The finances and public works of India from 1869 to 1881

Front matter

eOJg;HELL UNIVERSmf

LIBRARY

South Asia CoUecttoH KROCHUBRAKY

Chapter I. Jn'xrodttciory

Great changes in India in recent years — Demand for administrative and material improvements — Expansion of revenues and expenditure — Growth of import and export trade — Outlay on railways 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 — Administrative services — Public works — Other receipts — Taxation proper — Excise — Customs — Salt — Stamps — Direct taxes — Provincial rates — Incidence of taxation on people — Local taxation — Changes in forms of account — Difficulties in way of comparisons 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 taxation — 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 — Productive public works — Ordinary public works — Loss by exchange — Army — Increase of military charges and necessity for reductions — 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 — Corrections 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 expenditure 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 conclusions ..... .... 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 distinguished 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 investments — Discharge of debt how far desirable — Sterling debt — Its large increase — Importance of preventing its growth — Difficulties 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 — Extended in 1877 by including revenue — The scope of these extensions — 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.

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 Nortlibrook'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 — Misconceptions' as to famine insurance — Creation of a fund not proposed — 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 income 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. 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 — Preventive 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 — Administration 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 principles — 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 attending 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 Northbrook — 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 — Increased prosperity of Indian mills — Necessity for early extension of remissions to all grey goods — After which complete exemption 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 objects — 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 provinces — 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 — Extension 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 between excess of exports and Secretary of State's bills — Combination of sterling and rupee expenditure in public accounts — Adoption 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 international 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 establishing 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 discharge of debt — ^Necessity for economical construction — Needless complication of existing rules for undertaking public works — Economy not secured by restrictions only — Provincial responsibility 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.