THE PROPOSED LOANS TO INDIA.

In the February number of this Review I endeavoured to describe the financial condition of India, and I hope to be able in the following remarks to show the additional light which has been thrown on the present financial condition of that country by the Budget which has been lately introduced at Calcutta, and by the financial arrangements which it is proposed to carry out both in England and India during the present year. The simple announcement that an exceptionally large addition to the indebtedness of India is to be accompanied not by an increase, but by a remission of taxation, is sufficient to show the extreme gravity of the financial situation in India. During the current year it is proposed to raise a 4 per cent. loan of 3,500,000!! in India; the Government have already announced their intention to introduce into the House of Commons a Bill which will authorise the Indian authorities to borrow 10,000,000l. in England; and 2,000,000l. is to be advanced, free of interest, by England to India, as a contribution towards the expenses of the Afghan war. It, therefore, appears that in a single year it is proposed either to borrow, or to take authority to borrow, no less a sum than 15,500,000, an amount which represents more than one-tenth of the entire national debt of India. If it were possible to obtain additional revenue by fresh taxation, no one can suppose that the Indian Government would be so improvident as to sanction proposals which will cause such a large addition to be made to Indian indebtedness, without making any attempt to supply, by increased taxation,

1 The amount of the loan to be raised in India is 5,000,000, and not, as here represented, 3,500,000l. It appears, however, from the Budget statement for 187980, recently issued at Calcutta (see paragraph 268), that about 1,500,000l. of the 5,000,000l. which it is proposed to borrow is needed to discharge, on the 1st of May next, the untransferred portion of the 5 per cent. loan,' and, therefore, the 'net amount thus called for is only 3,500,000l.' I am so anxious not to overstate the financial exigencies of India, that I accept this conclusion, although it is important to bear in mind, as appears from the same paragraph of the Budget statement, that the necessity of raising a still larger loan to meet this year's heavy deficit has only been avoided by resorting to the temporary expedient of providing 1,200,0004, ‘from the public balances.'

a portion of the deficit which has to be met. It may, therefore, be concluded that, in the opinion of the Indian Government, the extreme limit of taxation has now been reached in that country, and that, unless expenditure can be reduced, there is no margin from which to make any provision for such contingencies as war and famine, which we are officially told are certain to recur. Constant borrowing must consequently be regarded as the normal condition of Indian finance.

Although it may be thought that nothing can exceed the seriousness of the state of things thus disclosed, the outlook for the future becomes even much worse when it is seen that, in the midst of this embarrassment, the Indian Government are surrounded with influences that compel them to surrender a portion of the revenue, which they themselves admit is altogether inadequate to satisfy the demands now made upon it. The import duties on cotton goods are, during the present year, to be partly remitted, at a cost to the Indian revenue of about 150,000l., which next year will be increased to 200,000l. No one for a moment will even pretend to say that, in the present state of Indian finance, the idea would have been entertained of remitting these duties if the finances of India were administered in the interest of that country alone.

The partial remission of these duties has been defended on the ground that they are protective in their character, and that it is wrong for free-trade England to sanction, in any form, the continuance of a protective duty. It would, I believe, be not difficult to show that these duties are much less protective than is ordinarily supposed. It is important to bear in mind that in the Bombay mills, which are said to enjoy protection at the expense of Lancashire, the manufacture is almost entirely confined to the coarser sorts of cotton goods, upon which, when imported, no duty is imposed. But even if it is admitted that the import duties on cotton goods are as protective as they are alleged to be by the representatives of the manufacturing interest in England, it would be necessary, in order to justify the repeal of these duties, to show either that India could spare the revenue which they yield, or that it could be obtained in some other less objectionable form. When it is remembered that not a single. year passes without a most serious addition being made to the indebtedness of India, it at once becomes evident that, as India has no surplus, she cannot surrender a single shilling of revenue without an equivalent amount being added to her debt. As long, therefore, as the state of Indian finance is such that she not only has no surplus, but has annually to borrow in order to make good a heavy deficit, it is impossible to justify any remission of taxation, unless the sacrifice of revenue which such a remission involves is to be compensated for from some other source. No one, so far as I am aware, has suggested new taxation, by which it would be practicable to obtain the

revenue which is yielded by these cotton duties. In considering questions of taxation nothing can be more unwise, than to conclude that that particular tax must be the best which is most in accord with the principles of economic science. The tastes, the habits, and the wishes of the people on whom the tax is to be imposed ought to be most carefully considered, and I believe it will not be denied that of all the taxes which are levied in India, there are none to which the people of that country feel so little objection as the import duties on cotton goods. It is, moreover, particularly worthy of remark, that the repeal of these duties must certainly tend to create greater inequality in the incidence of taxation in India. It will be generally admitted that, owing to the difficulty of imposing taxes which reach the wealthy classes, an unduly large part of the revenue of India is contributed by those who are extremely poor. cotton duties are now almost entirely imposed on the finer sorts of goods, which are chiefly consumed by the rich, it is obvious that the repeal of these duties would reduce the amount of taxation paid by the wealthy, and would consequently still further increase the inequality in the taxation borne by the poor.

It is sometimes urged that the real objections to these duties are not adequately understood by the people of India, and that they fail to appreciate the loss that is caused to them by their continuance. But precisely the same remark holds true with regard to every country in which a protectionist tariff is maintained. The people of Canada, for instance, appear to be altogether insensible to the injury which they are about to inflict upon themselves, by the more onerous protective duties with which they seem determined to fetter their commerce. But even if India could afford the sacrifice of revenue which is involved in the reduction of the cotton duties, it is of the first importance most carefully to inquire whether there are not other taxes in India which could with greater advantage be reduced. It is now universally acknowledged, that no circumstance connected with the financial condition of India is so serious as the increased burden which is imposed upon her through the loss by exchange. It need scarcely be remarked that, in order to bring about a more favourable state of exchange, it is necessary either to increase the remittances which other countries have to make to India, or to diminish the remittances which India has to make abroad. If her export trade should increase, there will be a larger amount to remit to India. There will consequently be a greater demand for bills on India, and the price of these bills will advance; in other words, the exchange will become more favourable. At the present time an export duty is levied on rice and some other articles of Indian produce. If these export duties were repealed, the export trade of India might receive an important stimulus, and an influence would thus be brought into operation to diminish the loss by exchange which she

now has to bear. The policy which is now being pursued by the Indian Government will produce an exactly opposite result. The reduction of the cotton duties will increase the imports into India. The amount, therefore, which India will have to remit to other, countries will be proportionately increased; the demand for bills on India will consequently be diminished; and thus, at the very time when the loss by exchange is causing a most severe strain upon the finances of India, the Indian Government adopts a policy which not only involves a most indefensible sacrifice of revenue, but which directly tends to create a still more unfavourable exchange.

Greatly as the remission of the cotton duties is, for the reasons just adduced, to be deprecated, there are other objections of a much more weighty kind to be urged against this needless sacrifice of revenue. The most prominent feature in the Indian Budget of last year was the formation of what was described as a famine fund. The present Finance Minister, Sir John Strachey, came to the conclusion, after a most careful and exhaustive review of the state of Indian finance, that, the ordinary revenue of that country being barely sufficient to meet its ordinary expenditure, there was no margin left from which any provision could be made for such contingencies as war and famine. During the past twelve years there have been four famines in India; and since 1873 the famine in Bengal and the recent famine in Southern India have entailed an expenditure of 16,000,000%. As there was no margin of surplus revenue from which this large expenditure could be provided, the money had to be obtained by borrowing, and the debt of India has been proportionately increased. In order to prevent the recurrence of such a state of things, it would obviously be necessary, in years in which there were no famines, to secure a surplus that would enable a fund to be formed, from which the money required for the relief of famine could be provided. After calculating the amount of famine expenditure during the period above mentioned, Sir John Strachey came to the conclusion that, in order to establish a fund adequate for the purposes intended, it would be necessary to obtain an additional revenue of about 1,500,000l. a year. In order to provide this extra revenue, a license tax of about 2 per cent. was imposed, and this tax was made to reach those who earned no more than four shillings a week. New cesses were levied in Bengal and other parts of India; and although the salt tax was reduced in the parts of the country which paid these new cesses, an additional revenue was raised from salt, and the people of Madras and Bombay, who were just recovering from the effects of a most terrible famine, found the salt duty increased by no less than 40 per cent. It was so generally admitted that, in the present condition of India, nothing but the most extreme necessity could justify this new taxation, that the Government lost no opportunity of declaring that the money which was to be obtained from this new and exceptionally

burdensome taxation was to meet a national emergency, and that it should be scrupulously devoted to the relief of famine. Nothing could be more specific than the following declaration of the Viceroy :

The sole justification of the increased taxation which has just been imposed upon the people of India for the purpose of insuring their Empire against the worst calamities of future famine, so far as such an insurance can now be practically provided, is the pledge we have given that a sum not less than a million and a half sterling, which exceeds the amount of the additional contributions obtained from the people for this purpose, shall be annually applied to it. . . . We have pledged ourselves not to spend one rupee of the special resources thus created upon works of a different character.

When the nature of the new taxation which was imposed upon the people of India is considered, a most ready assent must be given to the opinion thus expressed by the Viceroy, that the sole justification' for the taxation was to be found in the purpose to which it was to be applied. The trades license tax is an income tax in its most aggravated form, for it is an income tax from which every official and professional income is exempted. I doubt if the English people would consider the gravest emergency to justify the imposition of an income tax which would fall upon almost every artisan, and would leave untouched the entire official class, all the officers in the army, and all professional men. The salt duty had, before its recent increase, been one of the heaviest imposts ever levied on a first necessary of life. And yet the starving millions of Madras and Bombay, when they were scarcely able to raise their heads from the terrible affliction that had visited them, were told that the salt duty was to be increased by 40 per cent. Under these circumstances it can be readily understood how necessary the Viceroy deemed it to endeavour to allay discontent, by giving the most distinct promises language could convey, that not one rupee' of the money which was thus collected from the poorest of the Indian people should be devoted to any other purpose, than providing a fund which might relieve their future necessities. The new taxes have been collected, and not a shilling of the money which they yield has been devoted to the purposes to which they were pledged. A few months after the famine fund was called into nominal existence, the invasion of Afghanistan was undertaken, and the fund was absorbed in defraying the expenses of this military expedition.' It will perhaps be said that the whole of the famine fund has not been devoted to this purpose, and that a portion of it is to be devoted to the partial remission of the cotton duties; for if these famine taxes had not been imposed, the Indian Government would not have thought that they could possibly spare the 200,000l. which the reduction of these duties will cost the revenue of India. But whatever conclusion may be adopted as to the precise manner in which the money which was intended to create a famine fund has been spent, there can be no question that not a fraction of the new taxation which was imposed