax ; but there is no doubt that it could be made to yield a considerable sum, say 500,000Z. a year, and that it would be collected without any difficulty, and almost without expense. In the event of the complete abohtion of all customs duties, such a tax as this might in the future afibrd a useful and equitable means of bringing the growing trade of the country under contribution, in a form that would be as little open to objection as any such tax could be. Miscellaneous. — Other taxes have been suggested which might sometimes be levied without objection for local or provincial purposes, and which might thus be useful, but which, as general sources of imperial 374 FINANCES AND PUBLIC WORKS OP INDIA. revenue, would financially be hardly worth imi)osing or would not be otherwise suitable. Mr. Colvin has noticed all the more important of them. Among them, he mentions one tax which, under proper regulations, would be open to no objection whatever, — a tax on the privilege of carrying arms. Taxes on conveyances and beasts of burden, taxes on retainers and servants, taxes on betel-leaf or pan, and some others, might also, in some provinces, be imposed without hardship or serious unpopularity ; they would sometimes give useful aid to provincial resources. General Conclusions. — The general conclusions which seem to be established are these : first, that the exist- ing revenue is so prosperous, and its raain sources so certainly increasing in productiveness, that there is no reason to suppose that recourse to new and untried methods of taxation will become necessary ; secondly, that there would be httle difiiculty, in case of necessity, in almost immediately increasing the revenue, yielded by existing and other taxes of a little objectionable nature, to the extent of at least 2,000,000Z. a year ; and thirdly, that if a much larger sum than any which could be provided by such means, or by the growth of exist- ing revenues, should be required in consequence of some great financial catastrophe, the income of the State could certainly be increased by several milhons a year without injury to the country ; but that before any measures were taken in such a view the whole question of taxation in Bengal should be reconsidered, vTith the object of placing on that province that fair share of the public burdens which it now fails to bear. CONDITIOX OF DURBHUNGA ESTATE. 375 NOTE TO CHAPTER XIX. Extract from a Resolution of the Lieutenant-Governor of Bengal, dated June 24, 1880. The Durbhunga estates were taken over by the Court of Wards on the death of the proprietor, Maharajah Maheswar Sing, on October 20, 1860, and were released on September 25, 1879, when the present Maharajah, Luchmeshwar Sing, attained his legal majority. The estates comprise an area of about 2,410 square miles, with a population of 750,000 souls, and are scattered over the districts of Durbhunga, Mozufiferpore, Bhagulpore, Pumeah, and Monghyr. The bulk of the population is rural and agri- cultural ; the Hindus being to the Mahomedans in the ratio of ten to one ; and, of the Hindus, one in every nineteen being a high-caste Brahmin. When the Court of Wards took charge in 1860, the con- dition of the property seemed almost hopelessly bad. The late Maharajah had left a daughter, Eajeshmree Daee, and two minors sons, Luchmeshwar Sing and Eameshwar Sing, aged respectively two years and under one year. The gross annual rental of the estates was nominally Es. 16,39,357 (163,000?.) and the Government revenue only Es. 4,07,484 (40,000L). But the management had for years been left entirely in the hands of underlings. AU the villages were leased to farmers, most of them relatives of the Eaj servants, who had got their leases on favourable terms. Others were outsiders, men of straw, who had nominally undertaken to pay rents far above the value of the lands, and who made what they could by rack-renting the ryots and levying illegal cesses, without attempting to satisfy the Eaj demand. Security for payment was never taken from the farmers. Pottahs and kabuUats ' were seldom interchanged. The correct rental of the villages was nowhere recorded. Putwaris' ^ papers were seldom forthcoming. The outstanding arrears of rent, at first unknown, proved to amount to Es. 56,44,972 (564,000?.). There were other debts due to the ' Leases and their counterparts. • Village accountants. 376 FINANCES AND PUBLIC WORKS OF INDIA. estate, aggregating Es. 3,37,775 (33,000L). The debts due by the Maharajah to creditors amounted to a crore of rupees, of which the Court of Wards was compelled to admit Es. 71,88,427 (718,000L). The estates were destitute of roads and bridges. The palace was neglected and in ruins ; its courtyards quag- mires ; its environs a hopeless waste of jungle, pools, and filth. Notoriously all the epidemics of the town took their rise in the Eajbaree. There were no refuges for the sick; no resting- pJaces for travellers ; not a school on the whole estate. No reproductive works of any kind had anywhere been attempted. On the sm-render of the estate to the Maharajah last year, all this had been changed. The rent-roll had been re- adjusted; and although reductions of rental had been made amounting to Es. 5,92,323 (59,000?.), the gross rental (includ- ing that of a few small properties purchased) was Es. 21,61,885 (216,OOOL). The outstanding arrears of rent due to the estate were Es. 18,51,397 (18o,000L) (less than a year's demand), of which Es. 14,51,664 (145,000L) were good, and in process of realisation. All debts had been paid off long ago. There was a cash balance in hand of Es. 2,75,733 (27,000L), besides Government securities of the value of Es. 38,54,500 (385,000L). Over 150 miles of road had been constructed and bridged (in many places with screw-pile viaducts) ; upwards of 20,000 trees had been planted along their sides. Feeder and village roads had been made and improved. In Khurrukpore extensive irri- gation works, securing that property against famine, had been made and opened. A large bazaar had been built at Durbhunga, including a handsome public serai. In lieu of the ruinous system of farming leases, the whole estate had been brought under direct management. Collections were made without friction or difiSculty. The outlying zerat' lands had been equitably settled with indigo-planters, while those in the vicinity of villages had been reserved for the ryots, thus putting an end to' the constant disputes between the factories and the cultivators. Hundreds of small embankments, water- channels, tanks, and wells had been constructed from advances made without interest to the tenants. Complete surveys had ' Cultivated lands. CONDITION OF DURBIIUNGA ESTATE. 377 been made of the greater part of the property, and a consider- able area had been re-settled to the advantage both of the estate and of the cultivators. Twenty vernacular schools had been established by the Raj, educating 1,000 children, aid being at the same time given to other educational institutions not belonging to the estate. Three admirable hospitals were kept up for the use of the tenantry, while assistance was also afforded to six charitable dispensaries in various places near. Above all, both the Maharajah and his brother had received a thorough English education, were proficient in manly exercises and free from the vices which are too often the ruin of native magnates. The Maharajah had been trained to manage his own affairs and to take a lively interest in the welfare of his people, while his brother had been deemed fit for appointment to the Civil Service of the province, in which he is now an assistant magis- trate. They had both travelled over the greater part of Upper India, and made the personal acquaintance of the Viceroy, Lieutenant-Grovemor, and other high officers of State, as well as of many native potentates, to all of whom they commended themselves by their unassuming intelligence and gentlemanlike demeanour. During the incumbency of the Court of Wards, the ag- gregate demand of rent due to the estate amounted to Es. 4,26,79,578 (4,267,000L). Of this, Es. 3,54,66,458 (3,546,000L) or 83 per cent, was collected, and Es. 55,39,610 (553,000L) remitted. The total receipts from all sources during the management were Es. 4,84,50,669 (4,845,000?.), and the total disbursements Es. 4,80,86,228 (4,808,000L), of which Es. 32,90,934 (329,000Z.), or only 6-7 per cent, of the receipts, represents the cost of management. Es. 80,41,113 (804,000L) were expended in payment of Grovernment revenue, and Es. 31,98,000 (319,000^), or 6-5 per cent, of the receipts, in the allowances of the family, including social and religious cere- monies. The Lieutenant-Governor observes, however, with regret that while the Court of Wards has done so much for the pro- prietor of the estate, it is frankly admitted by the manager that the condition of the Eaj tenants is not generally prosperous. 378 FINANCES AND PUBLIC WORKS OP INDIA. Many of them are said to be living merely from hand to mouth, having suffered much from successive bad seasons. It is urged that they would have been much worse off had it not been for the good roads made, enabling them to take advantage of the high prices of produce; the liberal remissions of rent in famine years ; and free advances of money given without interest. They have also, it is stated, been relieved of multifarious illegal cesses, and from the unjust exactions of ticcadars or petty leaseholders, are more alive to their legal rights, and less in debt than they were in former years. Grranting all this, there can. Sir Ashley Eden fears, be little doubt that the cultivators on the Durbhunga estates are suffering from the same causes which in long course of years have reduced the peasantry of Behar generally to a lower level than that of the ryots in Central and Eastern Bengal. There has been in years gone by, under the Court of Wards, the same kind of rack- renting, the same ignoring of ryot right, the same unwilling- ness to recognise occupancy tenures, the same resort to illegal distraint, that have been found and condemned in every district of Behar. The traditions of the Court of Wards have from the time of its institution been essentially proprietary. The chief aim of its management in every estate has been to make the most of the property for the benefit of the owner ; and although it has, in its relations to the tenantry, been incontestably a better and a wiser landlord than the ordinary run of native zemindars, it is only vdthin the last few years that anything has been done by it to improve directly the position of the cultivators. The most important measure of this kind in the Durbhunga estate, which has been actually carried through to completion, has been the survey and settle- ment of Allapore. This was, it may be said, forced upon the Coiut by the report of the Special Commission which enquired into the condition of the pergunnahs of Allapore and Nareedi- gur, after the drought of 1875. It then appeared that ' a large number of the tenantry had fled from their houses to avoid the burden of debt due to enhanced rent which lay upon them too heavily.' The re-settlement of the pergunnah under the supervision of Mr. Finucane, C.S., led to a re-adjustment of CONDITION OF DUEBHUNGA ESTATE. 379 rents which, while affording considerable relief to over-assessed ryots, actually led, by the discovery of lands concealed by the putwaris and head ryots, to an increase of the Eaj receipts. Mr. Finucane has now nearly completed a cadastral survey of the whole of the Tirhoot and Bhagulpore estates, and the Maharajah has been allowed to retain his services to bring the work finally to a close. But in these proceedings no attempt is being made to revise the rates of rent. The Maharajah is left to make his own arrangements for this at his own time. The Lieutenant-Governor trusts that, in any action which the Maharajah may take in this direction, he will remember that it will be his wisest policy to endeavour to secure upon his estates a substantial well-to-do tenantry, able to meet the ordinary vicissitudes of season, self-respecting and jealous of their own rights, while recognising and satisfying the just and moderate demands of their landlord. In the long run it is far more profitable to the landlord to leave in the hands of the cultivators such a share in the profits of the soil as will enable them to face even the worst season without actual suffering, than to take from them all that they have, with the certainty that enormous sums will have to be expended by him in years of famine in maintaining the ryots on his estate. It may be taken as certain that the Legislature must ere long interfere for the protection of the Behar peasant against arbitrary ejectment and undue exaction of rent ; and those land- lords will suffer least from the intervention of the State who have themselves entered into equitable arrangements with their tenants, and admitted of their own free will those substantial rights which, under the old law and custom of India, every resident cultivator undoubtedly had, and which the frequent recurrence of famine among the poverty-stricken population of Behar seems to make it a matter of imperial necessity once more to revive. The Lieutenant-Governor, from what he knows of the Maharajah, believes that he will prove himself an active landlord. But he also believes him to be an upright and benevolent landlord, strongly impressed with a desire to improve the condition of the poorer classes residing on his estate. It is hardly necessary to impress upon him that 380 FINANCES AND PUBLIC WORKS OF INDIA. the best practical way in which he can do justice to his educa- tion and responsibilities, and show his appreciation of the care which has been bestowed by Grovernment on him and on his estate, will be by showing himself the friend and protector of his ryots and by setting an example to the neighbouring land- holders, and using his influence with them to bring about a reform of the undoubted evils of the land system of Behar. CHAPTEE XX. CUREENCY AND EXCHANGE. METALLIC OFEKENCY OF INDIA — GOLD COHJ" NOT CUKEENT — PAPER CTTR- EENOT — IMPORTS OP BULLION AND COINAGE — COMPETITION BETIVBEN SECRETART OF STATE'S BILLS AND SILTEK AS A MEANS OP REMITTANCE — EXCHANGE VALUE OF RUPEE DEPENDS ON MARKET PRICE OP SILVER — RELATION BETWEEN EXCESS OP EXPORTS AND SECRETARY OF STATE'S BILLS — COMBINATION OF STERLING AND RUPEE EXPENDITURE IN PUB- LIC ACCOUNTS — ADOPTION OP CON^'ENIIONAL RATE OP EXCHANGE — OBJECTIONS TO THIS — REASONS POR RETAINING IT — AMOUNT OF LOSS BY EXCHANGE — HOW FAR REAL — ADJUSTMENT OP ACCOUNTS BET'WEEN INDIA AND ENGLAND — ARRANGEMENT WITH BRITISH GOVERNMENT — GUARANTEED RAILWAY TRANSACTIONS — DEVILS CAUSED BY PALL IN RE- LATIVE VALUE OF SILVER TO GOLD — EFFECTS ON FOREIGN TRADE OF INDIA — DIFFERENCE OF STANDARDS OF VALUE IN INDIA AND ENGLAND THE REAL CAUSE OP ALL THE DIFFICULTIES — NECESSITY FOR OBTAINING UNIFORMITY — COMPLETE REMEDY ONLY ATTAINABLE BY INTERNATIONAL AGREEMENT — FAILING BIMETALLISM THE ADOPTION OP GOLD STANDARD BY INDIA ESSENTIAL. The metallic currency of India was established on its existing basis in 1835. It consists primarily of the rupee weighing 180 grains, -f^ths fine, and therefore containing 165 grains of pure Silver ; with silver coins of the same standard, representing the half rupee or 8 annas, the quarter or 4 annas, and the eighth or 2 annas. The rupee and half rupee are legal tender for any amount, the other coins only for fractional parts of the rupee. Silver is coined without limit, on pajanent of a seignorage of 2 per cent., and, when necessary, the cost of refining. 382 FINANCES AND TUBLIC WORKS OF INDIA. The Copper coins in use are the half anna, quarter anna, and one pie or the -rV*''^ P^^* of the anna. Copper is given and received by the public treasuries in exchange for silver, in amounts of not less than Es. 2. The currency law authorises Gold coins to be struck at the Mints, but they are not legal tender, and are not used as money. The coinage of gold has gradually diminished during the last twenty or thirty years, and has now virtually ceased. The authorised gold coins are the Mohur or 15-rupee piece, weighing 180 grains, ijths j&ne, and therefore equal in weight to the rupee ; and corresponding coins to represent Es. 10 and Es. 5 The opinion has been expressed that gold money is not used in India because the people prefer silver, by reason of the small amount of their transactions. There is, however, no real evidence of this, the fact being that, for three quarters of a century at least, gold coin has either not been a legal tender, or has been improperly valued, so that either it could not come into circulation, or could not remain in circulation, in competition with the silver rupee, which has always been the standard coin. Tow^ards the end of the last century gold coins circulated freely, with silver, in most parts of Bengal, and about half the revenue was paid in gold. Forty years ago gold coins were still to be found in use in some of the districts of Madras. Gold, however, everywhere gradually went out of circulation, and for a great many years has, for all practical purposes, ceased to be emploj^ed as money. At various times gold coins have been received in payment of Government demands, at varying rates, but under the law of 1835 they ceased to be a legal tender. After the great gold discoveries, on some tendency appearing towards an accumulation of gold in the CUKEENCY AND COINAGE. 283 public treasuries, its acceptance was stopped ; but, with the subsequent recovery of the value of gold in relation to silver, attempts were made to bring gold into use as money, by the Government offering to accept the sovereign at a specified rate, though not making it a legal tender. The great fall in the relative value of silver had, however, already begun, and these attempts all failed from the undervaluing of the gold ; and coins of this metal, though commonly procurable in small quantities from the bankers, are used only for hoarding or for export in foreign trade. The paper currency of India is estabhshed on a purely metallic basis. Notes are issued, by the Govern- ment alone, at one or more offices in each province, in exchange for current coin or bulhon, a hmited portion of the amount thus received, Es. 60,000,000, being invested in Government securities, and the rest retained in coin by the currency department. The notes are convertible into coin on demand at the office of issue, and at the chief town of the presidency if issued elsewhere. The circulation of notes is at present about fourteen or fifteen millions. During the last twelve years the gross imports of bullion by sea have amounted in all to 30,463,988/. of gold, and 80,804,579Z. of silver ; or on the average 2,538,666Z. of the former, and 6,733,715/. of the latter yearly. The net imports, after deducting the exports by sea, were 23,981,589/. of gold, and 61,811,392/. of silver ; or at the average rate of 1,998,382/. of gold, and 5,150,949/. of silver yearly. The total value of the silver coinage in the same period was 68,752,475/., or at the rate of 5,729,373/. yearly. The net import of gold since 1835 amounted in value to 107,991,012/. The total amount of silver money coined since 1835 is 384 FIXANCES AND rCBLtC M'OTIKS OF INDIA. somewhat move than 250,000,000/. sterling, and in- cluding the old coinages the quantity in existence no doubt exceeds that vahie ; but of course a large part of this is hoarded. The occasional excess of the coinage over the net imports of silver, is doubtless in part due to hoarded silver coin or bullion being brought to the Mint, and partly to the recoining of worn or defaced coin, but it is probably mainly caused by the export of newly coined silver. During the last three years the average yearly export of silver to Mauritius, Ceylon, and Aden, at which places the rupee is the current coin, amounted together to 812,277/., which more than accounts for the excess in question during those years. The import of silver into India, hke that of any other commodity, of course depends on the demand, which in the nature of the case chiefly depends on the requirements of the country for silver coin, either to be hoarded or brought into active circulation. From the obligatory nature of the Government remittances, the sale in Loudon of a large amount of bills on India, drawn by the Secretary of State, is necessary, for in the present state of things this is the only means of making remittances on any considerable scale ; this comes to much the same thing as offering rupees for sale, and a competition is therefore estabUshed between the Secre- tary of State's bills and the silver bulhon offered for sale in the European market, the coining of which in India is unrestricted. In these circumstances the exchange value of the rupee bills of the Indian Government is immediately, and almost solely, determined by the price at Avhich the holders of silver bullion are prepared to sell it. After the adoption of a gold standard by Germany, the coining of silver in Europe virtually came SECRETABY OF STATe's BILLS. 385 to a standstill, and at present the United States and India may be said to be the only two countries that coin this metal, the former to a limited amount, by the State, the latter without limit for all comers. The United States being the great producer of sdver, India affords almost the only market for the metal on a large scale. Hence the export of sUver from India as a means of remittance becomes impossible, and, as above said, the government is driven to making its remittances by the forced sale of its biUs, the value of which is controlled by the market price of silver, which again is depressed by the present limited demand for coinage, and the competition with the Secretary of State's biUs, the amount of which has been much increased during the last few years. The great fall in the exchange which has occurred, and the fluctuations which stiU take place, have no important relation to variations of trade de- mand ; and if the condition of the Indian currency admitted of specie remittances the effect of those varia- tions on the exchange would be insignificant, and could never exceed in amount the cost of a bulUon remittance from India and of re-coinage in Europe. There is a close connection between the amount of the Secretary of State's bills and the excess of the Indian exports over the imports. The value of the excess exports indicates in fact the total amount which India has to remit to foreign countries in discharge of her various obligations to them ; those obligations con- sisting chiefly of the payments to be made in England on account of the Government, for the public services, interest on debt, railway capital, and so forth ; and of the savings and profits of foreigners employed or trading in India. After setting off the value of the imports of all descriptions against that of the exports, the differ- c c 886 FINANCES AND PUBLIC WOEKS OF INDIA. ence must be paid to the Indian producer or his agents in coin. The foreign exporter purchases bills on India, or some other form of transferable security, with the proceeds of the sale of the exports, from persons de- siring to exchange rupees in India for sterUng in London, or for francs in Paris, and so forth. The bills or securities thus serve a double purpose — for the remit- tances from India, and for the payments for the excess exports. As the remittances are chiefly to England, it is by bills sold in London that they are for the most part made ; and, the Government being the principal remitter, the bills are mainly those drawn by the Secretary of State. The difference between the actual sum realised by the sale of these bills, and their nominal value, assuming the rupee to be equal to two shillings, is what is spoken of as the loss by exchange on the Secretary of State's remittances. During the twelve years from 1857-58 to 1868- 69, inclusive, the aggregate excess of exports was 45,470,000/., the bills of the Secretary of State paid in India having been 45,420,000/. In the following six years, the excess of exports having been 96,334,000/., the biUs paid amounted to 66,865,000/. ; and in the last six years ending in 1880-81, the excess exports were 92,826,000/. and the bills 91,265,000/. For the whole series of twenty-four years the average value of the ex- cess exports was 9,776,000/., and the average of the Secretary of State's bills has been 1,295,000/. yearly less. The serious effect which the fall in the exchange value of the rupee has had on the finances of India has more than once been dwelt upon in the earher chapters of this book. The manner in which it affects the public transactions, and how it is dealt with in the public accounts, wiU now be considered in more detail. LOSS BY EXCHANGE. 387 The transactions of the Home treasury being neces- sarily conducted and recorded in sterhng, while those of the Indian treasuries are necessarily in rupee cur- rency, a system has to be settled for the combination of the accounts. Even before the amalgamation of the Home and Indian accounts, a head ' Loss by exchange,' or its equivalent, had a place in the accounts between the two countries to make allowance for the exchange value of the rupee in taking credit for remittances from India by the sale of bills, or adjusting payments of various descriptions. Until the Mutiny in 1857 the bills on India never amounted to so much as 4,000,000?. in any year ; the deposits of guaranteed railway capital between 1850 and 1870 contributed on an average, about 4,000,000Z. yearly to the Home treasury, and the transactions with the companies were regulated by an arbitrary rate of exchange fixed under the contracts ; after the Mutiny recourse was had to borrowing on a large scale in London, and the bills up to 1870 only once exceeded 7,000,000Z. Up to this time also the exchange value of the rupee had hardly fallen below Is. lO^d. The loss by exchange, therefore, had not become of very material importance, and the divergence of the amount of the Home charges reckoned in sterling, from their true amount converted into rupees at the actual rate of exchange, attracted no particular attention. It was in these circumstances that the system of combining the Home and Indian accounts, on the conventional basis of treating ten rupees as equal to 11. , and correcting the discrepancy by the adjusting entry ' Loss by ex- change,' was adopted almost without discussion, and the practice of stating Indian revenues and expenditure c 2 388 FINANCES AND PUBLIC WORKS OF INDIA. in conventional pounds sterling at this rate of exchange tacitly grew up. The rapid and serious fall in the gold value of silver after 1870, followed by the corresponding fall in the exchange value of the rupee in relation to sterUng currency, led to a great change in the magnitude and importance of the ' Loss by exchange ' ; and the ques- tion was raised by the Government of India in 1877, in which year this charge appears as more than 2,000,000^., whether it would not be desirable to show the whole of the accounts in rupee currency, that being the true standard of value for India, and to convert the Home transactions into rupees at the actual exchange of the day. It is obvious that under the present practice of combining amounts in rupees with others in sterling, at the conventional exchange of ten rupees to the pound, no charge which is not incurred either whoUy in England or wholly in India will be correctly stated, and the amounts so combined cannot represent any precise facts. For instance, a bridge for which iron- work was procured from England at a cost of 10,OOOZ., while the Indian expenditure was 120,000 rupees, would appear in the accounts as having cost 22,000Z. If the actual exchange when the iron was bought was Is. 8d. per rupee, its true cost would have been 120,000 rupees, and the whole cost of the bridge 240,000 rupees. The Public Works' accounts, however, would only show a charge of 22,000/., the remaining 2,000Z. (20,000 rupees) being included under the general adjusting head, ' Loss by exchange,' and there left undistinguished. Another practical illustration of the confusion hkely to arise from this system may be found in the state- ments made as to the cost of the Afghan war, and the CONVENTIONAL RATE OF EXCHANGE. 389 share of it to be borne by England. Excluding the frontier railways, which were not taken into account for this purpose, the net cost of the war appears in the Indian accounts as 18,748, 300Z., while the Enghsh con- tribution of one-third is 5,000,000Z. This discrepancy is accounted for by the circumstance that the former sum is stated in conventional currency, which at the actual rate of exchange . for the time. Is. 8d. per rupee, is re- duced to 15,623,588Z. in true sterling, in which currency the contribution paid by England is of course stated. Thus the cost of the war might at one time be said to be 18,000,000/. and at another 15,000,000/., both sets of figures in fact representing the same amount. But notwithstanding these defects and the acknow- ledged want of precision in the present system, it has been ruled by the Secretary of State that the proposed change was not desirable and should not be made. It was argued, that the conversion of the Home accounts into rupee currency would be very troublesome, if a varying rate of exchange were taken, .and if an average rate were used, true precision would still not be attained. Further, it was considered that the results on the pro- posed plan would also in their turn be misleading, as they would give to fluctuations in the rupee equivalents of sterling payments, which are solely dependent on variations in the rate of exchange, a false appearance of reaUty, and would otherwise render comparisons with former years difficult or impossible. The sterling payments made in England, it was urged, are not determined in relation to a scale of values fixed in rupees, and it was hence argued that for purposes of general financial control, which are those mainly sought to be facilitated by the combined statements of revenue and expenditure, the ready and 390 FINANCES AND PUBLIC WOKKS OF INDIA. clear exhibition of the actual transactions is more important than any account modified and complicated by the introduction of entries arising from loss or gain by exchange, which are contingent on circumstances in no way dependent on the administrative control of the actual expenditure. Moreover, there is an Luherent essential difference of character between charges such as these and all other items of expenditure in return for which some service has been performed, or advantage obtained. The loss by exchange is a contingency of the Indian currency being based on a silver standard ; the causes which influence it are altogether independent of the nature of the services in connection with which it arises ; and to combine it with the cost of those services might lead to serious and objectionable misconceptions. For such reasons the conventional system of treating the pound sterhng as equivalent to ten rupees has been retained, and the necessary adjustment in the accounts is made in one sum, by a single entry under the head ' Loss by exchange,' instead of being distributed over the separate heads of service affected. The charge is thus treated as incidental to the administration generally, and not as falhng on aiiy particular branch or portion of the pubhc outlay. The combination of the accounts by the conversion of the Indian rupee transactions into sterhng values at the current rates of exchange has not been seriously advocated by any one ; and, without disputing that there may be sufficient justification for maintaining the present bastard system, it is hardly open to question that the currency of India should be made the basis on which the accounts of that country are stated, and that the more completely this is accomplished the better. TRUE AMOUNT OF LOSS. 391 It has already been noticed, and the fact is indeed obvious, that the ' Loss by exchange ' arises immedi- ately in connection with the Home receipts and disburse- ments, which for the purposes of the present explana- tions may be grouped as those relating to the Indian Government and its officers, the British Government, and the railway companies. The main element of the ' Loss by exchange ' is, as before said, the difference between the actual sterling value reahsed by the sale of the Secretary of State's rupee bills, and their conventional value at the rate of 25. It has been said, and truly, that it is an error to regard the whole of this difference as an absolute loss. In fact, there is no absolute standard by which to estimate gain or loss in transactions such as these. The Indian Government correctly describes the entry in the ac- counts under ' Loss by exchange ' as an adjusting entry. All that can be said as to loss being involved, or other- wise, is comparative. Compared with the rate of ex- change that prevailed twenty years ago, 2s. 2d., there is a present loss at Is. 7*8rf. of more than %d. in the rupee ; but in that year (1881) hardly any bills were sold. From 1863-1866 the rate was 4:d. better than now, and it was not till 1872-73 that it fell to only M. better, in that year bills having been sold to the value of 15,000,000Z. It is probable, therefore, that if the gold value of silver had returned to 5s. per ounce, as it was in 1872-73, the loss on the Secretary of State's bUls in 1880-81 (15,400,000Z.) would not have exceeded lid. per rupee, and the advantage to the Indian treasury would have been nearly 2,500,000Z. As the bills in the future are more hkely to exceed than to fall short of 16,000,000Z., the amount which India may fairly be said 392 FINANCES AND PUBLIC WORKS OF INDIA. to be losing at present by the fall in the value of silver is rather more than 2,500,000^. yearly. The transactions between the British Government and India, in respect to payments made for the former in India, are adjusted at a rate fixed before the begin- ning of each year, by arrangement with the Treasury, based on the value of silver, and the selling price of the Secretary of State's bills at the time. On these adjust- ments, which generally involve a sterHng payment in England, the advantage appears on the side of India, as a gain by exchange. This same rate is commonly apphed for setthng accounts of ofiicers' pay and the like. The amount at stake in these transactions is not important. The guaranteed railway transactions are much larger. The old contracts provided that the rate of exchange for adjusting the accounts between India and England should be Is. lOd. per rupee during their entke continuance. -The efiect of this agreement was certainly not foreseen. Its operation in respect to the capital accounts began by causing an apparent loss by exchange of 2d. per rupee, which was charged in the Indian accounts on the whole amount remitted to India by the Secretary of State for the companies ; this having been about 50,000,000^., the total loss by exchange would be its Jyth part, or about 4,500,000^. But this loss can only be regarded as having been real to whatever extent the actual exchange was better than Is. lOd. It was therefore an efiective charge till 1874-75, from which time, the exchange having been worse than Is. lOd., the remittances for the railways to India have been really profitable, though still appearing as a nominal loss. EXCHANGE ON RAILWAY TRANSACTIONS. 39o For some years past, however, most of the com- panies have been paying back . to the Government in India sums on capital account, obtained chiefly by the sale of stores paid for from capital, or by their transfer to the revenue account ; these payments are credited at the rate of Is. lOd. per rupee, and the Government nominally gains 2d. in the rupee, which appears accord- ingly as ' Gain by exchange.' But this gain is not real unless the actual exchange is above Is. lOd. ; and, in fact, these transactions at present really involve a loss, leading as they do to the companies receiving sterhng credits in London at the rate of Is. IQd. on account of rupee receipts in India, which the Secretary of State can only remit at Is. 8d. or less. The revenue accounts lead to different results. The companies obtain credit for their ' net traffic ' receipts at the rate of Is. 10^., so that on the accounts the Govern- ment gains 2d. in the rupee on their whole amount. Up to the end of 1879 the net traffic receipts thus dealt with had aggregated rather more than 50,000,000Z., so that the gain by exchange in this direction had at that time nearly balanced the loss on the capital remittances. The gain on the revenue receipts until 1879-80 was deducted from their actual amount, and was shown as ' Gain by exchange,' as stated in Chapter Vn. This procedure has been recognised to be in- accurate. In the accounts with the companies the net rupee receipts are rightly shown at the exchange of Is. lOd. ; but in the public accounts the actual sums received in rupee currency should be shown without deduction ; and since 1879-80 this system has been adopted. Thus the railway income now appears rela- tively larger than before, and the gain by exchange to the same extent less, or the loss so much more. 394 FINANCES AND PUBLIC WORKS OF IXDIA. There has been another recent change of practice which has led to a more correct way of treating the liome expenditure of the railway companies on revenue account. Heretofore the funds to meet this outlay were supplied by the Secretary of State from the capital deposits, and the transfer in account was made at the contract rate ; whereby, after the actual exchange fell below the contract rate, the Government has borne a loss which was not required by the contracts. The adjustments are now made at the actual rate of ex- change, by which a sum of about 123,000Z. was saved in 1879-80. It is a necessary consequence of the manner in which the loss by exchange is treated in the public accounts — it being, as already explained, dealt with altogether apart from the effective expenditure under the various heads of service — that the accounts give no indication of the real extent to which the railway transactions influence the charge under ' Loss by ex- change.' The complicated adjustments that have been explained have reference only to the remittance opera- tions, which under the contracts are undertaken by the Secretary of State for the companies, and do not in- fluence the financial results of the working of the railways, so far as these appear in the public accounts. It was, however, before noticed, and it may here be repeated, that the railway obligations probably cause at least one-third of the whole loss by exchange, and that this share of the burden is now little less than 1,000,000^. yearly. The general result of the exchange adjustments for 1879-80 is shown below, and wiU indicate the main features of the charge under this head : — FINANCIAL EFFECTS OF FALL IN SILVER. 395 Loss by exchange on Secretary of State's bills, being the difference between 2s. per rupee and the actual rate of sale Loss on gold remittances Total loss on remittances Loss on miscellaneous transactions Gain on „ „ Net gain . Gain on railway capital Gain on railway revenue Total gain Net loss . £3,088,190 120,221 £38,572 110,345 3,208,411 71,773 87,215 123,020 282,008 £2,926,403 It should be understood that what is here described as gain is, in fact, no more than the refund of the loss arising on payments made by the Secretary of State on account of other parties. Whatever may be the real economical effect on India of the burden thus caused, on which point more vsriU be said hereafter, it is an obvious fact that it has led to the necessity for maintaining the taxation of the people of India at an amount at least 2,500,000Z. more than would have sufficed if the exchange value of the rupee had remained as it was nine or ten years ago. It may confidently be affirmed that if it had not been for the faU in the value of silver, no additional taxation would have been thought necessary in 1877, no diffi- culties would have arisen in removing the cotton duties when the necessity for that step was first admitted, and that apart from this fall not only those duties, but the whole of the customs duties, could have been removed, and the financial position of the country would still have been better than it now actually is. This state- ment will show how great a practical misfortune the recent alteration in the value of gold and silver has been to India. The evil has come in a form which 396 FINANCES AND PUBLIC WORKS OF INDIA. placed it wholly out of the power of the Indian Govern- ment either to foresee or to avert, and leaves the future open to the gravest doubt and anxiety. Measures of improvement which the otherwise thoroughly satis- factory condition of the finances would reasonably suggest, must be regarded as more or less hazardous, and progress will inevitably be much retarded, not only in respect to the action of the Government, but in all directions, so long as the existing state of uncertainty as to the future of the Indian currency continues. There is some difficulty in tracing the efiects of the change in the value of silver in relation to gold on Indian interests other than those which appear on the surface ; namely the increased taxation, the uncertainty as to the result of aU permanent investments in India in the future, and the serious injury to those who have in- vested in former years, or who are dependent on Indian sources of income payable out of the country. It is of course apparent that these evils arise from the sudden actual or possible faU in the exchange value of the rupee, not from any particular rate of exchange being in itself desirable or better than any other. What is required for the future is fixity in relation to the gold currency of England, though obviously the injury in- flicted in relation to the past can never be fully remedied, nor even partially, unless there is a substan- tial return to the old relations of value. There is hardly room to doubt that the foreign trade of India has been stimulated by the increase in the value of gold, which has almost certainly accom- panied the depreciation of sUver where that metal has ceased to be coined. There is at present no evidence that the purchasing power of the rupee in India has been injuriously affected, and it is reasonable to suppose EFFECTS OKT TRADE OF INDIA. 397 that under the actual conditions of Indian trade its volume has been increased by the increase of the silver value, of the gold employed in the foreign trade. Ap- proximately this increase of value will be represented by the loss by exchange on the remittances required to settle the trade accounts of India, and may therefore be reckoned at 2,500,000/. or 3,000,000/. sterhng. Con- trary to what is commonly taught by economists as to the consequences of such a condition of trade, there is no evidence from the returns of any special improve- ment of the exports as compared to the imports, and it is therefore probable that the import and export trades are to so great an extent interdependent that the advantage is distributed between them. If this view be correct, the trade of India at the present time may be regarded as being carried on with the stimulus of a bounty of some 3,000,000Z. yearly, or about 2 1 per cent, on its total value, supphed by general taxation, and rendered necessary by the currency of India being based on a silver instead of a gold standard. The same conclusions might be otherwise stated as follows. By reason of the relative higher value of gold, India is now required to export a larger quantity of mer- chandise than formerly to discharge her foreign obliga- tions. This increased quantity of exports corresponds in value to the ' Loss by exchange ' on the Indian re- mittances, and, so far as this loss has to be met by the Government, it of course falls on the taxpayer. The export trade is therefore increased by this amount at the cost of the general revenues. Should any change of circumstances arise by which the exchange value of the rupee were raised to its old amount, the revenues would gain by the amount of the present loss by ex- change to the disadvantage of the traders ; and it 398 FINANCES AND PUBLIC WORKS OF INDIA. would seem that the most appropriate way of deaUng with the improved financial position, which would then admit of a large reduction of taxation, would be as far as possible to apply it to the removal of general burdens on trade, such for instance as the customs duties. The interests of trade would thus be best compensated for any injury caused by a sudden change of the conditions under which it had lately been conducted. Speaking generally, the financial difficulties, or, as they may almost be called, dangers, which have now been discussed, are wholly due to the want of uniformity in the standards of value in England and India. The vast transactions between the two countries are dis- organised by the difierence of standard, causing very great and constant administrative difficulty and anxiety to the Government, and almost more serious injury to private interests, with extreme and undeserved hard- ship to the large and meritorious class of European officials. The position, in truth, is hardly less irrational than it would be to maintain a silver standard of value in Scotland or Ireland, with a gold standard in Eng- land. That there is a difficulty to be overcome in sup- plying the remedy is not to be disputed, but this is no sort of justification for refusing to supply it. The responsibility for the present state of things rests with the British Government, India, which is the real suJBTerer, not being allowed to help herself It is beyond behef that any independent government would tolerate the continuance of such a state of affairs, and that India has so long been compelled to bear it is whoUy the result of her dependence on England. It would be beyond the scope of this work to enter at length on a discussion of the best means of obtaining the uniformity of standard between the currency of UNIFORMITY OF STANDARD DESIRABLE. 399 India and that of England which is certainly necessary. The authors, however, find no difficulty in adopting the conclusion that the best, and only complete remedy, would be in the acceptance by India of bimetallism, as it is now commonly understood ; and that, if England were so disposed, the means of accomphshing this might be found without sacrificing the single gold standard which she has adopted for herself. The evils that have arisen in connection with the fall in the value of silver are essentially due to the want of proper harmony between the standards of value of difierent nations, and those evils have specially affected India on account of the pecuhar divergence of her monometallic silver standard currency from the currencies of aU other civi- lised countries, these having more or less completely adopted a gold standard. The remedy for these evUs should therefore be sought in an international agree- ment that shall estabhsh the requisite harmony, which is equally important to all nations. If, from whatever cause, such a solution of the diffi- culty is not attainable, then it would only remain for India to protect herself, which she should do by making such a change in her currency law as would give her a gold standard of value in place of the present silver standard. How this should be arranged in detail could only be usefully considered with reference to the exact circumstances at the moment, after the decision had been arrived at that it was necessary actually to apply remedial measures. But attention may be drawn to the fact before noticed, that during the last twelve years the imports of gold into India have been as much as 30,000,000^. sterling, or nearly three-tenths of the whole buUion imports ; and as during the last forty- six years the total net imports of gold have been very 400 FINANCES AND PUBLIC WORKS OP INDIA. nearly 108,000,000/., the conclusion is suggested that if gold were required for currency purposes in India it might probably be obtained within the country itself, in sufficient quantity for present use, and that, by the introduction of a gold coinage on a sound basis, the available volume of gold money in the world might be considerably increased instead of being diminished. CHAPTEE XXI. FUTURE REQUIREMENTS OF PUBLIC WORKS AND FINANCE. FUEIHBE BXEBlirSION' OP RAILWAYS ESSENTIAL — PRESENT POLICY OV GO- VEROTCBJS'I TO FAVOUR PRIVATE ENTERPRISE ^ OBJECTIONS TO STATE ACTION CONSIDERED — MR. MILl's OPINION — IIS APPLICATION TO INDIA — IMPORTANCE OF ESTABLISHINS LOCAL AND NATIONAL OWNERSHIP OE RAILWAYS — RBGITLATION OF MONOPOLIES— AGENCY OF COMPANIES HOW FAR EXPEDIENT — OBJECTIONS TO SYSTEM OF GUARANTEE STATE WORKING NOT DESIRABUE — LOCAL MANAGEMENT IMPORTAlfT — OBJECTIONS TO BOR- ROWING FOR PUBLIC WORKS — THEIR INCONCLUSIVE NATURE — REASONS FOR NOT THROWING ENTIRE COST ON REVENUES— CONSIDERATIONS WHICH SHOULD DETERMINE DISCHARGE OP DEBI — NECESSITY FOR ECONOMICAL CONSTRUCTION — NEEDLESS COMPLICATION OP EXISTING RULES FOR UNDER- TAKING PUBLIC WORKS — ECONOMY NOT SECURED BY RESTRICTIONS ONLY — PROVINCIAL RESPONSIBILITY DESIRABLE — IMPORTANCE TO REVENUE OF INCOJIE FROM RAILWAYS — CHECK OF PUBLIC OPINION ON PROVINCIAL FINANCIAL ADMINISTRATION SUGGESTED — NECESSITY FOR MORE EQUITABLE ADJUSTMENT OP TAXATION — RISK OF REACTION AGAINST REOPxNT MEASURES — IMPORTANCE OF REMISSION OF IMPOSTS ON COMMERCE — CONCLUSION. The principal object with which the preceding chapters have been written is to supply an account of the actual financial position of India, and of the results of the pubhc works pohcy followed during the last twelve years ; but discussions of the principles on which the action of the Government has been based have often necessarily formed a part of the narrative, and it ap- pears desirable, in some cases, to extend the examina- tion into those principles, with more special reference to the course to be followed in the future. The recent remarkable progress of India, which D u 402 FINANCES AND PUBLIC WORKS OF INDIA. has been placed beyond every reasonable doubt, may without hesitation be traced up to the natural produc- tive powers of the country, for the development of which greatly increased facihties have been given by the extension of railways and the cheap transport they afford ; and it is indisputable that there is still a wide scope for further progress, through the continued de- velopment of the internal means of communication, and the general ameHoration of the administration. Although much has already been done, and with very great advantage to the country, there remains nevertheless more which is urgently needed for the protection of the people against famine and the results of drought, altogether apart from any question of merely adding to the wealth of the community. Competent Indian opinion has long ceased to be divided on this point, and whatever differences exist relate to the manner of accomphshing the object, not to the object to be accomphshed. The views of the Famine Commission,^ which have virtually been ac- cepted by aU authorities in India, including the Su- preme Government, are thus expressed: — ' Until the whole country is more completely sup- phed with railways or canals by which food can be transported rapidly, cheaply, and in large quantities to every part where severe want may exist, the possibility of some unusual demand for Government interference in particular locahties, or for special classes of people, cannot be shut out, nor the danger of the occurrence of a great calamity altogether removed. It is, therefore, to the improvement of the internal communications and the removal of all obstructions to the free course of trade, accompanied by the extension of irrigation in ' See Report, Part I. par. 165, NEED OF CANAL AND RAILWAY EXTENSION. 403 suitable localities and an improved agriculture, that we look for obtaining security in the future against dis- astrous failures of the food supply in tracts visited by drought.' The Famine Commissioners have estimated the length of railway which might suffice to meet the require- ments of the country in the above sense at 20,000 miles, of which about 10,000 miles already exist or are in progress, and 10,000 mUes are needed ; and they consider it probable that less than one half of the length above named, or 5,000 miles, in addition to the existing lines, would go far to remove all future risk of serious difficulty. Nor will any smaller scale of construction commend itself to any one who carefully considers the facts of the case. In respect to irrigation works also, there are still large areas liable to utter devastation by drought, which could certainly be protected with great direct profit to the agricultural community, and ulti- mate full return to the State ; and no single year has passed since the great calamities of 187(5-77 without giving additional evidence of the absolute necessity of doing all that is possible to extend irrigation. This is no time to cry ' Eest and be thankful.' Year after year runs silently by, and the fatal term will only too soon be reached when another terrible cata- strophe will suddenly arise, though exactly where and when we know not. It is in the intervals of prosperity which are granted to us that we must prepare for the inevitable future ; and if the lessons of the past stiU con- tinue to be neglected, the responsibihty for the conse- quences will rest upon those who, having the power to avert them, have failed to do so. For any hesitation or delay in carrying out the works which alone can give the country the protection it requires, there is no D D 3 404 FINANCES AND PUBLIC WORKS OF INDIA. valid argument to be found either in the probabihty of their causing ficancial difficulty, or in their insuffi- ciency for meeting the end in view. So far from this being the case, judicious expenditure on these works wiU certainly supply the only assured means of pre- venting frightful mortality and ruin, and of avoiding the future waste of millions on ineffectual famine rehef with no corresponding permanent benefit to the country ; and such works, while thus affording protection in time of difficulty, will constantly increase the resources of the people and render them more and more capable of resisting pressure when it arises. Past experience, both in what we have done and what we have left undone, .points to these conclusions. The practical point for consideration, therefore, is simply, how the means should be obtained for carrying out these essential works. Should we continue in the course adopted with complete success till lately, or should the former policy be given up and a new de- parture taken? The Government, it would appear, has within the last year come to the conclusion that, so far as railway construction is concerned, a change should be made, that the restrictions which have gradually been imposed on the prosecution of these works with borrowed money should be increased, and that what is termed private enterprise should hence- forth be principally looked to for what is required. This decision is one of the gravest importance to India, and the question to which it is designed to give a prac- tical answer calls for the most serious consideration. To clear the ground certain preliminary matters call for attention. First, it is evident that India must long continue to look to this country for most of the capital by means of which her progress is to be secured, FOREIGN CAPITAL REQUIEED FOR INDIA. 405 and, this being the case, we must be prepared to find that the profits earned on that capital will be remitted to England. As such investments of capital increase in amount, these remittances must go on increasing also ; their growth will, it is true, indicate growing wealth in India, and not, as has often been asserted, a drain of wealth from India ; but it must not be over- looked that it would certainly be far better for India if these works of improvement could be carried out with Indian capital, so that they should be wholly national, their management being conducted in India, and the whole of their profits retained in India, including the return on the capital as well as the profits derived by the community from their use. In considering this subject we are bound to place ourselves in the point of view of a national Indian government, and not of the English capitahst. Though we should not hesitate, if no alternative were left to us, to accept the works sub- ject to the disadvantage of the whole or greater part of the direct profits being drawn away to England, and the chief management placed there, yet if it be possible to secure for India the entire income from the invest- ment of the capital expended on its railways, and the complete control over them, we are certainly bound to do it. Now experience has established beyond dispute that it is within our power both to construct and work rail- ways economically through State agency ; and without attempting to discuss such a question as the relative excellence or economy of management by the State and by a company, it may without hesitation be said that in the case of lines yielding a profit (to which alone this argument is applicable), the amount which would be carried out of the counti-y by a company of foreign 406 FIIfANCES AND PUBLIC WORKS OF INDIA. capitalists, including as it would both interest on capi- tal and profits, must be greater than the charge incurred under Government management, which would consist of interest only, since the profits, even if smaller, would all remain in India. In the financial interests of India, therefore, it wiU primd facie be better for the State to become the owner of the railways, undertaking their construction with money borrowed at the low rate of interest which its credit permits, and receiving the excess of the profits over that interest, instead of allowing those profits to enrich foreign capitalists. To whatever extent the profits are retained by the State for the necessary charges of the pubHc administration, there must be a corresponding diminution in the burdens placed upon the people. This, of course, applies only to works that are pro- fitable. But it may be confidently said that private capitalists will not undertake any railway in India unless the conditions are such as to render it certain that the profits will exceed the interest which would have been paid on the borrowed capital, if the line had been undertaken by the State, or would even sufiice to pay ofi the capital debt within a moderate time. Further it must be remembered that to complete the railways which are admitted to be necessary for the safety of the country, many lines must be undertaken the profits of which will be small and the growth of the traffic slow, or which may be finally unremunerative when considered simply as investments. If, therefore, we give up the whole of the profitable fines to private enterprise, the burden of constructing the unprofitable ones will fall on the State without that set-off which could otherwise be secured : and the difficulties of the STATE SHOULD RETAIN OWNERSHIP OF WORKS. 407 situation would be aggravated, as has often been pointed out, by the discredit thus thro^ai on the State by its management of lines necessarily unproductive, compared with the management by the companies of hnes as necessarily productive. The foregoing argument goes far to show that the intervention of companies of foreign capitalists must in every case lead to an increase of charge on the country ; and as it is a self-evident proposition that the duty of the Government requires it to do aU in its power to provide India with railways at the least possible cost, the adoption of the more costly in preference to the cheaper system would demand some preponderating obligation to justify it. The policy which has been followed for the last ten years has been opposed on various grounds. First, it is argued that it is beyond the proper function of the Government to undertake such works as railways, which should be left wholly to private enterprise ; and further, that the evils of borrowing the requisite sums are so great, that it will be preferable either to leave the country, for a time at least, without railways, or to accept the necessary additional cost of employing companies. The first of these objections, it is true, has not been put forward openly or unconditionally in the official discussions on the pohcy of pubhc works construction in India, but it is incontestable that it has largely in- fluenced the latest conclusions. All arguments " on this subject adduced by Indian officials would doubt- less be discredited, and fail to convince persons who, being ignorant of India, its wants, and capacities, insist on conducting its afiairs on the model of England, and applying economical and political maxims suited to one of the most artificial, advanced, and wealthy com- 408 FIiN'ANCES AND PUBLIC WOEKS OP INDIA. munities in the world, to a totally different condition of society. The matured opinions of one who was certainly among the ablest advocates of rational freedom and the foremost opponents of the undue extension of Govern- ment action, wiU, however, have a force of authority which must command attention and respect. ' In the particular circumstances of a given age or nation,' says Mr. John Mill,^ ' there is scarcely anything, really important to the general interest, which it may not be desirable, or even necessary, that the Government should take upon itself, not because private individuals cannot effectually perform it, but because they will not. At some towns and places there will be no roads, docks, harbours, canals, works of irrigation, hospitals, schools, colleges, printing presses, unless the Government estabhshes them ; the pubUc being either too poor to command the necessary resources, or too Httle advanced in intelligence to appreciate the ends, or not sufficiently practised in conjoint action to be capable of the means. This is true, more or less, of all countries inured to despotism, and particularly to those in which there is a very wide distance in civilisation between the people and the Government : as in those which have been con- quered and are retained in subjection by a more ener- getic and more cultivated people. In many parts of the world, the people can do nothing for themselves which requires large means and combined action ; all such things are left undone, unless done by the State. In these cases, the mode in which the Government can most surely demonstrate the sincerity with which it intends the greatest good of its subjects, is by doing the things which are made incumbent on it by the helplessness of the public, in such a manner as shall tend not to in- ' Political Economy, vol. ii. itli ed. p. 575, MR. MILL ON STATE ACTION. 409 crease and perpetuate, but to correct, that helpless- ness.' It. is obvious that these opinions were specially directed to the actual condition of India, with the ad- ministration of which Mr. Mill had been connected for a great part of his hfe ; their wisdom is beyond dispute, and it would be impossible to say anything more to the point. The full acceptance of Mr. MiU's principles, Avhen applied to the case of India, leads immediately to the conclusion that progress should be sought by the appUcation of the superior knowledge and resources of the State, but in such a manner as gradually to accustom the people to manage their own affairs, and to entrust them with such management as soon and as far as it is practicable. This holds true in dealing with economical as well as with political matters. To speak of the operations of foreign capitahsts in India as though they were identical with the spontaneous working of what is commonly described as private enterprise in our own country, is a manifest confusion of thought, and every argument based on such an assumption necessarily involves a serious fallacy. The intervention of great companies of foreign capitalists, having their seat of business out of the country, differs httle, indeed, in its ultimate effects, from the establishment of a strong foreign despotism. Mr. Mill very truly impHes that the proper course to follow in matters such as these must depend on cir- cumstances of time and place and other varying condi- tions pecuhar to each case ; and it is not intended in what is said above to lay down any absolute or invari- able rule of action. Circumstances formerly led, almost unavoidably, to the general employment for railway 410 FINANCES AND PUBLIC WORKS OP INDIA. construction of companies of British capitalists, consti- tuted and managed in England ; and it may still be found desirable to make use of companies, though under modified conditions. But it is the duty of the State when accepting this form of agency to provide the means of eventually replacing it by a truly local and national system, without undue cost to the pubhc ; and to secure at the same time for India the greatest practic- able share of the profits, the whole of which are ulti- mately derived from the industry of the people of India and the natural resources of their country. The true interests of India demand that foreign enterprise should be regarded as a temporary and not as a permanent resource ; and so far as it is necessary or expedient to accept such aid, this condition should never be lost sight of. Even in the case of a company which asks for no pecuniary assistance whatever from the State, or which exclusively employs national capital, the mere fact of authorising it to undertake such a work as a railway, places it under obligations to the com- munity which the Government is bound to enforce. On this point also the authority of Mr. Mill-^ may be adduced. ' In many analogous cases,' he says, ' which it is best to resign to voluntary agency, the community needs some other security for the fit performance of the ser- vice than the interest of the managers ; and it is the part of the Government, either to subject the business to reasonable conditions for the general advantage, or to retain such power over it that the profits of the monopoly may at least be obtained for the pubhc. This apphes to the case of a road, a canal, or a railway. These are always, in a great degree, practical monopohes ; and * Political Economy, vol. ii. p. 557. CONTEOL OF MONOPOLIES BY STATE. 411 a Government which concedes such monopoly unre- servedly to a private company, does much the same thing as if it allowed an individual or an association to levy any tax they chose, for their own benefit, on all the malt produced in the country, or on all the cotton imported into it. To make the concession for a limited time is generally justifiable, on the principle which justifies patents for inventions ; but the State should either reserve to itself a reversionary property in such public works, or should retain, and freely exercise, the right of fixing a maximum of fares and charges, and, from time to time, varying that maximum. It is perhaps necessary to remark that the State may be the proprietor of canals or railways without itself working them ; and that they will almost always be better worked by means of a company, renting the railway or canal for a limited period from the State.' The new arrangements made for working the East Indian Eailway, which are elsewhere explained, are in substantial accordance with these last suggestions. Some extension of the general principle they imply appears to afibrd the best solution of the much-vexed question of how to secure for India the necessary de- velopment of railways, with a minimum of Government interference in detail; the legitimate interests of the State, and of the capitahsts whose funds are required, being at the same time guarded. Up to the present day no attempt has been made to carry out a railway in India without Government aid, and it remains very doubtful whether Enghsh capitalists will venture to invest in these undertakings otherwise. The failure of the irrigation companies, which were unaided or very slightly aided, and the extremely in- convenient and costly financial burdens they have occa- 412 FINANCES AND PUBLIC WORKS OF INDIA. sioned, should induce caution in handing over to a pri- vate company a monopoly which the interests of the public may probably force the Government to take over on very disadvantageous terms, in the event of want of success in the enterprise itself, or of inability of the promoters to carry it out to completion. There can, however, be no reason why any substantial scheme for constructing a railway on a true basis of private enter- prise should not be favourably received, subject to such conditions as have been referred to, among which should invariably be found an arrangement for the ultimate transfer of the ownership to the State, on equitable terms. But the really practical question for consideration, after aU, is how to deal with those cases in which un- assisted private enterprise is not forthcoming, yet in which the Government considers that an undertaking is necessary either for the protection of the country from famine, or to supply requirements of other sorts, its cost being too great to be met from current income. The earhest conception was to offer a guarantee of interest on the capital required ; but this system was deliberately given up ten years ago, and until the pre- sent time its resumption has been rejected with substan- tial unanimity. It now, however, has reappeared as one of the suggested forms of action, though with some pretence of disguise under the much abused name of private enterprise. Of the objections to the old form of guarantee it is not necessary to say much. Its possible results are weU shown by the position of such an undertaking as the Madras Eailway. The original share of 100/. has involved the Government in a steady net yearly charge of about 21. 10s. ; wholly by reason of the Government OBJECTIONS TO SYSTEM OP GUARANTEE. 41 S guarantee the present value of the share has risen to 126/., and this sum the Government may eventually have to pay to the shareholder for a property not worth half the amount. Under a system of guarantee of interest on capital all the inducements to economy and good management are reduced to a minimum. But perhaps the worst feature of this system is that it offers a constant stimulus to the companies to be lavish in their expenditure and to expand their capital. In the nature of the case the stock is at a premium, and there must therefore be a certain profit in adding to it. The Government is always at a disadvantage in any discus- sion involving its financial interests, and there is no real power of enforcing control where the management is not inchned to acquiesce in it. A system of guarantee being once established, it is impossible to withdraw from, or hmit it ; capital can be procured on no other terms, and as a continued expansion of the capital is unavoidable with the progress of traffic, the liabihty under the guarantee goes on constantly in- creasing. Comparing any possible system of guarantee, even for a hmited term of years, or on a limited capital, with State construction from borrowed funds, it may confi- dently be said that the former will be more onerous than the latter. The refund of the guaranteed interest would be contingent on the shareholders receiving a part of the surplus profits, which in the other case would be all taken by the Government. Again, if the lin e be made by the State it becomes State property at its actual cost ; in the other case, if a power of purchase be reserved (which should be considered obligatory), a considerable premium would be required ; and on the transfer of the property, whatever precautions were 414 l<'IN■A^fCBS AND PUBLIC WORKS OP INDIA. taken, it would almost certainly happen that it would be found in a less satisfactory condition than if it had throughout belonged to the State. In the one case the whole character of the works and the general scale of the outlay during construction is under the complete control of the Government ; in the other, the company and its engineers, decide all questions of this sort, and are likely to view the subject in a very different light. Neither could it be hoped that any limitation of the guarantee would effectually protect the Government against dangers of increased expenditure in excess of a sum first named as a maximum ; for, if the works were not completed within that maximum, the Govern- ment could not practically compel the company to supply the requisite funds without help ; nor in the event of any other failure to perform the contract could any real remedy be found besides that of taking posses- sion of the undertaking, which in such circumstances would infalhbly involve a considerable sacrifice. The history of the Madras Irrigation Company conveys a serious caution in this direction ; and that more difii- oulties of the same sort have not been apparent in dealing with the railway companies, may reasonably be attributed to the almost complete absence of restrictive clauses from their contracts. It is then to be earnestly hoped that no return to the old and very objectionable system of giving a guarantee of interest on capital will be permitted, and that all proposals to re-introduce it under the disguise of aided ' private enterprise ' may be wholly rejected. If private enterprise is to take a part in the provision of railways for India, let it be what it calls itself, and not something else under that designation. Any departure from this strict rule will infallibly lead to the eventual RAILWAYS NOT TO BE WORKED BY STATE. 415 total disregard of it ; and all expectation of the healthy- operation of private enterprise truly deserving the name, not only in railway construction but in all directions, will be still further indefinitely postponed, as it certainly has hitherto been retarded, by the continued grant of guarantees of interest to the large amounts of capital required in one form or other for the old guaranteed railway companies. The exclusion of factitious private enterprise does not, however, necessarily involve the more direct forms of State construction or working, and least of aU the continuance of these operations under the immediate direction of a central department of the Government of India. Though the transition from the old system of guaranteed companies led to this as a temporary expedient, there are many serious objections to the railways of India being worked as parts of a great State department. The objections to State construction are less ; but even this might often, with advantage, be relegated to other agencies. The case of the East Indian Eailway shows that the agency of companies, under a lease for a term of years, may be employed advantageously for working hues owned by the State ; and there is no apparent reason why a company might not also be employed for the construction of railways with capital to be provided by the State, as well as for their subsequent working. Local effort, as elsewhere mentioned, has already been usefuUy exerted, and would without doubt have done much more had it not been unfortunately arrested at the outset. To it all reasonable assistance should be given. Economy and convenience are generally secured by placing a considerable length of railway under one management ; but this condition Avill often be counter- 41 6 ■ FINANCES AND PUBLIC WORKS OF INDIA. balanced by others, and too great weight should not be attached to it. Wherever it is possible, local co- operation should be sought in some shape, and trust- worthy persons, having a knowledge of local wants and resources, might profitably be associated with the management, or with the Government control which in every case would be exercised in some form or to some extent. Another plan would be to conduct the management of State railways under the supervision of suitable pubUc boards or trusts, such as have been con- stituted and work very successfully in the case of the ports of Calcutta and Bombay. As to the other class of objections, those based on financial considerations, it must first be said that it is beside our present purpose to discuss the greater or less urgency of the demand for the extension of railways at the present time. The argument is based on the assumption of urgency (the proofs of which are to be found elsewhere), and what concerns us here is to ascertain the relative advantages and disadvantages of difierent ways of meeting the demand. It is extremely difficult to understand how the assertion can be supported, that the pohcy of borrowing to construct public works, necessarily or probably involves results which must be ruinous, or, at the least, mischievous. To make the assertion is of course easy, and if its frequent and loud reiteration could prove it to be true, nothing more, need be said on the subject. But there has been no attempt made to support it by fact. On the other hand, the evidence which has been repeatedly brought forward for some years past, and which is again presented in this volume, of the results of experience up to the present time, conclusively esta- bhshes the certain and great financial advantage which CONSTRUCTION FEOM BOEEOWED FUNDS. 417 lias actually been derived from the prosecution of public works with money directly borrowed or applied under, a guarantee of interest by the State. And it is a point of great importance in considering this with reference to the future, to bear in mind that the obligations imposed on the Government under the original contracts with the guaranteed companies, were extremely onerous, so that it is certain that in whatever form the Government might undertake the construction of railways, its habilities would be far less heavy, even after taking account of the circumstance that the old main hues occupy the richest districts, and would enjoy a larger traffic. That the policy of borrowing for the prosecution of public works has not created a burden on the revenues, is no mere statement advanced on the personal authority of individuals which might be discredited. It is esta- blished on facts authenticated by the independent testi- mony of the pubUshed accounts, which cannot be set aside by any mere denial of their accuracy, unsupported by specific evidence to the contrary. It has been shown in the present volume, from the facts thus re- corded, that, so far from this policy having caused any such burden, its financial success has been complete ; that not only has there been no increase in the public burdens through its operation, but that those burdens have been largely diminished ; that the expenditure on railways and canals has been in the highest degree profitable to the country ; and that, while some 140,000,000?. of borrowed money has been invested in these works, the net charge on account of the public debt has been reduced in the last twelve years by nearly 3,500,000?. a year. The total net charge for interest on debt and productive public works outlay E E 418 FIXAXCI'^S AND rUHLIC AVORKS OP IXDIA. of e%'ery description does not exceed 3,100,000/. out of a net revenue amounting to 43,750,000Z. The gross charge for debt is 6,100,000Z. against a gross revenue of 68,000,000Z. — or, say, 9 per cent. Even including the whole interest on the guaranteed capital, the total possible liability of the State on the supposition that the public works produced nothing, would not be more than 15 per cent, of the gross revenue. The charge for debt in our own country is 29,000,000/. upon a gross revenue of 85,000,000/., or 34 per cent. It is also a fact completely established, that the credit of the Government has not been injuriously aifected by the borrowing for public works during the last ten years. The rate of interest is now lower than it ever has been before, both in England and India, and no difficulty has been experienced in obtaining the sums needed. So far, then, as past experience afibrds a guide, it may safely be said that a j udicious continuance of the policy adopted in the time of Lord Mayo, is not in the least likely to lead to inconvenient financial results here- after. As to the suggestion that rather than borrow we should do better to rely wholly on resources obtained from the current revenue, two things must be re- marked. First, to scarry out necessary works of pei'- manent improvement from income alone, is in the nature of things impossible in India, as it is everywhere else. ,. Accumulated capital must be applied to the task in some shape, either at the risk of the State, or of private persons. Secondly, the actiM condition of India is certainly not one in which any justification can be found for adding to the burdens of present taxation for the purpose of giving advantages to a future generation. Nor can we, with this object in view, justly postpone or FIIfANCIAL OBJECTIONS REFUTED. 419 give up reductions of present taxation which otherwise would be practicable, and which are of immense import- ance in the interests of progress in all directions. It has already been pointed out that the benefits secured by the extension of railways will certainly be much greater some years hence than they can be while the works are under construction, or in an immature condition, or so long as the country is uninstructed in their use. To require their cost to be defrayed from the revenues of the year, to any considerable extent, would be most un- just to the present taxpayers, who will only partially realise their benefits. It is strictly in accordance with public equity, good sense, and sound finance to call in the credit of the State for the purpose of distributing over a series of years the burden of providing these great works of permanent improvement. There is no esta- blished fact which supplies a ground for the assertion that there is a present tendency to add to the actual burden, of the public debt. Those who affirm this commit the absurdity of disregarding the income obtained from public works in estimating the charge which has been incurred for their construction. It is no doubt necessary to do in the future what was done in the past, namely, to be careful that the net charge for public works executed from borrowed money is not permitted to go beyond what the revenues can bear. To allege that the adoption of this principle is opposed to public pohcy because the charges cannot be so regulated, and because no proper control ,can be exercised over them, is in flagrant opposition to the experience of the last ten or twelve years, which shows that the exact reverse is true, and that such a control has been exercised, with the result of a great improvement in the financial position. E « 2 420 FINANCES AND TUBLIC WORKS OF INDIA. The regulation of the expenditure of borrowed money on public works by a consideration of the net interest cliarge incurred after setting off the income of the works, in relation to the available revenues, and treating any such excess charge as a part of the current expenditure of the year, has a complete economical justification. The position of the Government in carry- ing out works of permanent improvement is by no means that of the ordinary capitahst, nor can its action be properly determined by the same considerations. The capitalist looks only to the direct money return obtained from his investments. The Government, no doubt, cannot disregard the money return from its undertakings, but its essential object is the improvement of the public estate. Altogether, apart from, and be- sides the direct returns obtained from works and rail- ways, the improvements in the country which they cause have a very real and a very large value, though this is not susceptible of being defined by a money standard, and can find no place in any financial state- ment. So long, then, as proper care is taken that the investments of borrowed money do not permanently increase the public burdens, the payment of interest on capital, while such works are not directly profitable, becomes a legitimate charge against the general reve- nues, in consideration of the indirect benefits which jthey secure." Tn the present condition of India the considerations which support the conclusion that it is important to I'cduce the public debt, are almost exclusively political. Viewed financially, and in the interests of India itself, the charge for debt is not serious. But it is certainly inexpedient in the interests of England to encourage the unlimited expansion of the debt of India, which must STEON^G FINANCIAL POSITION NECESSARY. 421 be SO largely held in England. It is, no doubt, very difficult to fix attention on possible dangers of that in- definite future when India may cease to be a British dependency, and on the risks of a failure of the income, derived from large investments of English capital in works or securities, dependent on India for its realisa- tion. But these dangers and risks, though distant, should not be left out of sight. Hence it will be a step in the right direction to ac- quire for India the fuU property in its great public works, and as far as practicable to apply their surplus income to the discharge of the capital outlay they have involved. But the obligations on the Government to place the country in a secure position for meeting the terrible disasters in the shape of famine, to which it is still subject, are paramount. Until this end has been attained, every other object should be regarded as secondary. The need is urgent of securing a sound fiscal sj^stem for the future, of adjusting more equitably the burdens on the people, and of freeing the springs of wealth by removing existing obstacles to the expansion of trade. To attain aU these objects a strong financial position is necessary. It is only with an assured surplus, derived from a revenue fairly contributed by all classes of the community, that the remission of objectionable taxes, and a prudent discharge of the pubhc debt, can be secured without interfering with the provision of material improvements essential for present safety and future progress. The necessity for restricting the expenditure to the smallest sum that AvilL provide efficient works is obvious. The magnitude of the task to be accomphshed in rela- tion to the available means at our command, should 422 FIXAXCES AXD PUBLIC WORKS OF INDIA. enforce the strict limitation of the projects accepted for execution, to what is essential to meet the requirements of sound construction and provide for a moderate traffic ; everything beyond this, whether of luxury, or in anticipation of future wants, should be postponed or discarded. Complications have by degrees been introduced into the rules under which borrowed money is applied to public works, which are merely mischievous and misleading, and the sooner the original simple plan is reverted to the better it will be. This plan was to treat alike, in dealing with their income and charges, all works of the same actual character, irrespective of the sources which supplied the funds required for their construction, and to determine the extent to which funds should be obtained by borrowincr, on a considera- tion of the urgency of the demand, and of the capacity of the revenues to meet the charges for interest in ex- cess of the anticipated income of the whole of the works. Considerations which properly arise in respect of the manner of obtaining the funds for construction, have no legitimate bearing on the subsequent financial treatment of the works when constructed. Purely technical distinctions have now been created between works called ' productive,' ' protective,' and others, which, having identically the same actual characters, are called neither the one nor the other. Those works are held to be ' productive,' and are exclusively carried out with borrowed funds, which are estimated to yield, in a time arbitrarily fixed, an arbitrary rate of profit, on an outlay also estimated on arbitrary rules. Other works, abso- lutely identical in every respect, excepting that they cannot be brought within these precise limits, but will ■■^^ presumably aiford protection against famine, have been RECENT COiMPLICATrONS OF CLASSIFICATION. 423 called ' protective ' and may be constructed out of revenue only. Nor is this all ; for works, still identical in essentials, though not requiring borrowed money for their execution, nor calculated to give special protec- tion against famine, fall into another category. Differ- ent rules are laid down for the sanction and treatment in the accounts of these various classes which are undis- tinguishable in any other way. The ' productive ' work may quite possibly give a smaller net return than the ' protective ' ; and it has even happened that different portions of the same railway have fallen within different classes. Such a system makes it extremely difficult, even for those most familiar with it, and conversant with the actual position of the various works, to acquire a proper insight into their operation ; while to others, the result is hopeless confusion. It may perhaps appear incredible, but it is true, that under the existing rules, strictly applied, the East Indian Eailway would have been proscribed, and the construction of the Ganges canal would have been impossible ; nor is it wonderful that these artificial barriers are disregarded, however demoralising the practice, whenever the su- preme controlling authority desires to find a plausible excuse for doing so. It can hardly be too often or too plainly repeated that no real safeguard against the waste of the public resources is to be found in the multiplication of restric- tions, which may wholly arrest the expenditure, but are powerless to control its economical application ; nor in establishing checks exercised upon estimates only, by distant authorities — the Government of India and the Secretary of State — who can have but an imperfect knowledge of local wants and capacities. No provision 424 FIXAXCES AND PUBLIC WORKS OF INDIA. is thus made for guarding against the actual conse- quences of error, nor for obtaining any self-acting system of check which shall throw back the burdens of ill- considered expenditure on those who recommended it. The true method of obtaining the requisite securities in this, as in all other public expenditure, is to substi- tute for a merely restrictive financial policy directed by a centralised authority, one based on the recognition of the efiicacy of local responsibihty. The expansion of provincial financial authority would secure such a result. A healthy constitutional sense of responsibility would be established which should ensure the efficient per- formance of all local administrative services, and the punctual discharge of all local liabilities, without the interference in details of a central authority. It would be easy to define the limits beyond which the provincial revenue might not be charged by reason of interest on borrowed capital, and, that hmit being reached, outlay should be stopped until by an increase of income or reduction of expenditure an available margin had been restored. Arrangements could be made for the dis- charge year by year of a fixed proportion of the debt incurred for carrying out local improvements, so that the burden of their first cost might be distributed over a term of years, while the indefinite accumulation of liabihties would be prevented. The whole of the charges and income of the works being locahsed, the provincial revenues would reap the advantage of economy and good management, while the consequences of insufficient estimates or other deficiencies would be immediately brought home to those responsible for them. Eeasons have elsewhere been given for regarding the State income derived from railways, as one of the liirOETANCE OF RAILWAY KEVENUE. 425 certain and growing sources of revenue which it is of the greatest importance to retain and develop, and the hope may again be expressed that it will not be endan- gered by rash departure from a policy which has already given such substantial proofs of its wisdom. Doubtless the railways should not be worked -with a view to obtaining from them any excessive income, or more than may fairly be asked in return for the ser- vices rendered. In fact increasing receipts, and rela- tively reduced expenses, will follow only on a moderate tariff, of which the evidence is as complete iii India as elsewliere. Little further remains to be said on these matters. Although the public interests imperatively demand that the great works, to which special reference has now been made, should be retained by the State as pubhc property for the benefit of the people of India, it is im- possible to doubt the inestimable importance of encouraging the application, by private enterprise, of English capital to purposes of Indian improvement. There is ample and almost boundless scope for such investments in undertakings, the successful prosecution of which is incompatible with Government interference in any shape, and in respect to which complete freedom of action is as essential in the pubhc interest, as is State control in the case of railways and canals. Full explanations have already been given regarding the development of provincial financial responsibility ; and among the subjects discussed in this volume, there is assuredly none of greater practical moment. On one of its aspects, however, something remains to be said. It is one of the present inevitable conditions of Indian administration that it should be almost entirely free from the immediate control of what is commonly 426 FINANCES AND PUBLIC WORKS OF INDIA. described as public opinion. To some small extent, in- deed, this maj^ be said to operate in the local legislative councils, on the branch of business which is there con- ducted. But in respect to the public expenditure, it still has to be called into action. There is no portion of the work of administration in which the expression of public opinion, even if it were not always intelligent, would be more useful, and measures by which it could be encouraged and called forth would not only be beneficial to the local government, but valuable as steps in political education. The larger authority which is now vested in the local governments in finan- cial matters, would gain in efficiency if exercised with increased pubhcity, and local discussion by a body not wholly composed of officials would, no doubt, prove in India, as elsewhere, to be an important aid to the economical administration of the finances. Nothing could be more foolish than to attempt to create assemblies having plenary power over the public income and expenditure. India is not a country for such experiments. What is really to be desired is not to weaken the action of authority, but to take a step towards the formation of a public opinion which shall assist the responsible Government for the advancement of provincial and local objects. Checks, which under different social and political conditions are useful and necessary, would be wholly out of place, and the object in view could probably be safely obtained by creating local consultative bodies, before which would be placed every year the provincial budget estimates of receipts and expenditure. The local government would be ex- pected to set these forth in detail, and to explain any portion of the estimates the pohcy of which was challenged. Such a body should contain the chief CHECK OF PUBLIC OPINION DESIRABLE. 427 executive officers of the local government, together vnth. non-official persons of local knowledge, weight, and intelligence. Political discussion should under no circumstances be permitted, the business being re- stricted to the consideration of the estimates, so far as they lie within the limits of the authority of the local government. The existing constitutional law of India entrusts aU questions of taxation to the final decision of the Government of India, and no infringe- ment of this rule should be permitted. Further, to prevent misconceptions as to the scope of the func- tions to be performed, it would be inexpedient to entrust them to the existing local legislatures, or to combine with those legislatures such bodies as those Avhich it has now been proposed to create. The relation of the Government of India to the general financial administration of the whole country is so entirely different from that which subsists between the local governments and their financial administiation, that no true analogy can be established between them ; the chief arguments which go to support such pro- posals as have been made in respect to the provincial governments are therefore inapplicable in the case of the Government of India. No corresponding body could possibly be created in connection with the Supreme Government. Among the other subjects already treated at some length, there are some of exceptional importance, in relation to which the policy adopted in the immediate future is likely to have dominant influence on the fiscal history of India. Some advance has been made towards the more equitable adjustment of the public burdens, by giving greater relief to the poorer classes, and placing a fairer 428 FIXANCES AND PUBLIC WORKS OF INDIA. share on the rich. This is an object of incontestable importance, and for its more complete attainment the present improved condition of the finances offers fresh facilities. . It would be a great misfortune if the surplus revenue, which has now been secured, were apphed otherwise or dissipated. To abandon the measures which have been taken for the partial redress of these inequahties, such as the licence tax on the most wealthy class of traders, and the cesses on the land in Bengal, would be to sacrifice ground gained with diffi- culty in a most just cause. But it is not to be concealed that there are powerful influences in operation, seeking such a movement, and that strenuous efforts will be required to resist it, and to secure, instead, the further remission of those burdens which still weigh in undue proportion on the great mass of the population. Among such burdens should be specially named the Salt duties. It has been shown in this work how successful have been the measures already taken for their reduction, and how essential it is, in the interests of the people and the finances, that those measures should receive a further and large development. Not less grave are the considerations which demand - the early remission of all imposts on trade. To ensure the application of the capital which India requires for her proper development, involving as this does the continued growth of the foreign remittances, already so large, wider markets will be necessary for her increased and more valuable produce, and these can onlj'' be profitably found in combination with a corre- sponding expansion of her import trade. The conditions under which her further progress is possible, demand the most complete removal of all obstacles to the freedom conclusiojST. 429 and growth of her commerce, both fiscal and material. How she responds to the removal of such obstacles is illustrated in a remarkable manner by the sudden creation of the wheat trade, following immediately on the remission of the export duty, and the opening up by railways of the irrigated wheat-producing districts. Improvement in the material condition of the people of India, without which no other forms of progress can be assured, is to be obtained only through an accumu- lation of wealth accompanying a steady development of the foreign trade. The means of accomphshing this are obvious and quite within our reach ; if we fail to provide them, we fail to fulfil a most imperative duty of the governors to the governed. These means lie, as this volume seeks to establish, in an intelHgent extension of the great public works which the country requires, whereby will be ensured its future well-being, and the continued prosperity of its finances. APPENDIX CONTAINING TABULAR STATEMENTS OF THE PEINCIPAL ELE, MENTS OP THE PUBLIC REVENUE, EXPENDITLRE, AND DEBT, FROM 1869-70 TO 1880-1881. Table 1. Comparison of total Revenue and Expenditure. „ 2. Net Revenue. „ 3. Net Expenditure. „ 4. Gross disbursements and re- ceipts of Home Treasury. ,, 5. Net disbursements and re- ceipts of Home Treasury. „ 6. Subheads of Home charges under Army and Stores. Table 7. Account of Productive public works. „ 8. Correspondence of Tables 3, 7, and 10. „ 9. Correction of Productive public works account for Railway Loss bj' Exchange. „ 10. Account of Public Debt. „ 11. Adjusted account of Public Debt for comparison. 432 APPENDIX. Statement No. 1. — General Compariscm of Total Head of Account 1809-70 isru-ri 1871-72 1872-73 1873-74 1. Gross revenue .... 2. Gross expenditure . 56,243,003 56,124,334 & 56,559,337 5.5,076,347 £ 56.451,028 .53,326,851 £ 56.617,394 54,851,722 £ 57,766,171 59,573,839 3. Gross surplus or deficit . 118,669 1,482,990 3,124,177 1,765,672 /,S'07,66(f 4. Net expenditure on Afghan i war, including frontier s railways ... J 5. Surplus or deficit, excluding \ line 4 . . . . / 118,669 1,482,990 3,124,177 1,765,672 i,S07,66S 6. Expenditure on famine relief 83,230 448 5,531 763 8,876,923 7. Surplus or delicit, excluding! also line 6 . . . J 201,899 1,483,438 3,129,708 1,766,4.35 2,069,255 8. Assets of military funds ere- "1 dited . . . . / 9. Loss of exchange saved by \ short remittances . J 10. Excess or deficient expendi-"] ture charged on Bengal \ opium .... 244,953 75,323 3'Sfi91 472,329 190,273 S6,SSo 331,308 78,180 495,749 252,505 41,190 366,471 87,581 145,000 11. Total lines 8 and 9, less line 10 282,179 575,717 91)5,246 261,198 309,052 12. Surplus or delicit, excluding \^ also line 11 . . .J S0,2S0 907,721 2,224,462 1,505,237 1,760,203 Statement No. 2. — Ket Bevemie Head of Account 1869-70 1870-71 1871-72 1872-73 (a). Land revenue, excluding capitation tax . (6). Tributes and contributions from native') states ... . / (c). Forests {d). Opium (e). Miscellaneous £ 20,811,905 765,126 1.58,854 6,132,387 141,606 £ 20,335,678 719,421 77,350 6,031,034 £ 20,267,532 744,036 151,066 7,657,187 134,868 £ 21,054,495 741,465 176,350 6,870,415 73,122 Total revenue_ other than taxes 28,009,S7c^ 26,774,439 28,954,689 28,769,603 (/). Excise on spirits and drugs (//). Capitation tax (A). Assessed taxes (i). Provincial rates ( /). Customs (k). Salt (Z). Stamps and registra' ion . . . . 1,991,039 201,395 1,026,400 1,235,496 2,167,797 5,462,501 2,280,670 2,079,853 202,727 1,988,023 1,303,602 2,333,555 5,686,335 2,391,883 2,231,238 203,647 797,208 1,579,007 2,341,449 5,456,065 2,387,314 2,189,003 212,442 581,733 1,819,213 2,402,335 5,643,356 2,543,064 Total taxes 14,365,298 1 6,005,978 14,995,928 1.5,-391,146 Total net revenue . . . . Total net expenditure (Statement 3) 42,37.5,176 42,418,230 42,780,417 41,769,308 43,9.50,617 41,152,217 44,160,749 42,646,819 Net surplus or deficit . . . . 43 ,054 1,011,109 2,798,400 1,513,9.30 Add assets of military funds and de- 1 duct war and famine expenditure / 161,723 471,881 325,777 351,742 Surplus or deficit as in Siatement 1, line 3 118,669 1,482,990 3,124,177 1,765,672 N.15. Figures in Italics signify APPEXDIX. 433 llereniie and Exptnditimfrom 1S69-70 ti> 18SO_81. 1874-75 1875-76 I87(i-77 1877-73 1878-79 1879-80 Estiiiinte 1880-81 Tutal £ 59,121,089 58,801,892 £ 60,158,035 58,489,090 £ 59,227,533 61,410,311 £ 62,073,94^ 65,617,035 £ 65,201,569 63,167,323 £ 68,484,666 69,667,615 £ 70,783,6 1.-. 77,003,382 £ 728,687,388 733,109,741 319,197 1,668,945 2,l82,ns 3,343,081 2,034,246 1,lS%94<) 6,219,7(i~, 4,422,353 676,219 6,100,474 11,295,660 18,072,.S53 319,197 1,668,945 2,^S'2,77S' 3,343,0S7 2,710,465 4,917,525 5,075,893 13,650,000 2,242,961 601,966 2,145,431 5,H66.87o 313,42(1 103,990 47,281 14,788,81 » 2,562,158 2,270,911 37,347 1,823,788 3,023,885 5,021,515 5,123,174 2R,438,81U 362,178 284,037 36§,3S2 413,627 82,559 244,424 283,270 299,831 7SS,732 281,688 724,083 687yiS3 349,940 312,746 . 422,422 213,943 81,662 268,126 27,000 415,132 58,237 3,599,212 1,773,427 1,073,299 277,833 251,762 20S,63i 318,288 259,616 563,731 500,H6H 4,2-99,340 2,284,325 2,019,149 168,304 1,505,500 2,764,269 4,457,784 4,622,805 24,139,479 from 1869-7 to 1880-81. 1873-74 1874-76 1875-76 1876-77 1877-78 1878-79 1879-80 Est-iDiate 1880-81 £ 20,772,672 768,544 231,458 6,323,395 95,000 £ 21,036,606 724,972 152,073 6,214,782 627,660 £ 21,212,412 726,188 274,551 6,252,026 242,678 £ 19,577,827 694,934 156,373 6,280,781 90,794 £ 19,741,198 675,120 236,036 6,521,337 84,570 £ 22,187,183 703,660 149,451 7,699,032 25,872 £ 22,125,807 702,451 208.933 8,249,808 53 313 £ 21,414,000 751,000 223.000 8,466,000 31,000 28,191,069 28,756,093 28,707,855 26,800,709 27,258,261 .S0,7a;,198 31.231,686 3(),8.><5,000 2,189,011 221,829 29,517 1,740,840 2,374,090 6,651,482 2.635,792 2,252,669 228,364 -17,382 1,785,167 2,422,114 5,732,371 2,649,704 2,403,809 222,440 14,336 1,788,112 2,470,391 5,699,483 2,740,363 2,426,506 235,707 14,063 1,839,567 2,220,028 5,786,526 2,756,761 2,356,424 241,065 96,898 2,205,357 2,348,729 5,874,071 2,935,702 2,525,575 252,237 837,312 2,544,507 2,060,905 6,503,031 3,065.378 2,714,064 261,117 696,651 2,826,562 2,026,513 6,895,713 3,149.358 2,967,000 266,000 497,000 2,731,000 2,269,000 6,573,000 .3,243,000 14,842,561 15,087,771 15,338,934 15,279,158 16,058,246 17,788,945 18,569,978 18,546,000 43,033,630 41,330,846 43,843,864 41,643,884 44,046,789 42,189,505 42,079,867 42,400,484 4.3,316,507 41,774,407 48,494,143 45,820,198 49,801,664 44.994,092 49,431,000 44.335,000 1,702,784- 2.199,980 1,857,284 320,617 1,542,100 2,673,945 4,807,572 5,096,000 3,310,432 1,880,783 188,339 1,862,161 5,085,187 639,699 3,990,52 1 11,316,000 1.S07,66S 319,197 1,668,945 2,182,778 3,543,087 2,034,246 1.182,949 6,2'J0,00(t deficit or ezccss expenditure. F »' 434 APPENDIX. Statement No. 3. — Net Expen- Henfl of Account 1 . Land revenue 2. Administration . 3. Minor departments 4. Mint . ii. Post oifice . 6. Telegraphs. 7. Law and justice 8. Police 9. Marine 10. Education . U. Ecclesiastical 12. Medical 13. Political . 14. Stationery and printing £ 2,790,375 1,434,728 190,575 56,iS0 33,409 296,267 2,145,233 2,223,837 989,793 756,445 161,126 445,360 415,367 361,787 £ 2,733,589 1,367,390 247,962 32,859 17,324 255,669 2,292,974 2,103,048 426,966 702,619 153,553 522,287 361,120 390,519 £ 2,759,595 1,475,832 301,967 ■I1,S30 82,615 222,234 2,290,289 2,172,329 379,839 678,303 158,190 498,774 316,105 188,854 £ 2,806,371 1,478,308 377,217 31,949 188,877 233,747 2,259,757 2,176,640 356,832 731,296 156,881 549,982 392,300 203,313 Total effective civil services 12,188,152 11,607,879 11,347,866 11,943,470 15. Furlough allowances 16. Superannuations 157,918 993,581 175,068 1,119,040 173,029 1,099,654 156,059 1,238,169 Total non-effective civil services 1,151,499 1,294,108 1,272,683 1,394,228 17. Allowances under assignments and'l treaties ...../ 1,863,615 1,756,973 1,724,510 1,749,890 18. Interest 19. Public works, including guaranteed in-\ terests ...... J 5,245,187 6,635,796 5,496,101 5,798,753 6,598,011 5,807,576 5,340,483 6,642,227 Total interest and public works 11,880,983 11,294,854 11,405,587 11,982,710 20. Exchange 102,786 21. Armj' . 15,247,134 341,.536 172,612 15,112,946 14,731,083 463,674 14,596,928 22. Provincial and local surplus or deficit 13,939 361,012 494,876 615,919 Total net expenditure 42,418,230 41,769,308 41,162,217 42,646,819 N.B. Figures in Italics signifj Statements Nos. 1, 2, and 3. — The gross revenues and expenditure in Statement No. 1, and the net revenues and expenditure in Statements No. 2 and No. 3, have been taken from the latest returns prepared by the Government of India, abstracts of which have recently been published as a Parlia- mentary paper dated June 2, 1881. For the ten years 1869-70 APPENDIX. iiturefrojn 1869-70 to 1880-81. 1873-74 1874-76 1875-76 1876-77 1R77-78 1S78-79 1S79-80 Estimate 183U-81 £ £ £ £ £ £ £ £ 2,852,923 2,846,772 2,935,336 2,876,261 2,929,024 2,940,554 2,914,976 2,956,000 1,518,486 1,555,905 1,644,273 1,489,967 1,489,940 1,487,852 1,492,280 l,543,uOO 347,154 347,935 357,358 317,205 318,410 270,416 258,978 323,000 11,103 26,4^4 2,S63 i2S,SS3 3i1,776 6Sfi44 121,020 6,000 194,772 156,904 138,449 122,314 113,598 121,664 141,182 153,000 161,199 145,630 184,120 131,900 122,465 99,227 54,409 33,000 2,380,352 2,472,183 2,614,715 2,573,846 2,600,757 2,701,737 2,661,583 2,595,000 2,192,581 2,208,016 2,220,002 2,289,596 2,224,218 2,212,520 2,270,098 2,282,000 299,164 299,089 399,478 466,934 310,892 298,269 272,653 326,000 763,521 845,177 876,103 855,315 848,469 837,236 828,219 839,000 163,733 166,174 162,160 163,844 158,039 155,200 156,012 159,000 571,699 599,158 624,337 621,137 642,031 626,986 613,891 628,000 366,756 404,604 430,444 505,319 469,072 448,793 430,571 521,000 194,698 203,737 197,377 404,390 406,482 424,399 362,490 428,000 12,018,141 12,223,870 12,681,289 12,689,774 12,321,621 12,556,509 1 2,227,501 12,723,000 258,464 216,704 229,199 235,990 237,362 281,561 215.,0i)2 224 000 1,188,134 1,439,535 1,601,382 1,471,735 1,564,659 1,679,786 l,8S5,49:i 1,864,1100 1,446,598 1,656,239 1,830,581 1,707,726 1,802,921 1,911,347 2,100,591 2,088,000 1,856,700 1,738,368 1,713,724 1,672,543 1,646,093 1,826,484 1,814,635 1,908,000 5,324,594 4,854,032 4,986,589 5,260,954 5,563,576 5,738,523 5,844,767 5,655,000 6,319,472 6,415,852 6,087,670 4,659,982 3,213,584 4,746,783 3,600,137 3,852,000 11,644,066 11,269,884 11,074,359 9,920,936 8,777,160 10,484,306 9,444,904 9,507,000 591,362 502,543 1,034,293 1,676,482 1,092,139 2,884,659 2,926,403 2,563,000 14,218,378 14,386,333 14,262,848 14,866,639 16,769,780 15,441,488 15,866,756 15,466,000 444,399 i33,3S3 407,4*9 133,6-15 365,593 715,405 613,299 90,000 41,330,846 41,643,884 42,189,505 42,400,484 41,774,407 45,820,198 44,994,092 44,335,000 receipts in excess of expenditure. to 1878-79, the finance and revenue accounts presented to Parliament have been revised, so as to include the provincial and local revenue and expenditure, which are now incorporated in the annual accounts on a uniform system. Any one desirous of making a correct detailed comparison of the finances for the past twelve years can only do so by reference to these revised r F 2 436 APPEXDIX. accounts, which have been specially prepared by the Govern- ment of India for the purpose. The figures for 1880-81 are, in all cases, those adopted for the revised estimates, which are in most cases based on actual results for ten months. The net revenue under each head in Statement No. 2 has been obtained by deducting from the gross revenue the refunds and charges under the same head, and the net expenditure under each head in Statement No. 3 has been obtained by adding refunds to the gross expenditure and deducting the re- ceipts appertaining to that head. The finance and revenue accounts for the year 1880-81 have not yet been closed. The figures for that year in these Statements are approximate ; they have been taken from the Parliamentary return with certain modifications obtained ap- proximately from such sources as were available, to provide for refunds, of which details are not given in that return. In the case of land revenue, which appears both as revenue and expenditure, the gross capitation tax (which is shown net separately under revenue) has been deducted from the land revenue, under which head it appears in the public accounts, and the commission paid on the collection of that tax has been de- ducted from the expenditure under the same head. In the year 1869—70 the amount of this commission is not recorded in the public accounts, and has been assumed with reference to the amount recorded in the following year to have been 20,000L The entries under this head also are made to include the land revenue due to irrigation, and therefore differ from the figures in the Parliamentary return above referred to, which show this part of the land revenue, though in an incomplete manner, as public works income after the year 1876-77. The net receipts under ' Stamps and registration ' have been thrown together in Statement No. 2. Before 1879-80 the registration receipts and charges were included in the accounts under the head ' Law and justice,' and are so shown in the Parliamentary return. In these Statements, however, they have been removed from the head ' Law and justice,' and the net receipts have been added to the net stamp revenue. The head ' Miscellaneous,' which appears in the Parliament- ary returns on the net expenditure side of the account, is shown APPENDIX. 437 in Statement No. 2 as net revenue, because the receipts usually exceed the expenditure. In Statement No. 3, under the head ' Superannuation,' the assets of the Military funds, which were credited in the accounts, have been excluded, for reasons which have been explained in Chapters IV. and V. The annual details of these credits are given in Statement No. 1. From the head ' Army ' has been deducted the net expenditure on the Afghan war, and the ex- penditure on frontier railways has been treated as a part of the war charges, the whole of which are excluded from Statement No. 3. The expenditure on famine has also been omitted from this Statement. The reasons for these omissions are explained in Chapter V. Details of the omitted expenditure will be found in Statement No. 1. The entry under ' Interest ' in Statement No. 3 includes the interest on the Productive public works debt, which is therefore here excluded from the head ' PubHc works.' In this respect the entries differ from the Parliamentary return, which shows the interest in question under ' Public works,' and also in- cludes, though imperfectly, the land revenue due to irrigation, as before explained. With these modifications the entry in Statement No. 3, under ' Public works,' includes the whole net charges as shown in the Parliamentary return, excepting those on account of frontier railways, which are treated as an incident of the Afghan war, and therefore omitted from, this Statement. The separate Statement No. 7 brings together all the elements of revenue and expenditure connected with Productive public works. 438 APPENDIX. Statement No. 4. — Gross Disbursetiieiits and Head of Account 1860-70 1870-71 1871-72 1872-73 Gross Disbursements. Interest on debt 2,209,000 £ 2,350,000 215,000 177,000 1,052,000 577,000 £ 2,437,000 £ 2,467,000 220,000 157,000 1,131,000 517,000 Civil :— India office Civil furloughs .... Superannuations . .... Departments in India 212,000 161,000 1,007,000 456,000 218,000 174,000 1,095,000 838,000 Total 1,836,000 2,021,000 1,825,000 2,025,000 Reviittances : — Service funds Postage . . .... Family remittances ... Miscellaneous 186,000 44,000 675,000 13,000 918,000 144,000 43,000 553,000 173,000 135,000 89,000 504,000 112,000 132,000 63,000 422,000 190,000 Total 913,000 840,000 797,000 Total civil administration . 2,754,000 2,934,000 1,463,000 1,141,000 2,665,000 1,332,000 1,373,000 2,822,000 Army : — Effective Non-effective 1,437,000 1,190,000 1,43.3,000 1,280,000 Total 2,627,000 2,604,000 2,705,000 2,713,000 Stores ;— Civil and military 1,414,000 1,425,000 1,249,000 1,146,000 Public Works:— Capital Railway stores 1,045,000 124,000 11,000 38,000 111,000 297,000 ' Total 1,169,000 49,000 111,000 297,000 Gu(wanteed Railways : — Capital . . Interest, &c 2,897,000 4,138,000 5,344,000 4,353,000 9,697,000 2,499,000 4,546,000 1,467,000 4,619,000 Total . . . . 7,035,000 7,045,000 6,086,000 Advances 47,000 1.000 8.000 .=5,000 Debt discharged 501,000 5,000 Grand total . ... 17,756,000 19,060,000 16,225,000 15,536,000 Revenues Advances repaid . .... Bills sold, &o Guaranteed railway capital . Debt incurred 194,000 1,615,000 6,980,000 4,794,000 4,039,000 178,000 245,000 9,015,000 7,612,000 2,424,000 19,474,000 222,000 106,000 10,310,000 3,689,000 1,413,000 221,000 615,000 13,939,000 938,000 Total 17.622,000 15,740,000 15,713,000 3,026,000 2,892,000 3,306,000 2,821,000 N.B. The sum of 9,566,000Z. was added to the Debt in 1879-80 in part purchase of the East 2,000,000^. under Advances repaid, in 1880-81, is part of the English contribution towards the APPENDIX. Receipts of the Home Treasury from 1869 to 1881 . 439 1873-74 2,434,000 211,000 310,000 1,135,000 352,000 2,008,000 136,000 123,000 443,000 373,000 1,075,000 3,083,000 1,248,000 1,257,000 2,505,000 1,157,000 1,002,000 1,002,000 1,270,000 4,632,000 5,902,000 5,000 4,994,000 21,082,000 238,000 232,000 13,286,000 1,328,000 5,012,000 20,096,000 2,998,000 £ 2,191,000 211,000 263,000 1,148,000 353,000 1,975,000 137,000 121,000 325,000 217,000 800,000 2,775,000 1,056,000 1,437,000 2,493,000 1,596,000 84,000 1,040,000 1,124,000 1,571,000 4,660,000 6,231,000 1,000 7,000 16,412,000 343,000 218,000 10,842,000 790,000 5,001,000 17,194,000 2,014,000 £ 2,161,000 233,000 276,000 1,191,000 296,000 1,996,000 149,000 94,000 473,000 360,000 1,076,000 3,072,000 1,028,000 1,458,000 2,486,000 1,545,000 4,000 736,000 740,000 2,897,000 4,657,000 7,554.000 12,000 17,570,000 291,000 125,000 12,390,000 1,688,000 1,200,000 1376-77 £ 2,318,000 223,000 282,000 1,269,000 350,000 2,114,000 158,000 92,000 612,000 494,000 1,356.000 3,470,000 1,131,000 1,685,000 2,816,000 1,544,000 608,000 608,000 2,443,000 4,687,000 7,130,000 4,000 500,000 18,390,000 1877-78 £ 2,493,000 213,000 303,000 1,293,000 430,000 2,239,000 160,000 103,000 555,000 186,000 1,004,000 3,243,000 1,146,000 1,980,000 3,126,000 1,514,000 1,138,000 1,138,000 2,690,000 4,686,000 7,276,000 3,000 18,792,000 1878-79 £ 2,594,000 218,000 294,000 1,354,000 364,000 2,230,000 166,000 107,000 686,000 219,000 1,078,000 3,308,000 1,274,000 1,936,000 3,210,000 1,090,000 683,000 683,000 1,799,000 4,739,000 6,538,000 7,000 3,375,000 20,806,000 16,694,000 2,796,000 238,000 292,000 241,000 260,000 172,000 629,000 12,696,000 10,134,000 15,466,000 890,000 2,277,000 874,000 6,100,000 4,280,000 20,184,000 I 17,156,000 I 20,846,000 £ 2,706,000 214,000 270,000 1,362,000 371,000 2,217,000 169,000 89,000 422,000 278,000 958,000 3,175,000 1,298,000 2,115,000 3,413,000 Estimate 18R0-81 £ . 2,685,000 211,000 280,000 1,4)1,000 360,000 '2!292T000 170,000 90,000 660,000 208,000 1,028,000 3,3.0,000 1,290,000 2,126,000 3.416,000 1,191,000 9,666,000 775,000 10,341,000 1,279,000 4,787,000 6,066,000 7,000 2,610,000 29,509,000 324,000 320,000 15,769,000 822,000 3,737,000 13,436,000 920,000 1 2,714,000 1,077,000 30,661,000 1,118,000 1,036,000 1,266,000 1,266,000 1,537,000 4,298,000 "51835,000 6,000 4,4.53,000 22,016,000 533,000 2,509,000 15,388,000 232,000 4,956,000 23,618,000 2,270,000 Indian Railway, and appears_ in that year also as a charge under Public works, cost of the Afghan war. The sum of 440 AITEXDIX. StatemEVT No. 6.— Abstract erf Net IHsimrsementi and Head of Account. 1869-70 1870-71 1871-72 1872-73 Net Disbursements. Interest on debt Civil administration Army . . . ... Stores, civil and military .... £ 2,209,000 2,754,000 2,627,000 1,414,000 £ 2,350,000 2,934,000 2,604,000 1,425,000 £ 2,437,000 2,665,000 2,705,000 1,249,000 £ 2,467,000 2,822,000 2,713000 1,146,000 Total administration 9,004,000 9,313,000 9,056,000 9,148,000 Guaranteed railways ... Productive public works 2,241,000 1,169,000 2,085,000 49,000 3,356,000 111,000 5,148,000 297.000 Total 12,414,000 11,447,000 12,523,000 14,593,000 Net Kbcbipts. Revenues Advances repaid Bills sold Debt incurred 194,000 1,568,000 6,980,000 3,538,000 178,000 244,000 9,015,000 2,424,000 222,000 98,000 10,310,000 1,408,000 221,000 610,000 13,939,000 Total 12,280,000 11,861,000 12,038,000 14,770,000 Guaranteed Kailway Capital. Total received Total issued 86,522,000 83,911,000 91,427,000 87,687,000 93,722,000 90,183,000 93,837,000 90,661,000 Balance ....... 2,611,000 3,740,000 3,539,000 3,176,000 N.B. The amount of debt incurred in 1879-80 for the East Indian Kailway APPENDIX. 441 R/>oeipts of the Home Treasury from 1869 to 1881. 1873-74 1874-75 2,434,000 3,083,000 2,505,000 1,157,000 9,179,000 4,574,000 1,002,000 14,755,000 238,000 227,000 13,286,000 18,000 £ 2,191,000 2,775,000 2,493,000 1,596,000 9,055,000 5,441,000 1,040,000 £ 2,161,000 3,072,000 2,486,000 1,645,000 9,264,000 5,866,000 736,000 15,620,000 15,870,000 13,769,000 94,726,000 91,364,000 3,372,000 343,000 217,000 10,842,000 5,000,000 16,402,000 £ 2,318,000 3,470,000 2,816,000 1,644,000 10,148,000 6,240,000 608,000 16,996,000 1877-78 £ 2,493,000 3,243,000 3,126,000 1,614,000 10,376,000 4,998,000 1,138,000 16,512,000 291,000 113,000 12,390,000 1,200,000 13,994,000 96,119,000 92,442,000 2,677,000 95,072,000 93,393,000 1,624,000 238,000 256,000 12,696,000 5,600,000 18,790,000 94,883,000 94,108,000 680,000 292,000 169,000 10,134,000 4,280,000 £ 2,594,000 3,308,000 3,210,000 1,090,000 10,202,000 5,664,000 683,000 16,349,000 14,875,000 96,313,000 95,431,000 882,000 241,000 622,000 15,465,000 362,000 1879-80 £ 2,706,000 3,175,000 3,413,000 1,191,000 10,485,000 5,244,000 775,000 16,504,000 Estimate 1880-81 £ 2,685,000 3,320,000 3,416,000 1,035,000 10,466,000 5,603,000 1,266,000 17,325,000 16,590,000 97,174,000 96,445,000 729,000 324,000 313,000 15,759,000 1,260,000 17,656,000 97,959,000 96,794,000 1,165,000 533,000 2,503,000 15,388,000 603,000 18,927,000 97,988,000 97,728,000 892,000 is excluded both from the netreoeipCs and disbursements. 442 APPENDIX. Statement No. fi. — Bixtribution of the Charget for Army and Stores, Head of Accouut Army. Effective : — Pay of British troops . Furlough allowances . Transport service Stores .... Total ifbn-effective ; — Indian army pensions . British army pensions . £ 756,000 403,000 278,000 878,000 2,315,000 9R6,000 224,000 678,000 469,000 315,000 930,000 2,392,000 887,000 253,000 £ 614,000 438,000 280,000 937,000 2,209,000 889,000 490,000 £ 674,000 423,000 336,000 812,000 2,245,000 907,000 380,000 Total Grand total Stores. Army : — Clothing Ordnance Medical Commissariat Total Public Worlts: — Ordinary Productive works . Total Civil : — Telegraph Marine . Stationery Stamps . Mint . Mi-scellaueous Total Grand total 1,190,000 1,140,000 1,379,000 1,287,000 3,505,000 3,532,000 3,648,000 3,532,000 232,000 287,000 41,000 318,000 185,000 373,000 59,000 313,000 203,000 424,000 56,000 254,000 238,000 289,000 38,000 247,000 878,000 930,000 937,000 812,000 237,000 124,000 134,000 38,000 50,000 111,000 60,000 297,000 361.000 172,000 161,000 357,000 5,000 110,000 114,000 13,000 13,000 44,000 75,000 77,000 158,000 23,000 7,000 21,000 42,000 89,000 89,000 15,000 6,000 21,000 92,000 66,000 80,000 9,000 4,000 23,000 299,000 361,000 262,000 274,000 1,538,000 1,463,000 1,360,000 1,443,000 N.B. The charges for stores under Army were increased in 1879-80 and 1880-81, by 170,000^. the details not being available. The sums under Productive works in 1879-80 and 1880-81, Statements 4, 5, and 6. — These Statements have been compiled from the accounts of the Home treasury, and ilhis- APPENDIX. 443 milder tli^ chief suh-lieads,fram 1869 to 1881. 1873-74 & 591,000 263,000 394,000 853,000 2,101,000 958,000 303,000 1,263,000 3,361,000 275,000 206,000 80,000 292,000 853,000 34,000 1,002,000 1,036,000 41,000 46,000 119,000 23,000 6,000 35,000 270,000 2,159,000 1874-75 £ 525,000 221,000 310,000 1,125,000 2,181,000 1,118,000 321,000 1,439,000 3,620,000 292,000 417,000 120,000 296,000 1,125,000 23,000 1,040,000 1,063,000 47,000 5'5,000 179,000 59,000 15,000 93,000 448,000 2,636,000 £ 474,000 202,000 352,000 1,097,000 2,125,000 1,108,000 350,000 1,458,000 3,583,000 235,000 481,000 63,000 318,000 1,097,000 21,000 736,000 757,000 47,000 80,000 209,000 35,000 25,000 31,000 427,000 2,281,000 £ 582,000 210,000 339,000 1,129,000 2,260,000 1,217,000 468,000 1,685,000 3,945,000 254,000 505,000 79,000 291,000 1,129,000 8,000 608,000 616,000 61,000 67,000 185,000 25,000 40,000 29,000 407,000 2,152,000 £ 682,000 203,000 261,000 1,155,000 2,301,000 1,231,000 749,000 1,980,000 4,281,000 357,000 655,000 52,000 191,000 1,155,000 10,000 1,138,000 1,148,000 37,000 35,000 182,000 28,000 26,000 41,000 349,000 2,652,000 £ 744,000 184,000 346,000 773,000 2,047,000 1879-80 £ 762,000 162,000 374,000 875,000 2,173,000 1,286,000 650,000 1,936,000 3,983,000 242,000 315,000 60,000 156,000 773,000 3,000 683,000 686,000 35,000 22,000 181,000 42,000 9,000 25,000 314,000 1,773,000 1,428,000 687,000 2,115,000 4,288,000 315,000 215,000 51,000 294,000 875,000 44,000 785,000 829,000 46,000 60,000 95,000 37,000 8,000 26,000 262,000 1,966,000 Estimate 1880-81 £ 760,000 160,000 370,000 760,000 2,050,000 1,450,000 676,000 2,126,000 4,176,000 270,000 200,000 60,000 230,000 760,000 10,000 1,266,000 1,276,000 61,000 53,000 65,000 33,000 3,000 60,000 265,000 2,301,000 and 70,O0OZ. respectively on account of charges for the Afghan war, entered under Commissariat, include respectively sums of 244,000i. and 695,000/., for frontier railways, treated as war charges. trate the discussions contained in Chapter VI. on the Honje charges. 444 APPENDIX. Statement No. 7. — Receipt! and Charges on account of Productive Public Work J including Head of Account 1868-69 1869-70 1870-71 1871-72 1872-73 Guaranteed Eailwats. Capital outlay 79,168,000 £ 83,911,000 £ 87,687,000 £ 90,183,000 £ 90,661,000 Gross guaranteed interest Charges for land, &c Net receipts less surplus 3,878,000 1,966,000 4,126,000 81,000 2,618,000 4,342,000 83,000 2,557,000 4,642,000 66,000 2,877,000 4,608,000 161,000 2,554,000 Net cbarge or receipt 1,912,000 1,589,000 1,868,000 1,731,000 2,216,000 State Kailways. Capital outlay 653,000 744,000 1,193,000 1,838,000 3,252,000 Gross receipts . . ... Working expenses 13,000 30,000 8,000 9,000 8,000 9,000 4,000 8,000 17,000 11,000 Net income Interest on capital -17,000 10,000 -1,000 30,000 - 1,000 40,000 -4,000 61,000 6,000 115,000 Net charge 27,000 81,000 41,000 65,000 109,000 Ieeigation Works. Capital outlay 688,000 2,695,000 3,414,00 4,398,000 5,169,000 Gross direct receipts .... Share of land revenue .... Working expenses 319,000 120,000 222,000 528,000 129,000 213,000 479,000 136,000 234,000 449.000 140,000 258,000 420,000 135,000 272,000 Net income Interest on capital . ... 217,000 69,000 444,000 114,090 381,000 171,000 331,000 206,000 283,000 228,000 Net receipts or charge 148,000 330,000 210,000 125,000 55,000 Capital outlay .... Net income .... Interest . 80,409,000 2,166,000 3,957,000 87,350,000 2,980,000 4,270,000 92,294,000 2,854,000 4,553,000 96,419,000 3,138,000 4,809,000 99,082,000 2,682,000 4,951,000 Net charge or receipts 1,791,000 1,290,000 1,699,000 1,671,000 2,269,000 Net interest on ordinary debt 4,785,000 4,539,000 4,819,000 4,898,000 4,491,000 Total productive public works and debt. 6,576,000 5,829,000 6,618,000 6,669,00C 6,760,000 Ordinary public works 6,471,00C 6,311,00C 4,125,00C 4,213,00C 4,532,000 Grand total 13,047,O0C 1 1,140,00C 10,643,00C 10,782,OOC 11,292,000 N.B. Figures with ( + ) before them signify rec«ipt8 in excess of charge APPENDIX. 445 Ouwranteed, Railmays, of Ordinary Public Worha, and Interest on Debt, from 1868 to 1881. 91,354,000 4,618,000 1.52,000 3,241,000 1,529,000 6,606,000 40,000 46,000 -6,000 168,000 174,000 6,367,000 460,000 159,000 268,000 1874-75 £ 92,442,000 4,644,000 55,000 3,455,000 1,244,000 8,620,000 131,000 86,000 45,000 284,000 239,000 7,60.'),000 460,000 111,000 245,000 £ 93,393,000 4,638,000 83,000 3,729,000 992,000 11,785,000 290,000 193,000 97,000 410,000 313,000 8,708,000 487,000 141,000 285,000 £ 94,108,000 4,669,000 52,000 4,433,000 278,000 14,651,000 372,000 283,000 89,000 530,00(i 441,000 9,652,000 95,431,000 4,655,000 67,000 5,397,000 96,445,000 1879-80 £ 96,794,000 + 675,000 18,636,000 649,000 421,000 128,000 664,000 536,000 564,000 130,000 291,000 10,458,000 634,000 149,000 298,000 4,705,000 58,000 4,023,000 740,000 21,964,000 966,000 734,000 232,000 918,000 686,000 11,252,000 650,000 118,000 310,000 4,708,000 4,924,000 + 110,000 24,644,000 1,549,000 1,215,000 334,000 1,058,000 724,000 11,851,000 724,000 602,000 415,000 Estimate 1880-81 97,728,000 4,599,000 4,936,000 + 337,000 26,689,000 2,175,00(1 1,573,000 602,00( 1,210,000 608,000 17,806,000 656,000 701,000 430,000 351,000 290,000 326,000 330,000 61,000 -4,000 343,000 374,000 303,000 416,000 385,000 454,000 458,000 540,000 911,000 574,000 927,000 851,000 -31,000 -113,000 -69,000 -82,000 337,000 76,000 103,327,000 3,434,000 5,076,000 108,665,000 3,771,000 6,258,000 113,886,000 4,086,000 5,422,000 118,411,000 4,773,000 5,605,000 124,525,000 5,843,000 6,773,000 129,661,000 4,655,000 6,163,000 133,289,000 6,106,000 6,383,000 142,223,000 6,465,000 6,660,000 1,642,000 1,487.000 1,336,000 832,000 + 70,000 1,508,000 277,000 195,000 4,376,000 3,910,000 3,867,000 3,971,000 4,140,000 3,952,000 3,846,000 2,898,000 6,018,000 5,397,000 5,203,000 4,803,000 4,070,000 6,460,000 4,123,000 3,093,000 4,926,000 5.382,000 5,344,000 4,594,000 4,202,000 4,628,000 4,337,000 6,312,000 10,944,000 10,779,000 10,647,000 9,397,000 8,272,000 9,988,000 8,460,000 8,405,000 Figures with ( — ) before them signify charge in excess of receipts. 446 APPENDIX. Statement No. S.—Shmeing Corre- Head of Account 1869-70 1870-71 1871-72 1872-73 Net interest (Statement No. 3) . . . Deduct service funds £ 5,245,000 612,000 £ 5,496,000 516,000 £ 5,598,000 483,000 £ 5,340,000 556,000 Net interest on debt (Statement No. 10) 4,63,%000 4,980,000 5,115,000 4,784,000 Public works (Statement No. 3) . . . 6,636,000 5,799,000 5,808,000 6,642,000 Total 11,269,000 10,779,000 10,923,000 11,426,000 Deduct land revenue due to irrigation . 129,000 136,000 140,000 135,000 Total public works and interest (Statement \ No. 7) . . . . . . / 11,140,000 10,643,000 10,783,000 11,291,000 Statement No. 9. — Correction of Pvhlie Head of Account 18S9-70 1870-71 1871-72 1872-73 Loss by exchange (Statement No. 3) Corrected amount, excluding gain on rail- \ way receipts / £ 102,786 347,599 £ 341,536 582,644 £ 172,612 433,095 £ 463,674 691,846 Difierence 244,813 241,108 260,483 231,172 Net charge guaranteed railways (Statement "1 No. 7) / 1,589,000 1,868,000 1,731,000 2,215,000 Corrected charge for guaranteed railways 1,344,000 1,637,000 1,471,000 1,984,000 Corrected charge for all productive works 1,045,000 1,458,000 1,411,000 2,038,000 N.B. Figures with ( + ) before them APPENDIX. 447 spondenoe of Statements 3, 7, and 10. 1873-74 1874-75 187S-76 1876-77 1877-78 1878-79 1879-SO Estimate 1880-81 . £ 5,325,000 541,000 £ 4,854,000 380,000 £ 4,987,000 386,000 £ 5,261,000 394,000 £ 5,564,000 356,000 £ 5,739,000 379,000 £ 5,845,000 383,000 £ 5,655,000 401,000 4,784,000 4,474,000 4,601,000 4,867,000 5,208,000 5,360,000 5,462,000 5,254,000 6,319,000 6,416,000 6,088,000 4,660,000 3,214,000 4,746,000 3,600,000 3,852,000 11,103,000 10,890,000 10,689,000 9,527,000 8,422,000 10,106,000 9,062,000 9,106,000 159,000 111,000 141,000 130,000 149,000 118,000 602,000 701,000 10,944,000 10,779,000 10,548,000 9,397,000 8,273,000 9,988,000 8,460,000 8,405,000 TFor/ts Aceowntfor Saihvay Loss hy Excliange. 1873-74 1874-75 1875-76 1876-77 1877-78 . 1878-79 1879-80 Estimate 1880-81 591,362 882,718 £ 502,543 785,820 £ 1,034,293 1,355,861 £ 1,676,482 2,059,311 £ 1,092,139 1,554,922 £ 2,884,659 3,225,831 £ 2,926,403 2,926,403 £ 2,553,000 2,553,000 291,356 283,277 321,568 382,829 462,783 341,172 1,529,000 1,244,000 992,000 278,000 + 675,000 740,000 + 110,000 + 337,000 1,238,000 961,000 670,000 + 105,000 + 1,138,000 399,000 + 110,000 + 337,000 1,351.000 1,204,000 1,014,000 449,000 + 533,000 1,167,000 277,000 195,000 signify receipts in excess of charge. 448 APPENDIX. Statement No. W. — Capital and Head of Account 18S8-G9 1871-72 1872-73 Capital. Sterling debt . Rupee debt £ 31,698,000 6.0,681,000 35,197,000 6.5,965,000 £ 37,607,000 68,627,000 £ 38,992,000 68,.560,000 £ 38,992,000 68,116,000 Total India stock in excess of guarantee "1 fund ( 97,379,000 4,579,000 101,162,000 4,579,000 106,234.000 4,579,000 107,552,000 4,579,000 107,108,000 4,579,000 Grand total 101,958,000 105,741,000 110,813,000 112,131,000 111,687,000 Distribution of Debt. Ordinary debt .... Productive public works Productive public works transfer"! for outlay from revenue . / East Indian railway Loans at interest .... 100,033,000 1,241,000 684,000 101,598,000 3,439,000 704.000 102,684,000 4.607,000 3,522,00(1 101,957,000 6,235,000 3,939,000 99,045,000 8,420,000 4,222,000 Gross Interest — exchiding funds. On sterling debt Rate per cent. On rupee debt Rate per cent. On India stock 1,528,000 (4-8) 2,898,000 (4-4) 630,000 1,579.000 (4-5) 2,789,000 (41) 630,000 1,720,000 (4-6) 2,974,000 (4-3) 630,000 1,807,000 (4-6) 3.046,000 (4-4) 630,000 1,837,000 (4-7) 2,835,000 (4-2) 630,000 Total 5,056,000 4,998,000 5,324,000 5,483,000 5,302.000 Net Interest. On ordinary debt . On productive public works On East Indian railway . 4,785,000 29,000 4,539,000 94,000 4,819,000 161,000 ■,898,000 217,000 4,491,000 293,000 Total 4,814,000 4,633,000 4,980,000 5,115,000 4,784,000 Productive Works. Net charge or receipts from gua- "1 ranteed companies . . J Net receipts state works -1,961,000 + 199,000 -1,638,000 + 442,000 - 1,918,000 + 380,000 789,000 335,00fi -2,272,000 + 296,000 Total charge or receipts -1,762,000 -1,196,000 - 1,538,000 -1,454,00( - 1,976,00( Total ch arge, productive works "1 and debt, as in Statement No. 7 / 6,576,000 5,829,000 6,518,000 6,569,000 6,760,00( N.B. Figures with ( + ^ before them signify receipts in excess of charge. APl'KNDIX. 449 Interest of PuUic Debt from 1868 to 1881. 1873-74 1SJ4-75 1875-76 1876-77 1877-78 1878-79 1879-80 Estimate 1880-81 £ 41,096,000 68,217,000 £ 48,576,000 71,667,000 £ 49,776,000 74,602,000 £ 55,376,000 73,762,000 £ 59,656,000 76,836,000 £ 60,008,000 79,069,000 £ 68,835,000 84,598,000 £ 71,335,000 85,814,000 109,313,000 4,579,000 113,892,000 120,243,000 124,378,000 129,138,000 136,492,000 139,077,000 153,433,000 157,149,000 97,240,000 11,973,000 4,679,000 98,730,000 16,223,000 5,290,000 98,206,000 20,494,000 5,678,000 98,684,000 24,303,000 6,151,000 100,164,000 29,094,000 7,234,000 97,319,000 33,476,000 8,282,000 98,767,000 36,840,000 9,730,000 8,096,000 93,839,000 39,656,000 5,306,000 10,208,000 8,140,000 1,804,000 (4-4) 2,815,000 (41) 630,000 1,993,000 (41) 2,842,000 (4-0) 198,000 2,161,000 (4-3) 3,017,000 (40) 2,317,000 (4-2) 3,092,000 (4-2) 2,492,000 (4 2) 3,248,000 (4-2) 2,593,000 (1-3) 3,390,000 (4-2) 2,740,000 (3-8) 3,467,000 (4-2) 2,685,000 {3-5) 3,411,000 (40) 5,249,000 5,033,000 5,178,000 5,409,000 5,740,000 5,983,000 6,207,000 6,096,000 4,376,000 408,000 3,910,000 564,000 3,867,000 734,000 3,971,000 896,000 4,140,000 1,068,000 3,952,000 1,408,000 3,846,000 1,582,000 34,000 2,898,000 2,011,000 344,000 4,784,000 4,474,000 4,601,000 4,867,000 5,208,000 5,360,000 5,462,000 5,253,000 - 1,590,000 + 356,000 - 1,300,000 + 377,000 -1,058,000 + 456,000 -331,000 + 395,000 + 617,000 + 521,000 -782,000 + 682,000 + 113,000 + 1,226,000 + 626,000 + 1,534,000 -1,234,000 -923,000 -602,000 + 64,000 + 1,138,000 - 100,000 + 1,339,000 + 2,160,000 6,018,000 5,397,000 5,203,000 4,803,000 4,070,000 5,460,000 4,123,000 3,093,000 Figures with ( — ) before thera signify charge in excess of receipts. G & 450 APPENDIX. Statement 11. — Ahsii-act of Charges oyi accownt of Belt, adjusted fo^- comparison, from 1868 to 1881. Head of Account Averages of four years First and last years 1869-73 1873-77 1877-81 18G8-69 1880-81 Capital. Sterling debt Eupee debt India stock in excess of guarantee \ fund / £ 37,697,000 67,817,000 4,579,000 & 48,706.000 72,062,000 1,145,000 £ 64,958,000 81,579,000 £ 31,698,000 65,681,000 4,579,000 £ 71,335,000 85,814,000 Total 110,093,000 121,913,000 146,537,000 101,958,000 157,149,000 Distribution. Ordinary debt Productive public works East Indian railway- Loans at interest . 101,321,000 5,675,000 3,097,000 98,215,000 18,248,000 5,450,000 98,848,000 34,766,000 4,985,000 7,938,000 100,033,000 1,241,000 684,000 99,145,000 39,656,000 10,208,000 8,140,000 Gross ISTSU-EST—exchidlng fundi. On sterling debt , . . . On rupee debt On India stock .... 1,736,000 2,911,000 630,000 2,069,000 2,941,000 207,000 2,627,000 3,379,000 1,528,000 2,898,000 630,000 2,685,000 3,411,000 Total ... 5,277,000 5,217,000 6,006,000 5,056,000 6,096,000 Net l^T-ESBSi— adjusted. On productive public works . On Bast Indian railway . 3,999,000 429,000 3,681,000 888,000 3,530,000 1,696,000 94,000 4,097,000 267,000 2,898,000 2,011,000 344,000 Total 4,428,000 4,569,000 5,320,000 4,364,000 5,253,000 Net charge or receipts from pro-") ductive public works . / -1,541,000 -674,000 + 1,134,000 -1,762,000 + 2,160,000 Total charge for debt and pro-"\ ductive public works /' 5,969,000 5,243,000 4,186,000 6,126,000 3,093,000 N.B. Figures with ( + ) before them signify receipts in excess of charge. Figures with ( - ) before them^signify charge in excess of receipts. Statements Nos. 7 to 11. — The sums shown as productive public works outlay in these Statements include the expenditure on state railways and imgation works only, that on other works not properly coming into consideration in connection with the discussions contained in Chapters VII. and VIII. where full ex- planations are given on all points of importance. The amount excluded consists of a sum of 1,133,362^ APPENDIX. 451 advanced for improvements in the town of Bombay, and of a sum of about 350,000L for the Madras Harbour, the last of which it has already been decided to deal with as a loan to the Harbour Trust. The capital outlay on the INIadras Irrigation Company's works has also been excluded from the account. It amounts to about 1,400,000L of which 1,000,000Z. is under a guarantee of interest at 5 per cent. Statement No. 8 shows the causes of the differences between the entries in Statements Nos. 3, 7, and 10, and the Parliamen- tary return before referred to. Statement No. 9 shows the correction that would have to be made in the accounts of years previous to 1879-80, in order to show the entries under ' Loss by exchange ' on the system now adopted. This is explained in a note to Chapter VII., and more fully in Chapter XX. The entries in Statement No. 10 are all explained in Chapter VIII. Statement No. 11 is designed to show the adjustments of the charges for interest on debt, which are described in Chapter VIII. as being necessary for a proper comparison between dif- ferent years. The net interest on ordinary debt has been reduced by 450,000L yearly, until 1873-74 inclusive, this having been the sum covered by the India stock guarantee fund. The net interest on productive works debt has been increased and that on ordinary debt has been reduced by 238,000L yearly (this being the interest on the sum transferred in 1880-81 from ordinary to productive works debt, on account of capital outlay on irrigation works supplied from revenue), in all years except the last, in which the charge for this interest appears in the published accounts under productive public works. s ft 2 INDEX. ABO ABOLITION of inland customs line, 225-26 along the Indus, 235 — of duties on export of sugar, 230-40 — of transit duties, 217-18 Abyssinian war, repayment of ad- vances for, 76 Accounts, changes in form of, 24 — changes in treating guaranteed railway receipts, 114, Twte — home and Indian, how amalga- mated, 387 — of productive public works, 96 — of Madras and Bombay irrigation works, 96 Acts, licence, 202, 205 — Indian weights and measure of capacity, 351 Administration of India, cost of, 40 cost incurred out of India, 3 1 5, — Home charges for civil, 69, 70, 81,84 — of opium revenue, 273 Administrative and material improve- ments, demand for, 5, 7, 8 Afghanistan, salt exported to, 235 Afghan war, charge for stores, 72 contribution from England for, 78 cost paid from revenue, 61 and frontier railways, net cost of, 47, 60, 102 railways due to, 100 Agra, price of salt at, 230 Agricultural classes, position of, with regard to new taxation, 195 — labourer, taxes paid by, 20-21 Ahmedabad, town duties in, 334 Aitcheson, Sir C, on taxation in Bur- mah, 237, 282 Ajmfr, duty on opium, 270 Allowances and assignments under treaties, 44 Argyll, Duke of, on land cesses, 198 on salt duties, 222-23 on unit of weight, 350 Army, commission of enquiry into, 49 — cost of, 48 — Home charges for, 71-72 commissariat, 72 furlough allowances, 71 pay, 71 retired pay and pensions, 71 stores, 72 transport, 72 Assam, provincial settlement with, 145 — source of salt supply, 216 Assessed taxes, 20, table, 30-31 BABEE, Mr., on Chinese opium, 259-60 Bandelkhand, need of protection from drought, 186, 193 Barracks, outlay on, 87-88 Barsi, town duties in, 334 Beadon, Sir Cecil, on opium adminis- tration, 245-47 Behar, irrigation in, 180 — and Orissa, famine in, 158 — value of railways during famine in, 174 Bellary, value of railways during famine in, 174 Bengal and Malwa opium systems, relative fiscal advantages of, 265-70 Bengal, amount spent in famine relief, 198 — cost of cultivation of tobacco in, 369 — export duty on rice, 282 4-54 INDEX. BEN Bengal famine in 1874, 156-57 — Government, administration of opium revenue by, 273 — ■ increase of local taxation in, 142 — land cess imposed, 157 cesses in, 359 revenue, 18, 197-98, 357-69 — Lient.-Govemor of, on value of irrigation in Behar, 180 — licence tax in, 202 — Liverpool salt in, 236 — Lower, salt duty in, 217-235 succession tax in, 367 — opium, fluctuations of revenue, 243-48 manufacture in, 249-50 supply should be developed, 271 — —fluctuations of revenue, 243-48 — permanent settlement, 18, 357-63 — poppy cultivation, 241-42, 249-50 • — prosperous condition, 360 — provincial rates, 31 — provincial revenues made liable to meet charges for public works giving protection from famine, 157 — public works cess, 197, 201 — rate of salt duty from 1869-77, 219 — reductions of salt duty, 225 — report of commission on rent law in, 359-61 — resolution of the Government on decentralisation, 152-53 — results of irrigation, 106 — results of new salt measures on consumption and revenue, 232 — salt duty fixed in 1836, 218 — source of salt supply, 216 — success of decentralisation policy, 152-53 — transit duties abolished, 218 — value of Sone irrigation, 181 — yield of tobacco in, 369 — zemindars, 198, 359-61 Bills, interest, 79 — Secretary of State's, 68, 76, 79, 84 amount of, 386 relation to excess exports, 385 Bimetallism, 399 Bombay, abolition of transit duties, 218 — accounts of irrigation works, 96 — alienations of land revenue, 44 — and Baroda railway, financial position, 128 Secretary of State's power of purchase, 128-29 — average consumption of salt, 224 CHA Bombay cotton mills, 286 — Chamber of Commerce on octroi duties, 333-35 — exempted from new land cess, 197 — export duty on opium, 242 — famine in, 156-57 — increase of local taxation, 142 — irrigation works, 107 in Deccau districts, 109 — land revenue, 17 — licence tax in, 202 — price of salt before and after new measures, 230-31 — provincial rates, 32 — public spirit in regard to direct taxation, 211, note — result of new measures on con- sumption of salt and revenue, 232, 233 — salt duty, 217 from 1869-77, rate of, 219 duties increased, 224-25 — source of salt supply, 216 Bradford, Colonel, on salt measures 227 Bright, Mr., on the Government of India, 163-54 Broach, town duties in, 333 Budget resolution of 1878-79, extract from, 165 — statement for 1881-82, 192-93 Bullion, imports of, 383 Burke, Edmund, quotation from, 11-12 Burmah, capitation tax, 18 — condition of labouring classes, 237 — export duty on rice, 282-83 — new districts in, 39 — provincial settlement made with, in 1879, 145 — reform in salt duties desirable, 236 — Upper, treaty engagements con- cerning salt, 237 CALCUTTA and South Eastern rail- way, 70, 91, 94 — former condition of, 4 Campbell, Sir George, on Indian weights, 345, note Capitation tax in Burmah, abolition desirable, 236 amount of, 18, 20, table, 30 Central India, result of new arrange- ments concerning salt, 226-27 Central Provinces, sources of salt supply, 216 Chambers of Commerce of Manchester, Bengal, and Bombay, 285 INDEX. 455 CHA Changes in condition of India, 1-4 Chapman, Mr. R. B., 147 Cliina, 241-47 — letter from Shangliai correspondent of the Times concerning opium in, 257-63 — opium smoking in, 257 — opium supply of, 254-56 — rebellion in, 243 Chinese Government, position of, with regard to opium trajiJe, 255-56 — market for opium, 249 — wars, 243, 255-56 Civil services, net cost of, 43, 44 Cockerell, Mr. P. R., on registration, 364 Coconada, 109 Coffee and tea, English duties on Indian, 326 Coinage, amount, 383-84 Colvin, Mr. Bazett, 199, 364, note, 365 extract from paper on Indian taxation, 212-14, note to Clianter XII. notes on taxation, 364-66 on land cess, 199-200 on marriage tax, 373 on miscellaneous taxes, 374 ou sugar, 371-72 Compensation payments, 44 Condorcet, 264 Cooper's Hill College, cost of, 70 Cornwallis, Lord, 357-58 Cotton, cost of transport, 318 — duties. Lord Salisbury's despatch on, 283, 297-304 loss by remission of remaining, 320 measures taken with a view to removal of, 283-88 public opinion in India on re- mission of, 287 removal of, ordered by Lord Salisburj-, 277 results of remission of, 288-94 Sir John Straohey on, 311 total remission expedient, 294 — goods, changes in duties on, 34 development of trade in duty free, 289, 291, tabU, 292 grey, duties remitted, 284 necessity for total exemption from duty, 293 revolution in trade in, 290- 91 Indian manufacture, 284 piece, exports of Indian, 2SG. 292 Cotton goods, piece, quantities and values of different descriptions im- ported into India from 1875 to 1880-81, 290, talU revenue yielded by, 292 — mUls in India, prosperity of, 292 Cunningham, Mr. H. S., on incidence of taxation, 21 on land revenue, 16-18 Currency and exchange, 381-400 — copper, 382 — department, powers possessed by, 127 — disturbance of gold value of Indian, 83 — metallic, 381-82 — of India, effect on home remit- tances, 77-79 — paper, 383 Customs, 33-34, 274-311 — amount of, 20, taltle — incidence of, 20, table — present national policy of Great Britain, 278 — revenue, 9 — duties and cost of inland transport, relative effect of, 318-19 general rates until 1875, 275 Lord Northbrook on, 275-76 loss by remission of remaining, 320 loss of revenue caused by total remission compensated by growth of railway revenue, 321-23 no permanent loss of revenue probable from total abolition of, 296 speech by General Strachey on, 301-11 — line along the Indus, 225, 235 establishment of inland, 219 inland, abolition of, 225 in Central Provinces, 221 — revenue on imports per head, 279 — tariff duties remitted in 1878, 281 rvALY, Sir H., on salt measures, 227 xJ Davenport, Mr., on Chinese opium, 260 Debt, addition to home, 69, 76, 122, 124-25 — amount of, 8-9, 117 — and guaranteed railway capital, I 102 I — and productive works, total charge ! for, 101-102 i — and public works, charges for, ! ll-4rt 456 INDEX. Debt, average rate of gross interest on, 45 — discharge of, 125-27 — distinction iDetween ordinary, and that incurred for productive public works, 116 — Home, 44-46 — increase of, incurred for productive public works, 117 — increase of permanent, since 1868- 69, 117 — incurred for public works, gradual discharge of, 126 — incurred for discharge of Indian stock, 118-19, 124 — in 1880-81, under following heads: East Indian railway, loans and ad- vances, ordinary productive public works, total, 117 — interest charges on, 118-20 — interest on Home, 69, 75, tahle — net interest on, 44-46, 98-99 -on public, 115-31 — on account of loans, &c., 117 — reduction of Home, charge for, 77-79 — reduction of Indian, how far de- sirable, 420-21 — reduction of ordinary, 118 — sterling, 124-26 — — additions to, 69, 76 transformation into rupee, 79 — total in India and England, 45-46 — transfer from ordinary to produc- tive public works, 117 Decoan, irrigation works in, 109 Decentralisation, 22 — administrative results of, 148 — financial measures proposed to complete policy of, 146-47, 149 — of financial administration, 132-54 — revenues and services handed over to provincial governments in 1877, 144 — success of, in Bengal, 152-53 Deficit, including famine and war charges, 60 Dickens, Lieutenant-General, on de- centralisation, 134 Dispensariesand hospitals constructed, 8 ]5urbh'unga estates, extract from a resolution of the Lieut.-Governor of Bengal, 375-80, note to Chapter XIX. Duties, cotton. See Cotton duties — customs. See Customs duties — excise, 20 — exporl. See Export duties Duties, import. See Import duties — legacy and probate in England, 366 in India, 366 — octroi, 329-38 — ■ salt and sugar, 215-40 Duty, sugar, 155 EASTEEN Bengal railway, financial position, 128 East India Company's stock, 118-19, 124 — Indian railway. See Kailway Ecclesiastical net expenditure, 42 Eden, Hon. Sir Ashley, on land cesses, 199-200 on licence tax, 203 on the financial decentralisation policy in Bengal, 152-55 on the value of irrigation in Behar, 181 President of Army Commission, 49 Education, net expenditure on, 42 — receipts, 19, table Egerton, Sir Eobert, on licence tax, 202 Emigration, 173 England and India, importance of free trade between, 325-27 — legacy and probate duty in, 366 Exchange, conventional rate of, 387- 88 inconvenience of, 388-89 proposal of Government of India to abandon, 388 why retained by Secretary of State, 389-90 — fluctuations little dependent on trade demand, 385 — loss by, 48, 58, 68 financial inconvenience, 396 how far real, 391 increase of taxation it neces- sitates, 395 in last six years, 27, 60 present amount, 391 — with British Government, how fixed, 392 — with England, 77-78 — on railway transactions, 392-94 — result of operations in 1879-80, 395 Excise department, revenue from opium issued to, 240 — duties, amount of, 20, table on salt and liquors, 280 — revenue, 30 — revenue made provincial, 280 INDEX. 457 Expenditure, changes in forms of accounts, 23-25 — gross, 8 — increase of military, 48-49 — net, 25 — on famine. See Famine — ordinary and extraordinary, 94 — progress and present condition of, 38-53 Export duties, 1875, 275 on indigo and lac removed, 281-82 speech of General Strachey on, 304-307 — duty, articles subject to before 1875, 275 on rice, 282-83 Exports and imports, annual average of, 328, tahle of United States, 314 value per head in India, 279 England, 279 — average yearly value of, 1 05, 324 — excess, amount of, 386 — excess of, 313-15 over imports, 279 — growth and total value of, 10 — increase since 1840, 316 — rates of duty on, 33-34 — reductions in, 34, ntite FAMINE and war, expenditure on, 60 — average and total annual charge for last twelve years, 60-61 — commission, estimate of average yearly cost of famines by, 159, 190 explanation of policy of insur- ance by, ] 59-61 on necessity of railway and canal extension, 402-403 — insurance, amount of cesses on land, 201 misconceptions regarding, 164- 67 not proposed to create a fund for, 164-67 policy modified by Home Government, 166 results of, 163-64 success of, 167 taxation, total amount of, 202 — in Central France in 1770-71, 184 — liabilities, financial measures for meeting, 155-67 necessity for localising, 156 — measures for giving protection againM, 168-93 FRE Famine, measures taken to meet out- lay on, 60, 65 — policy of insurance against, 167 - 61 in 1874-75, 169 — protection against, in Madras, 177 — relief, amount spent in Bengal on, 198 Orissa in 1865-66, 108 of new taxation imposed for, 163 expenditure on, 54-55 from 1873 to 1878, 159 in last three years, 163 probable annual cost of, 159 test of success of measures taken for future, 115 — rates for protection against, 32 Famines, extraordinary expenditure on, 102 — in N.W. provinces, Madras, Bengal, and Orissa, value of irrigation canals during, 88 — periodically recurrent, 155, 158, 168 Fawcett, Mr. H., on land revenue, 15- 16 Financial measures for meeting famine liabilities, 155-67 — position, 65 — results of last twelve years, 56-57, 63-64 causes of improvement in, 64 — statement for 1874-75, extract on famine policy, 169-70 — system, provincial, 93 Finucane, Mr., 158-59 Food crops exported from Coconada in 1876-77, value of, 109 raised in deltas of Godavery and Kisfna in 1876-77, value of, 109 raised in N.W. provinces and Punjab in 1877-78, value of, 107 saved by Sone canal in 1873- 74, 108 Forecast of productive works ex- penditure, 93-97, tahls Foreign trade, 312-323 Forests, receipts, 19, taile — revenues and administration, 28- 29 France, famine in Central, in 1770-71, 184 — revenue derived from registration of assurances in, 365 Free trade, first application to India, 296 policy of Lord Lyt ton's govern- ment, 295 458 INDEX. PRE Free trade principles specially im- portant to India, 278 wide field for application in India, 325-27 unpopular in India, 276 Funds, civil service annuity, 57-58 — military, 57 Furlough allowances, home charges, 70 net charges, iS-ii GAIN by exchange, 19, __ Ganges canal, 87, 423 Ganges canal, Lower, 107 Gauge, broad, number of miles on guaranteed railways, 173 State railways, 174 — narrow, number of miles on State railways, 174 — question of, 174 Godaveri canals, return on capital, 109 value of rice raised on, 109 Gold coin not legal tender, 382 — imports of bullion, 383 Grain, export duty on, 33-34 Grant-DufE, Mr., on customs line, 220 Grant, Sir J. P., on succession duty, 366, and note Great Indian Peninsular railway, financial position of, 128 Secretary of State's power of purchase, 128-29 Grey cotton goods. See Cotton goods Guaranteed railways. See Railways HARTINGTON, Marquis of, on licence tax, 304 on opium, 356 Hathras and Muttra railwaj', 175 Polkar, Maharajah, on salt measures, 226-27 Home charges, 68-85 army, 69-71 — debt, growth of, 76, 83, 124 — government, modification of famine insurance policy by, 166 — treasury, receipts of, 68 sources, whence supplied, 75-76 Hope, Mr. T. C, on cotton duties, 285 House of Ciommons, committee of the, on supplying funds by borrowing for public works, 96-97 recommendations on re- ducing expenditure, 166 : discussion on opium question, 365 House of Commons' resolution ap- proving abolition of cotton duties, 286 resolution concerning cotton duties, 284 House property, tax on, 205 — tax, 371-72 IMPORTS and exports. See Exports. — average yearly value of, 105 — customs revenue per head in India on, 279 United Kingdom, 279 — duties on, 33-34 — growth and total value of, 9-10 — increase since 1840, 316-17 Import duties before 1875, 275 details of, in 1776-77, 281 gross receipts for twelve years, from 1869-70 to 1880-81, 295, table in India, protective, 280 total amount of, in 1876-77, 280 — trade of British cotton goods, 284 Improvements, administrative, 7-8 — demand for administrative and material, 5-6 Income and licence taxes, 363 — tax, 9, 32, 194 advantages of, 212-14, twte to CJiapter XII. demand of Bengal zemindars to be exempted from, 198 desirability of, 206-207 Lord Lawrence's opinion of, 206-207 unpopularity of, 213, note to Chapter XII. India and England, importance of free trade between, 325 — application of free trade to, 325- 27 — average rate of salt duties over all, 235 — changes in condition of, 1-4 — charges of administration, 313-15 — extent of, 132-33 — free trade specially important to, 279 — good government of, 11-12 — importance of opium revenue to, 263-64 — liable to famine, 158 — non- consumption of foreign luxu- ries by people of, 295 — office, 273 cost of, 70, 81 — present social condition of, 172 — progress of malerial weallli, 312 INDEX. 459 IND India, public opinion on economic questions in, 276 — results of new salt measures on consumption and revenue over all, 232 - stock, 118-19, 124 — succession tax in, 366-68 — taxation in, 356 — territorial extension of empire, 1-2 — trade of, 312-28 abnormal and undeveloped, 279 compared with United States, 314 in relation to population, 316, tahle — value of works obtained by, 102 Indian departments, home charges for, 70 — Government, credit of, 127 — position in relation to guaranteed railway capital, 128 — manufactured cotton goods, 284, 286 — securities, 127 Indigo, artificial preparation of, 282 — duty on, 33-34 — export duty removed, 281-82 Inland customs line. See Customs. Interest receipts, 19, tahle Irrigated land, increased value of, 110 Irrigation, advantages of, 110, 177-81 — canals, 176 — canals and railways, policy of con- structing, 185 value of, in famines in Northern India and Sladras, 88 estimate for outlay on, 93 in Madras and Bombay, income of, 96 Orissa, 70 undertaken in Madras and the Punjab, 87 — in Madras, 177 — income and charges on, 100 — number of acres irrigated, 7 — returns on capital, 106, table — revenue largely dependent on sugar crops, 239 — tank, 177 — total cultivated area under, 110 — wells, total area irrigated by, 110 — works, borrowing to carry on, 89- 90, 169, 176 in Bengal, value in time of famine, 180-81 JAILS, former insuiKciency of, 5 — improvements in, 7 LAW Jaipur, arrangement with, concerning salt supply, 221 Jodhpur, arrangement with, concern- ing salt supply, 221 Judges, inadequate pay of native, 6 Judicial services, 6 Justice, law and, 35 net expenditure on, 41 — • — receipts, 19, table KARACHI, town duties in, 333, 335 Kistna canal, return on capital, 109 Kistna canal, value of food raised, 109 Kurnool, 174 LAC dye, duty on, 33-34 — export duty removed, 281-82 Laing, Mr., on decentralisation, 135 Land cess, 9 — cesses of Bengal, 359 new, 197 Land rates, revenue yielded by new, 201 Land revenue, 27 expenditure, 38, and note, 39-40 growth of, 9 in Bengal, 18, 197-98, 357 in Bombay, 17, and Twte in Madras, 17, and note in N.W. provinces, 17 in Punjab, 18 increase of gross, 16 loss from famine in Madras, 60 nature of, 14-18 present normal amount, 28 proposal to give local govern- ments a fixed share in, 146 shaie of government, 16 Land settlement, 14 in N.W. provinces, benefits to landholders under new, 199-200 Landlords of Northern India, rate of taxation on, 209 Law and justice, 35, 39 net expenditure on, 41 receipts, 19, table Lawrence, Lord, on extraordinary public works policy, 89-91, 192 on income tax, 206 on judicial service, 6 on weights and measures, 344, 346, 350-52 Lawrence's Government, Lord, on octroi duties, 329 on weights and measure?, 344, 346, 350-52 460 INDEX. LEG Legacy and probate duty in England, 366 in India, 366-67 Licence and income taxes, 363 Licence tax, 9, 31-82, 201-3 amount of, 202 average rate on incomes, 205 BlU for extension of, 20i limit of liability to, 202-3 nature of, 197 objections to, 204 total number of persons paying, 210 yield of, 203, 205 Liquors, import duty realised on in 1876-77, 280 Loans of 1881, 127 Local governments, amount of reve- nues made over to, 145 co-operation in famine protec- tion scheme, 182 demands for expenditure, 136-37 financial arrangements made with in 1871-72, 140 position of, 134 limit of liability to licence tax fixed by, 202 relations with supreme govern- ment, 137-38 revision of settlements desir- able, 145-46 should not administer opium revenue, 272-73 ■ salt department, 238 Loss by exchange. See Exchange Lumsden, Sir Peter, member of army commission, 49 Lytton, Lord, 141, 156, 274-75 extract from speech on protec- tection against famine, 171-85 on cost of army, 49 on cotton duties, 286-87 on customs duties, 276-77 on free trade, 295-96 on financial decentralisation, , 148 on income tax, 194 on salt system, 217, 229-30, 236 prevented fully executing his plans for protection against famine, 186-92 rejects claims of zemindars, 198 scheme for prevention of fa- mine, 170 Lytton's Government, Lord, changes of salt system during, 215, 222 financial decentralisation, 148 lAllon's Government, Lord, financial improvement during, 64 octroi duties, 332 proposal for constructing works necessary for protection against famine, 189 tobacco tax, 368 MADRAS, alienp^tions of land revenue, 44 — and Bombay irrigation works, accounts of, 96 net income of, 98 result of new salt measures on consumption and revenue, 232 — and Mysore, distribution of grain in, durii^g famine, 175 — charges under head revenue, 39 — exempted from new laud rate, 197 — export duty on rice grown in, 282 — harbour, 94 — increased rental of irrigated land, 110 — Irrigation Company, guaranteed in- terest on, 73, note, 99-100 of, 177 works, financial results, 106, table — land revenue, 17, and 7wte loss by famine, 60 — licence tax in, 202 — local taxation, 142 — protection of, against famine, 177 — presidency, consumption of salt in, 224 prices of salt before and after new measures, 230 salt duty increased in, 224-25 — protection against famine, 177 — provincial arrangements, 146 rates, 31 — railway interest charge on, 128 Secretary of State's power of purchase, 129 — rate of salt duty from 1869-77, 219 — salt duty, 216 — serious drought in, 166 — source of salt supply, 216 — value of canals during famine, 88 railways during famine, 1 74 Maine, Sir Henry, on decentralisation, 136 on succession duty, 153, and 7ite, — duty at Ajmir, 270 — letter from Shanghai correspondent of the Times, 257-63 — Malwa, 242 — monopoly, probable results of sub- stitution of excise for, 264-65 — popularity of poppy cultivation, 267-78 — proposal to sell limited supply at higher prices, 272 — quality of Indian, 254-55 — reserve, 246-48, 271 — revenue, 19, table, 2.5-26 administration of, 273 dangers to which exposed, 273 derived by native states, 268 fluctuations of, 243-53 gross and net since 1869-70, 348, 249, taile ' how raised, 241-42 importance to India, 263-64 net for three j'ears, 250-51, tables for twelve years, 251, table for twenty years, 251, table receipts, 241 risks to, 253 purposely under-estimated, 252 — smoking in China, 253 — supply to China, 2.54-55 — trade, position of Chinese govern- ment with regard to Indian. 255-5" Opium trade. Society for the Suppres- sion of the, 258-62 — weights of chests, 266 Orissa, amount spent on famine relief in 1865-66, 108 — and Soue irrigation works, 106 — company, 90 — famine in, 88, 180 — irrigation works, 70, 94 — numbers who perished in famine of 1865-66, 108-109 Oudh and Eohilkhund railway, finan- cial position of, 128 — licence tax, 202 — new districts, 39 — new rates in 1870, 142 on land in 1878, 201 — provincial rates, 31 — source of salt supply, 216 PATNA, 173 Pay, Home charges for army, 7 1 Pensions and pay, retired, 71 — and superannuations. Home charges, 70, 81 — army, 49 — political, 44 Permanent settlement of Bengal, 357-63 yearly revenue lost by, 358 Police, former condition, 6 — net charge, 41, — receipts, 19, table Political expenditure, 42 — pensions, 44 Postage, Home charges, 70 Post-office, 25-29 — net cost, 41 — number of letters, 10 — receipts, 19, table Printing, stationery, and receipts, 19, table Pritchard, Mr., on cotton duties, 239 Private enterprise, proposals disguised under name of, 414-15 ample scope for real, 425 Professional class, position of witli regard to licence tax, 195 Provincial and local surplus and deficit, 51 — finance, control of public opinion desirable, 425-27 — governments, gross sum made over in 1871-72, 140 liable to meet cost of provincial famines, 182 revenues and services trans- ferred ill 1877, 144 INDEX. 463 PRO Provincial rates, 31-32 amount of, 20, table, 31 — revenues, aggxegate surplus over expenditure, 148 applied to local railways, 150 Public opinion in India on remission of cotton duties, 287 Public works, agency of companies how far desirable, 412-15 charge for public works and debt, total, 101 for, 46 complication of rules for carry- ing out, 422-23 debt discharged by sinking fund, 126 department, 182 constituted, 87 expenditure to 1865-66, 87 ordinary, 47, 101 reduced, 92 extension of provincial authority desirable, 424 — ■ — extraordinary, 89-94 financial results of borrowing, 102-103 success of borrowing, cri- terion of, 115 future requirements of, 401- 29 gross yearly Income, 10 home charges, 70 intervention of government necessary in India, 407-12 local . management desirable, 415-16 necessity for economical con- struction, 422 net charge from 1868-69 to lSSO-81, accumulated with com- pound interest, 123 objections to borrowing refuted, 416-20 — guaranteed companies, 413-14 policy of borrowing successful, 111-12 productive, 29, 86-112 accounts of, 96 capital outlay on, 101 expenditure forecast of, compared with results, 96-98 reduced, 95 increase of net income, 120 money spent on, 46 net charge, including in- terest, 47 net expenditure, 46-47 — net jearly charge, 101 RAI Public works, productive, policy of borrowing for, 22, 62-63 profits on, 122 protective, how to meet expen- penditure on, 186-93 receipts, 19, table stores. Home charges, 72-73 Punjab and Sindh railway, financial position of, 128 — consumption of opium in the, 254 — land revenue, 18 — licence tax, 202 — new local rates in 1870, 142 — prosperity, 199 — provincial rates, 31 — return on irrigation works, 106-107 — salt duty, 217 — source of salt supply, 216 — value of crops raised in 1877-78, 107 RAIL, cost of transport by, 104 Railway betv/een Agra and Delhi, and Sambhur salt lake, 221 Railway, Bombay and Baroda, finan- cial position, 128 — Calcutta and South-Eastern, 70, 91,94 — capital guaranteed, and public debt, 121, tabU, 122 — capital, position of Indian Govern- ment in relation to guaranteed, 128 — communication, price of salt re- duced by, 230-31 — companies, negotiations as to adopt- ing metrical system of weights, 353 — contracts, 128, 413-15 — Eastern Bengal, financial position, 128 — East Indian, 46, 99, 122 • — financial position, 128 prepared to adopt metrical system of weights, 353 purchase of, 129-31 sum raised for purchase, 117 — from Lahore to North-West fron- tier, 94 — Great Indian Peninsula, financial position, 128 — Hathras and Muttra, 175 — in Sindh, 94 — Madras, financial position, 128 — Oudh and Rohilkhund, financial position, 128 — Punjab and Sindh, financial posi- tion, 128 — South Indian lines, financial posi- tion, 128 464 INDEX. Hallway traffic, number of tons moved, 321 — sum earned per ton, 321 — tax on, 373 — revenue, necessary growth with increased trade, 321-23 — revenues, importance of retaining, 425 — transport, cost compared with cart, 104, 318-19 — through native states of Rajputana and Central India, 227 — weight of goods carried by, 105 Railways and irrigation works, exten- sion necessary, 403 funds for extension, how to be obtained, 404-405 pohoy of constructing, 185 — borrowing to carry on, 90 — estimate for outlay on, 93 — first opened, 104 — for slow goods traffic, 175 — frontier, 47, 100 — goods trafiB.0 receipts, 318 — guaranteed, burden on home treasury, 80, 83 capital deposited with Secre- tary of State, 73-74 capital expenditure in last twentj'-eight years on, 173 raised for, 313 date of undertaking, 86 economical result on India, 315 Home charges, 73-74 net charge for interest, 47, 92 number of miles of broad gauge, 173-74 returns on capital, 103 — increase of gross receipts, 103-104 of net receipts, 103-104 of trade due to extension of, 319 — local, undertaken provinoially, 150 — number of miles of broad gauge lines, 173 narrow gauge lines, 174 constructed, 7 of passengers, 105 — returns on capital in India, 103 England and Wales, 103 United Kingdom, 103 — State, Home charges, 70 number of miles, 174 outlay on, 91, 174 ownership desirable, 406-407 returns on capital, 103-104 — strategic, 174 — treatment of receipts in public accounts, 24, 114 Railways, value duringfamine in liohar and Madras, 174 — value in prevention of famine, 173 — weight of goods carried by, 105, 321 Rajputana, cost of railways running through, 227 — export duty on sugar from India, 220 — leases of salt sources obtained by British government, 225 — railway between British territory and, 221 — results on price of new salt mea- sures, 227 — salt lakes and springs, 216 measures, cost of, 44 — sugar duties, 240 Rangoon, early condition of, 5 Rates, amount of provincial, 20, table — on land, 357-63 Receipts, total net from sources other than taxation, 30 Registration of assurances, revenue derived in France from, 365 — tax, amount of, 20, table — taxes on, 363-66 Rent law in Bengal, report of com- mission on, 359-61 Remittances, family, 70 — Home charges, 70-71 — miscellaneous, 71 — postage, 70 Revenue and expendifm-e, compara- tive statistics, 8-10 — changes in form of accounts, 25-26 — customs. See Customs. — necessary growth from railways with increase of trade, 321 — opium. See Opium. — result of new salt duties on, 230-34 — yielded by cotton goods, 292 Revenues, customs, 9 — forest, 28 — gross annual, 13 — gross total, 8 — income tax, 9 — land, 9 — licence tax, 9 — miscellaneous, 29-30 — net, abstract from 1869 to 1881, 37, table total derived from taxation, 35 distinct from taxation, 18, 19, table — opium, 29-30 — progress and present condition, 27-37 INDEX, 465 REV JRevenues, salt, 9 — how raised, 13 Eice, export duty on, 34, 282-83 — monopoly by India and Burmah, 283 Roberts, Sir Frederick, member of army commission, 49 Rupee paper, amount of enfaoed, 79 — securities, 79 SALISBURY, Lord, cotton duties removal ordered by, 277 extract from despatch on, 297-304, ru>te to Clmjiter XV. on cotton duties, 277 on cotton trade, 283-85 — • — on famine finance, 156 Sambhur salt, 230-231 lake, salt supply from, 221, 226 Salt and sugar duties, 215-40 Salt, consumption of, 222-24, 231-34 — department, administration of, 238 — duties, average rate over all India, 235 expediency of large and general reduction, 234 financial results of, 231-32 general result of new measures, 229-80 imported by sea, duty realised in 1878, 280 increase of revenue in last four years, 232 measures taken by Lord Lytton's government to equalise, 222-26 measures taken by Lord Mayo's government to equalise, 221 origin of, 217-18 result of new measures on con- sumption and public revenue, 231- 32 result of new measures on price, 230-31 system under which levied, 216- 17 — Liverpool, 236 — payment to Rajputana, 44 — price of carriage by rail, 231 — revenue, 20, table, 34 local governments' interest in, 147 growth of, 9 — supply, sources of, 216 — tax, 370 incidence of, 20 — treaty engagements with Upper Burma, 237 Saltpetre, 282 Schools, 42 Soindia, Maharajah, on salt measures, 226 Secretary of State's bills, 76-79 on construction of railways with borrowed capital, 91 on income tax, 194 opium, 265 weights and measures, 350, 351 orders regarding expenditure on public works, extract from, 191 orders restricting expenditure on public works, 151 orders to reduce expenditure on public works, 186 orders to under-estimate opium revenue, 252 powers of purchase of certain railways abandoned, 128 prevents legislation on octroi duties, 332 proposed extension of licence tax approved by, 204 three-and-a-half per cent, loan, 127 Shipping, amount of in Indian trade, 321 Sikhs, consumption of opium among, 254 Silver bullion, competition wilh Secretary of State's bills, 384 price determines value of rupee bills, 384 — coinage, 381, 383-84 — depreciation of, 277 effect on Indian trade, 396-97 — export for remittance not possible, 385 — fall in value, 48, 95, 102 effect on trade of, 320 — imports of bullion, 383 Sindh, railways in, 94 — result of irrigation, 109 — salt revenue, how raised, 229 Sone irrigation, 180-81 — irrigation works, 106, 108 Southern India, famine in, 171 South Indian railway, financial posi- tion, 128 Stamps and registration, 35 — receipts from, 20, taile — revenue from, provincialised, 144 — tax, incidence of, 20 Standard of value in India and England, need of uniformity, 398 State railways. See Railways Stationery ar.d printing, net expenii- ture, 42 H H 466 INDEX. Stationery receipts, 19, taliU Stephen, Sir James F., on permanent settlement, 338, and note — on weights and measures, 351 Stores, Home charges, army commis-- sariat, 72 • — marine, 72 military, 71-2 miscellaneous, 73 public works, 73 stamps, 72 stationery, 72 system of purchase for India, 82 Straohey, Lieut.-Geueral E., on cus- toms duties, extract from speech on, 304-11 on decentralisation, 131, -note, 137-38, 146 minute on railway extension, 91 proposals for borrowing for public works, 89 on weights and measures, 342, note, 345 Straohey, Sir John, 134, note, 141, 171 on cotton duties, 286 __ extract from financial statement concerning, 311 on decentralisation policy, 143, 146-47 on famine surplus, 165 octroi bill, extract from speech on, 333-37 duties. Bill introduced to regulate, 322 salt duties, extractfrom financial statement, 1877, 223 on succession duties, 366 sugardaties, extract from speech on, 239-40 — . — on taxation imiposed in 1877-78, 195 weights and measures, extract from minute on, 347—50 Sugar and salt duties, 215-40 — duties, 239, 370-71 -^ removed, 34, and mite, 240 — export duty into Bajputana, 220, 226 — inland duties abolished on export of, 281 — Mauritius, 239-40 — total value consumed yearly in British India, 371 Succession tax, 366-68 Superannuation allowances, 43-4 — and pensions, Home charges, 70, 75, table, 81 — receipts in aid, 19, table Suvat, town duties in, 333 Surplus available, 65 — normal, on ordinary account, 65 — of last three years on ordinary account, excluding Afghan war, 61 — of last twelve years, 57 — of last twelve years excluding ex- ceptional charges, 60 — on ordinary account of last two vears, excludingexceptional charges, 64 — required to meet future famine expenditure, 158, 160-62, 186 TARIFF, customs, 274-3 U — objectionable nature of Indian, 279-80,' .304^308 — remissions of duties, 275, 28 1-82 Tax, capitation, 20, table — house, 371-72 — income, 9 — marriage, 372-73 — on railway traffic, 373 — salt, 370 — succession, 366-68 — sugar, 370 — tobacco, 368-70 Taxation, 30-36, 66 — amount of new, for famine relief insurance policy, 163 in 1879-80, 19 — direct, 206-8 — equitable adjustment of public burdens, 428 — famine insurance, total amount, 201 when imposed, 199-201 — heads and incidence of, 20-21 — imposed in 1877-78, 194-214 — incidence of new, 208-10 — Indian, extract lErom Mr. Colvin, 212-14, note — indirect, 222-23 — in India, 355-56 — local and provincial, 21 — measures of 1870 led to no fresh, 142 — municipal, 21 — natural dislike to, 210-U — not increased, 8 — position of various classes with re- gard to, 195 — possible amount that might be raised by new, 374 further land, in Northern India, 362 sources of new, 355-74 — reduction where first needed, 212 — salt a legitimate subject of, 222 — total net, 35 INDEX. 467 Taxes, actual sums yielded by new, in tliree years, 163 — income and licence, 363 — miscellaneous, 373 — registration, 363-66 — to meet future liabilities for famine, 163-64 Tea and coffee, English duties on Indian, 326 Telegraph, 25, 29 — net charge, 41 — net revenue, 41 — number of miles, 7 — receipts, 1 9, table Temple, Sir Richard, licence tax, 202 octroi duties, 335 Thomason, Mr., schools established in north-west provinces by, 42 Thompson, Mr. Rivers, direct taxa- tion, 207 Thornton, Mr. T., on cesses on land, 199 Tinnevelly, increased rental of irri- gated land, 110 Tobacco, cost of cultivation, 369 — price, 369 — tax, 368-70 — yield in Bengal, 369 Tolls, rules for levying muncipal, 331- 37 Tonnage of Indian shipping, 321-22 Town and transit duties in Bombay Presidency, 333-37 Towns, population of, 8 Trade of India, 312-28 abnormal and undeveloped, 279 annual averages of exports and imports, 323-24, tables complete removal of all ob- stacles necessary to secure progress of, 429 development of, 320 — expansion of foreign since 1840, 316-17 foreign, abstract statement of, from 1834 to 1881, 328, table growth; 9-10 ■- — of foreign and intern al, 322 increase due to extension of railways, 318 in relation to population 316, table Secretary of State's bills de- pendent on, 78 Trading classes, position with regard to taxation, 195-96 Traffic, railway. See Railway Transit and town duties in Bombay presidency, 333-37 ZEM Transit duties, abolished, 217-18 in Central India, 226 loss of revenue when abolished, 218 under native rule, 217 Transport, cost of railway compared with cart, 104, 318-19 — Home charges for army, 72 — relative burden on trade custom duties and, 318-21 Treasury, annual home- disbursements since 1868-69, 69 — home disbursements classified, 69 normal yearly charge to be met, 76 sources whence supplied, 75-76 Trevelyan, Sir C, abolition of transit duties, 218 Tributes and contributions from native states, 19, table, 28 Turgot, 184 UNITED States of America, trade compared with that of India, 314 \: IRANGAUN, town duties in, 335 WADE, Sir T., on opium, 256 Wadwin, town duties in, 335 Watters, Mr., on opium, 260 Weight, metric system suited to India, 344 Weights and measures, 339-54 committee to consider, 340 condition in various provinces, 340-42 decision of Lord Lawrence's government, 343-50 inconvenience of English sys- tem, 343-45 inconveniences of present Indian systems, 354 of Capacity Act, Indian, 351 plans proposed for establishing a uniform system, 343 — Regulation VII. of 1833, 344, 351 Wilson, Mr. James, heads of account, 23 licence tax, 207 ~V ARN, exports from Bombay, 286 ZEMINDARS of Bengal, 198, 209, 358-362 claims, 359 rights, 359 INDEX OF TABLES. Assessment of land revenue, Madras and Bombay, 17 Cotton, fine cloths and yarns, Increase of Imports between 1858 and 1874, 302 — goods, clotbs and yarns, quantities imported from 1858 to 1874, 300- 301 — — imported into India from 1875- 76 to 1880-^81, quantities and values of grey, white, and coloured, 290 grey piece goods, quantities duty- free, and dutiable in 1878-79 to 1880-8], 291 Customs duties on imports in 1866-67, ^details of, 280-81 — import duties, gross receipts from 1869-70 to 1880-81, 295 Debt, adjusted account from 1868 to 1881, abstract of, 450 Duties on Malwa opium, correspond- ing to prices of Behar and Benares, 267 East Indian Railway, abstract of account with government for 1880, 131 Expenditure, net, from 1869-70 to 1880-81, 434-35 1869 to 1881, abstract of, 53 Exports, value of principal articles from 1856 to 1881, 324 Financial results of productive public works from 1868 to 1881, including charges for interest on ordinary -public works and debt, abstract of, 113 Gross income other than taxation in ,1879-80, 19 — receipts from taxation in 1879-80, 20 Guaranteed railway capital received and issued from 1869-70 to 1880-81, 440-41 Home charges for army and stores under chief sub-heads from 1869-70 to .1880-81, 442-43 — receipts and disbursements from 1869 to 1881, abstract of, 85 Home treasury, gross disbursements and receipts from 1869-70 to 1880- 81, 438-39 net disbursements and receipts from 1869-70 to 1880-81, 440-41 Imports, values of principal articles from 1856 to 1881, 323 Interest and public works, statement explanatory of charge for, from 1869 to 1881. 446-47 Irrigation works, capital, net income, and interest charges for 1879-80, 106 Opium revenue from 1869-70 to 1880-81, corrected net, 241 gross and net, from 1869-70 to 1880-81, 249 progress of, since 1861-62, 251 Ordinary debt, net interest on, .and ordinary public works outlay from 1868 to 1881, 444-45 State railway and irrigation capital, with gross and net receipts therefrom, and charges of interest, 121 Productive public works, capital out- lay, receipts and charges from 1868 to 1881, 444-45 — works, actual net charges on, com- pared with the forecasts, 97 net receipts and charges, 448-49 Public debt, statement of capital and interest from 1868 to 1881, 448-49 Railway los" by exchange, corrected statement of, from 1869 to 1881, 446-47 Revenue and expenditure, general comparison of total, showing sur- plus and deficit from 1869-70 to 1880-81, 432-33 showing surplus and deficit from 1869 to 1881, abstract of, 67 — net, froir 1869-70 to 1880-81, 432-?r from 1869 to 1881, abstract of, 37 Trade, abstract statement of foreign, from 1834 to 1881, 328 — comparison of, in dilferent coun- tries in relation to population, 316 Spottiswoofte li' Co., Prnnlers, A^ew-slreet Square, London. ■■;rn^-^^^i'.iiu