CHAPTER III

*THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY*

The economic consequences of this rupture of the par of exchange were of the most far-reaching character. It divided the commercial world into two sharply defined groups, one using gold and the other using silver as their standard money. When so much gold was always equal to so much silver, as was the case previous to 1873, it mattered very little, for the purposes of international transactions, whether a country was on a gold or on a silver standard; nor did it make any difference in which of the two currencies its obligations were stipulated and realized. But when, owing to the dislocation of the fixed par, it was not possible to define how much silver was equal to how much gold from year to year or even from month to month, this precision of value, the very soul of pecuniary exchange, gave place to the uncertainties of gambling. Of course all countries were not drawn into this vortex of perplexities in the same degree and to the same extent, yet it was impossible for any country which participated in international commerce to escape from being dragged into it. This was true of India as it was of no other country. She was a silver-standard country intimately bound to a gold standard country, so that her economic and financial life was at the mercy of blind forces operating upon the relative values of gold and silver which governed the rupee-sterling exchange.

The fall increased the burden of those who were under an obligation to make gold payments. Amongst such the most [pg 88] heavily charged was the Government of India. Owing to the exigencies of its political constitution, that Government has been under the necessity of making certain payments in England to meet: (1) Interest on debt and on the stock of the guaranteed railway companies; (2) expenses on account of the European troops maintained in India; (3) pensions and non-effective allowances payable in England; (4) cost of the home administration;¹⁶² and (5) stores purchased in England for use or consumption in India. England being a gold-standard country, these payments were necessarily gold payments. But the revenues of the Government of India out of which these payments were met were received in silver, which was the sole legal-tender money of the country. It is evident that even if the gold payments were a fixed quantity their burden must increase _pari passu_ with the fall in the gold value of silver. But the gold payments were not a fixed quantity. They have ever been on the increase, so that the rupee cost of the gold payments grew both by reason of the growth in their magnitude, and also by reason of the contraction of the medium, i.e. the appreciation of gold, in which they were payable. How greatly this double levy diminished the revenues of India, the figures on the opposite page give a convincing testimony.

¹⁶² Since the Reform Act of 1920 that part of this cost which was “political” has been placed upon the British Estimates.

TABLE XI

_The Increase in the Rupee Cost of Gold Payments_¹⁶³

───────────────────────────────────────────────────────────────────── Total Excess Amount of this Excess due of Rupees to needed to ───────────────────────────── provide for (1) Fall in (2) Average the net the Rate of Increase in Rate of Sterling Exchange gold Exchange Payments of over that Payments Financial for the the Year over of 1874–75. over those Year Year. those of the Year required to 1874–75. meet the Sterling Payments of 1874–75. ─────────────────────────────────────────────────────────── s. d. R R R ───────────────────────────────────────────────────────────────────── 1875–76 1 9·626 86,97,980 41,13,723 45,84,257 ───────────────────────────────────────────────────────────────────── 1876–77 1 8·508 3,15,06,824 1,44,68,234 1,70,38,590 ───────────────────────────────────────────────────────────────────── 1877–78 1 8·791 1,30,05,481 1,14,58,670 1,15,46,811 ───────────────────────────────────────────────────────────────────── 1878–79 1 7·794 1,85,23,170 1,04,16,718 81,06,452 ───────────────────────────────────────────────────────────────────── 1879–80 1 7·961 39,23,570 1,65,37,394 −1,26,13,824 ───────────────────────────────────────────────────────────────────── 1880–81 1 7·956 3,12,11,981 1,92,82,582 1,19,29,399 ───────────────────────────────────────────────────────────────────── 1881–82 1 7·895 3,18,19,685 1,98,76,786 1,19,42,899 ───────────────────────────────────────────────────────────────────── 1882–83 1 7·525 −62,50,518 1,86,35,246 −2,48,85,764 ───────────────────────────────────────────────────────────────────── 1883–84 1 7·536 3,44,16,,685 2,33,46,040 1,10,70,645 ───────────────────────────────────────────────────────────────────── 1884–85 1 7·308 1,96,25,981 2,48,03,423 51,77,442 ───────────────────────────────────────────────────────────────────── 1885–86 1 6·254 −1,82,11,346 2,54,95,337 −4,37,06,683 ───────────────────────────────────────────────────────────────────── 1886–87 1 5·441 4,69,16,788 4,46,68,299 −33,47,376 ───────────────────────────────────────────────────────────────────── 1887–88 1 4·898 4,63,13,161 4,96,60,536 −33,47,376 ───────────────────────────────────────────────────────────────────── 1888–89 1 4·379 9,00,38,166 6,59,71,998 2,40,66,168 ───────────────────────────────────────────────────────────────────── 1889–90 1 4·566 7,75,96,889 6,06,98,370 1,68,98,519 ───────────────────────────────────────────────────────────────────── 1890–91 1 6·090 9,06,11,857 4,65,48,302 4,40,63,555 ───────────────────────────────────────────────────────────────────── 1891–92 1 4·733 10,44,44,529 6,54,52,999 3,89,91,530 ─────────────────────────────────────────────────────────────────────

¹⁶³ Compiled from figures in Appendix II, p. 270, of the Indian Currency Committee of 1893.

The effect of such a growing burden on the finance of the Government may well be imagined; the condition of the Government, embarrassing at first, later became quite desperate under this continuously increasing burden. It enforced a policy of high taxation and rigid economy in the finances of the Government. Analysing the resource side of the Indian Budgets from the year 1872–73, we find that there was hardly any year which did not expire without making an addition to the existing imposts of the country. In 1872–73 there commenced the levy of what were called Provincial Rates. The fiscal year 1875–76 witnessed the addition of R.1 per gallon in the excise duty on spirits. In 1877–78 the Pass Duty on Malwa opium was raised from [pg 89] Rs. 600 to Rs. 650 per chest. An addition of a Licence Tax and Local Rates was made in the year 1878–79, and an increase of Rs. 50 per chest took place in the Malwa Opium Duty in the following year. With the help of these imposts the Government expected to place its finances on an adequate basis. By the end of 1882 it felt quite secure and even went so far as to remit some of the taxes, which it did by lowering the customs duties and the Patwari Cess in the North-Western Provinces. But the rapid pace in the fall of the exchange soon showed that a resort to further taxation was [pg 90] necessary to make up for the increased cost of the sterling payments. To the existing burdens, therefore, was added in 1886 an Income Tax, a duty of 5 per cent. on imported and also on non-illuminating petroleum. The Salt Duty was raised in 1888 in India from Rs. 2 to Rs. 2½, and in Burma from 3 annas to R. 1 per maund. The Patwari Cess of the North-Western Provinces, repealed in 1882, was re-imposed in 1888. The rates of duty on imported spirit and the excise duties on spirits were not only raised in 1890, but were afterwards added to in every province. An excise duty on malt liquor was levied in 1893, and another on salted fish at the rate of 6 annas per maund. The yield of the taxes and duties levied from 1882–83 was¹⁶⁴ as follows:—

¹⁶⁴ _Report of the Indian Currency Committee_, 1893, App. II, p. 263.

────────────────────────────────────────────────────────────────── Sources 1882–83. 1892–93. ────────────────────────────────────────────────────────────────── Rs. Rs. ────────────────────────────────────────────────────────────────── Salt 5,67,50,000 8,14,90,000 ────────────────────────────────────────────────────────────────── Excise 3,47,50,000 4,97,90,000 ────────────────────────────────────────────────────────────────── Customs 1,08,90,000 1,41,80,000 ────────────────────────────────────────────────────────────────── Assessed Taxes 48,40,000 1,63,60,000 ──────────────────────────────────────────────────────────────────

All this additional burden was due to the enhanced cost of meeting the gold payments, and “would not have been necessary but for the fall in the exchange.”¹⁶⁵

¹⁶⁵ J. E. O’Conor, _Report of the Indian Currency Committee_, 1898, App. II, p. 182.

Along with this increase of resources the Government of India also exercised the virtue of economy in the cost of administration. For the first time in its history the Government turned to the alternative of employing the comparatively cheaper agency of the natives of the country in place of the imported Englishmen. Prior to 1870 the scope of effecting economy along this line was very limited. By the Civil Service Reforms of 1853¹⁶⁶ the way was cleared for the appointment of Indians to the posts reserved for the members of the covenanted Civil Service by the statute of [pg 91] 1793.¹⁶⁷ But this reform did not conduce to any economy in the cost of the administration, because the Indian members carried the same high scale of salaries as did the English members of the Civil Service. It was when the statute of 1870 (33 Vic. c. 3) was passed permitting the appointment by nomination of non-covenanted Indians to places reserved for the covenanted Civil Service on a lower scale of salary, that a real scope for economy presented itself to the Government of India. Hard pressed, the Government of India availed itself of the possibilities for economy held out by this statute. So great was the need for economy and so powerful was the interest of the Government in reducing its expenditure that it proceeded, notwithstanding increased demands for efficient administration, to substitute the less expensive agency of non-covenanted civilians in place of the more expensive agency of the covenanted civilians. The scale on which this substitution was effected was by no means small, for we find that between 1874 and 1889 the strength of the covenanted service recruited in England was reduced by more than 22 per cent., and was further expected to be reduced by about 12 per cent., by the employment of uncovenanted Indians to the posts usually reserved for covenanted civilians.¹⁶⁸ Besides substituting a cheap for a dear agency in the administration, the Government also sought to obtain relief by applying the pruning knife to the rank growth in departmental extravagances.¹⁶⁹ Even with such heroic efforts to increase the revenue and reduce the expenditure the finances of the Government throughout the period of the falling exchange were never in a flourishing state.

¹⁶⁶ Cf. _Report of the Public Service Commission_, C. 5327 of 1887.

¹⁶⁷ This clause of the statutes has been re-enacted into the statute of 1861.

¹⁶⁸ Cf. evidence of Mr. Jenkins, Q. 12. Mit. of Evid. of the Select Committee on East India (Civil Servants), H. of C. 327 of 1890.

¹⁶⁹ Cf. _Calcutta Civil Finance Committee’s Report_, 1886; also _The Report of the Civil Finance Commissioner_ (1887), who completed the work of the Committee after it was dissolved.

Much more regrettable was the inability of the Government, owing to its financial difficulties, to find money for useful public works. The welfare of the Indian people [pg 92]

TABLE XII

_Revenue and Expenditure of the Government of India_

────────────────────────────────────────────────────────────────────────────────────────────────── In India. In England. Final Average Result. Rate ────────────────────────────────────────────────────────────────────────────── of Net Net Surplus Net Exchange. Surplus Year. Exchange. Revenue. Expenditure Revenue. Sterling (+) or excluding Revenue. Deficit Exchange. (−) ────────────────────────────────────────────────────────────────────────────────────────── d. R. R. R. £ R. R. ────────────────────────────────────────────────────────────────────────────────────────────────── 1874–75 22·156 39,564,216 25,897,098 13,667,118 12,562,101 1,045,239 59,778 ────────────────────────────────────────────────────────────────────────────────────────────────── 1875–76 21·626 40,053,419 24,541,923 15,511,496 12,544,813 1,377,428 1,589,255 ────────────────────────────────────────────────────────────────────────────────────────────────── 1876–77 20·508 38,253,366 25,355,285 12,898,081 13,229,646 2,252,611 −2,584,176 ────────────────────────────────────────────────────────────────────────────────────────────────── 1877–78 20·791 39,275,489 27,658,021 11,617,468 13,756,478 2,123,030 −4,262,040 ────────────────────────────────────────────────────────────────────────────────────────────────── 1878–79 19·794 44,415,139 25,778,928 18,636,211 13,610,211 2,891,902 2,134,098 ────────────────────────────────────────────────────────────────────────────────────────────────── 1879–80 19·961 45,258,197 29,384,030 15,874,167 14,223,891 2,878,169 −1,227,893 ────────────────────────────────────────────────────────────────────────────────────────────────── 1880–81 19·956 44,691,119 34,880,434 9,810,085 11,177,231 2,264,848 −3,031,394 ────────────────────────────────────────────────────────────────────────────────────────────────── 1881–82 19·895 45,471,887 27,717,249 17,754,638 11,737,688 2,421,499 3,595,451 ────────────────────────────────────────────────────────────────────────────────────────────────── 1882–83 19·525 42,526,173 25,500,437 17,025,736 13,299,976 3,050,923 674,837 ────────────────────────────────────────────────────────────────────────────────────────────────── 1883–84 19·536 43,591,273 23,566,381 20,024,892 14,770,257 3,375,158 1,879,477 ────────────────────────────────────────────────────────────────────────────────────────────────── 1884–85 19·308 41,585,347 24,763,779 16,821,568 13,844,028 3,363,986 −386,446 ────────────────────────────────────────────────────────────────────────────────────────────────── 1885–86 18·254 42,635,953 27,352,132 15,283,821 13,755,659 4,329,888 −2,801,726 ────────────────────────────────────────────────────────────────────────────────────────────────── 1886–87 17·441 44,804,774 25,124,335 19,680,439 14,172,298 5,329,714 178,427 ────────────────────────────────────────────────────────────────────────────────────────────────── 1887–88 16·898 45,424,150 25,968,025 19,456,125 15,128,018 6,356,939 −2,028,832 ────────────────────────────────────────────────────────────────────────────────────────────────── 1888–89 16·379 46,558,354 25,051,147 21,507,207 14,652,590 6,817,599 37,018 ────────────────────────────────────────────────────────────────────────────────────────────────── 1889–90 16·566 50,005,810 26,367,855 23,637,955 14,513,155 6,512,767 2,612,033 ────────────────────────────────────────────────────────────────────────────────────────────────── 1890–91 18·090 49,403,819 25,579,727 23,824,092 15,176,866 4,959,055 3,688,171 ────────────────────────────────────────────────────────────────────────────────────────────────── 1891–92 16·733 50,023,142 27,013,618 23,009,524 15,716,780 6,825,909 467,535 ──────────────────────────────────────────────────────────────────────────────────────────────────

[pg 93] depends upon turning to best account the resources which the country possesses. But the people have had very little of the necessary spirit of enterprise in them. The task, therefore, has fallen upon the Government of India to provide the country with the two prime requisites of a sustained economic life, namely a system of transport and a network of irrigation. With this object in view the Government had inaugurated a policy of developing what were called “Extraordinary Public Works,” financed by capital borrowings. For such borrowings India, as was to be expected, hardly offered any market, the people being too poor and their savings too scanty to furnish a modicum of the required capital outlay. Like all Governments of poor peoples, the Government of India had therefore to turn to wealthier countries who had surplus capital to lend. All these countries unfortunately happened to be on the gold standard. As long as it was possible to say that so much gold was equal to so much silver the English investor was indifferent whether the securities of the Government of India were rupee securities or sterling securities. But the fall in the gold value of silver was also a fall in the gold value of the rupee securities, and what was once a secure investment ceased to be so any more. This placed the Government in a difficult position in the matter of financing its extraordinary public works.

The English investor would not invest in the rupee securities. An important customer for the Indian rupee securities was thus lost. The response of the Indian money market was inadequate. To issue sterling securities was the only alternative to enable the Government to tap a bigger and a more constant reservoir for the drawing of capital to India; but as it was bound to increase the burden of the gold payments, which it was the strongest interest of the Government to reduce, the resort to the London money market, unavoidable as it became, was somewhat restrained,¹⁷⁰ [pg 94]

¹⁷⁰ During the period of falling exchange the distribution of the debt of India was as follows:—

────────────────────────────────────────────────────────────────── _Sterling Debt._ _Rupee Debt._ End of 1873–74 41,117,617 66,41,72,900 End of 1898–99 124,268,605 1,12,65,04,340 _Indian Currency Committee_ (1898), Appendix II, p. 179. ──────────────────────────────────────────────────────────────────

TABLE XIII

_Price Movements of the Rupee and Sterling Securities of the Government of India_¹⁷¹

──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Price of 4 per cent. Price of Sterling India Rates of Rupee Paper. Stock. Exchange. ───────────────────────────────────────────────────────────────────────────────────────────────────────── Year. In In 4 per 3½ per 3 per Calcutta. London. cent. cent. cent. ────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── d. d. ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1873 22⅞ 21⅝ 105 101⅞ 97 94½ 106½ 101¼ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1874 23⅛ 21¾ 104½ 99½ 98 94½ 103¾ 101 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1875 22 3⁄16 21¼ 102⅞ 101¾ 94 91 106¼ 103¼ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1876 22⅜ 18½ 101⅞ 98¾ 89¾ 78 105⅞ 101⅞ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1877 22¼ 20 9⁄16 98⅞ 93¼ 88½ 81 104⅝ 102¼ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1878 21 18¾ 96⅞ 93½ 82½ 75⅜ 104⅝ 99 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1879 20⅝ 18⅝ 94⅞ 91¼ 80 77¼ 105⅜ 100⅞ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1880 20⅜ 19¾ 100 92 81⅜ 77¾ 105⅝ 102⅛ 15⁄16 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1881 20 1⁄16 19½ 104⅝ 100 86 81½ 106⅜ 103⅞ 103⅞ 100¾ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1882 20 3⁄16 19 1⁄16 102 1⁄16 95⅝ 85 81 105⅛ 102⅞ 101⅞ 99¾ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1883 19 9⁄16 19 3⁄16 101⅛ 97 9⁄16 82 79¾ 104⅝ 102 103⅛ 101⅜ 7⁄16 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1884 19¾ 18 100⅝ 95 5⁄16 81¾ 78¼ 104⅜ 101⅝ 107⅛ 101¾ 96¼ 91¾ 15⁄16 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1885 19 3⁄16 17 98 7⁄16 92¼ 77½ 73¼ 103 1⁄16 98¾ 102¾ 97½ 91½ 85¾ 11⁄32 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1886 18 16⅛ 97¾ 97 3⁄16 73 66¼ 103½ 101¼ 102¾ 99¾ 90⅛ 86⅝ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1887 18 3⁄16 15⅝ 99 3⁄16 95 5⁄16 71 11⁄16 67⅞ 102¾ 100½ 103¼ 100¼ 92¾ 95⅜ ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1888 17⅛ 16 100 3⁄16 97¾ 69⅜ 66¼ 102⅞ 100½ 107¼ 104⅝ 98 95 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1889 16 15⁄16 16 100⅜ 97 1⁄16 69⅛ 66⅜ 109½ 106⅞ 101⅛ 99 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1890 20 29⁄32 16⅞ 103⅞ 96 87¼ 68¾ 108½ 105¼ 100¾ 95¼ 13⁄16 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1891 18¼ 16⅝ 107 104 80¾ 74¼ 109½ 105 99 94½ 13⁄16 1⁄16 ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1892 16 11⁄16 14⅝ 108 103 74½ 62 109½ 106⅛ 98½ 94⅞ 15⁄16 11⁄15 ────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

¹⁷¹ Appendix II to the _Report of the Indian Currency Committee_ of 1893, p. 272. These prices differ slightly from those given in Appendix IV to the First Report of the Gold and Silver Commission, 1886, and also from those in the Statistics of British India (First Issue) for 1906–07, Part IV, (_a_) Finance Tables 7 and 8 of the division called Prices.

[pg 95] with the result that the expansion of extraordinary public works did not proceed at a pace demanded by the needs of the country. The effects of this financial derangement, consequent on the fall of the exchange, were not confined to the Government of India. They were immediately felt by the municipalities and other local bodies who were dependent upon the Government for financial aid. So long as the cash balances were overflowing in the Treasury of the Government, “one of the most useful ways” to employ them was found in lending a portion of them to these local institutions. As they had just then been inaugurated under the local self-government policy of Lord Ripon’s régime, and were looked upon only as an experiment, their taxing and borrowing powers were rigidly limited. Consequently, this financial aid from the Central Government by way of temporary advances was a resource of inestimable value to them. When, however, the cash balances of the Central Government began to diminish owing to the continued losses by exchange, these facilities were severely¹⁷² curtailed, so that the very vitality of these institutions was threatened just at the moment when they needed all help to foster their growth and strengthen their foundations.

Addressing the Secretary of State, the Government of India, in a despatch of February 2, 1886, observed¹⁷³:—

¹⁷² Cf. _Financial Statement_, 1876–77, p. 94.

¹⁷³ See C. 4868 of 1886, p. 8.

“10. We do not hesitate to repeat that the facts set forth in the preceding paragraphs are, from the point of Indian interests, intolerable; and the evils which we have enumerated do not exhaust the catalogue. Uncertainty regarding the future of silver discourages the investment of capital in India, and we find it impossible to borrow in silver except at an excessive cost.

“On the other hand, the Frontier and Famine Railways which we propose to construct, and the Coast and Frontier defences which we have planned, are imperatively required and cannot be postponed indefinitely.

“We are forced, therefore, either to increase our sterling liabilities, to which course there are so many objections, or [pg 96] to do without the railways required for the commercial development of the country, and its protection against invasion and the effects of famine.

――――――――

“11. Nor can the difficulties which local bodies experience in borrowing in India be overlooked. The Municipalities of Bombay and Calcutta require large sums for sanitary improvements, but the high rate of interest which they must pay for silver loans operates to deter them from undertaking expensive works, and we need hardly remind your Lordship that it has quite recently been found necessary for Government to undertake to lend the money required for the construction of docks at Calcutta and Bombay, and that when the Port Commissioners of Calcutta attempted to raise a loan of 75 lakhs of rupees in September, 1885, guaranteed by the Government of India, the total amount of tenders was only Rs. 40,200, and no portion of this insignificant amount was offered at par. …”

The importation of capital on private account was hampered for similar reasons, to the great detriment of the country. It was urged on all hands, and was even recommended by a Royal Commission,¹⁷⁴ that one avenue of escape from the ravages of recurring famines, to which India so pitifully succumbed at such frequent intervals, was the diversification of her industries. To be of any permanent benefit such diversified industrial life could be based on a capitalistic basis alone. But that depended upon the flow of capital into the country as freely as the needs of the country required. As matters then stood, the English investor, the largest purveyor of capital, looked upon the investment of capital in India as a risky proposition. It was feared that once the capital was spread out in a silver country every fall in the price of silver would not only make the return uncertain when drawn in gold, but would also reduce the capital value of his investment in terms of gold, which was naturally the unit in which he measured all his returns and his outlays. This check to the free [pg 97] inflow of capital was undoubtedly the most serious evil arising out of the rupture of the par of exchange.

¹⁷⁴ Cf. _The Report of the Famine Commission of_ 1880, Part II, C. 2735 of 1880, pp. 175–76.

Another group of people who suffered from the fall of exchange because of their obligation to make gold payments was composed of the European members of the Civil Service in India. Like the Government to which they belonged, they received their salaries in silver, but had to make gold remittances in support of their families, who were often left behind in England. Before 1873, when the price of silver in terms of gold was fixed, this circumstance was of no moment to them. But as the rupee began to fall the face of the situation was completely altered. With every fall in the value of silver they had to pay more rupees out of their fixed salaries to obtain the same amount of gold. Some relief was no doubt given to them in the matter of their remittances. The Civil Servants were permitted, at a sacrifice to the Government, to make their remittances at what was called the Official Rate of Exchange.¹⁷⁵ It is true the difference between the market rate and the official rate was not very considerable. None the less, it was appreciable enough for the Civil Servants to have gained by 2½ per cent. on the average of the years 1862–90¹⁷⁶ at the cost of the Government. The Military Servants obtained a similar relief to a greater degree, but in a different way. Their salary was fixed in sterling, though payable in rupees. It is true the Royal Warrant which fixed their salary also fixed the rate of exchange between the sterling and the rupee for that purpose. But as it invariably happened that the rate [pg 98] of exchange fixed by the Warrant was higher than the market rate the Military Servants were compensated to the extent of the difference at the cost of the Indian Exchequer.¹⁷⁷ This relief was, comparatively speaking, no relief to them. The official or the warrant rates of exchange, though better than the market rates of exchange, were much lower than the rate at which they were used to make their remittances before 1873. Their burden, like that of the Government, grew with the fall of silver, and as their burden increased their attitude became alarmist. Many were the memorialists who demanded from the Government adequate compensation for their losses on exchange.¹⁷⁸ The Government was warned¹⁷⁹ that

¹⁷⁵ As was explained by Mr. Waterfield before the Select Committee on East India (Civil Servants), H.C. Return 327 of 1890, Q. 1905–17, it was first instituted in 1824 and was arrived at as follows: In December of each year a calculation was made at the India Office of the cost of sending a rupee to India, based on the market price of silver in London, and of the cost of bringing a rupee from India, based on the price of bills on London in Calcutta. A mean between the two was struck and taken as the adjusting rate for the coming official year between the India Office and the British Treasury in regard to such transactions or payments undertaken by one Government as the agent of the other. It was fixed anew for each and formed a fair average rate, although it was sometimes above and sometimes below the market rate of exchange.

¹⁷⁶ _Ibid._, Q. 1925–26,

¹⁷⁷ Cf. F.S. 1887–8, pp. 39–40. This cost was as follows:

──────────────────────────────────────────────────────────────────── 1874–75 Rs. 6,400,000 1885–86 Rs. 4,00,000 1884–85 Rs. 18,43,000 1886–87 Rs. 5,15,000 ────────────────────────────────────────────────────────────────────

¹⁷⁸ Cf. _Report of the Indian Currency Committee_, 1893, App. I, pp. 185–90 and p. 202, for memorials of the European Civil Servants.

¹⁷⁹ Cf. Col. Hughes-Hallett, M.P., _The Depreciation of the Rupee: its Effect on the Anglo-Indian Official—the Wrong and the Remedy_, London, 1887, p. 14.

“the ignorant folk who think India would be benefited by lowering present salaries are seemingly unable to comprehend that such a step would render existence on this reduced pay simply impossible, and that recourse would of necessity be had to other methods of raising money.”

Such, no doubt, was the case in the earlier days of the East India Company, when the Civil Servants fattened on pickings because their pay was small,¹⁸⁰ and it was to put a stop to their extortions that their salaries were raised to what appears an extraordinary level. That such former instances of extortions should have been held out as monitions showed too well how discontented the Civil Service was owing to its losses through exchange.

¹⁸⁰ The connection between the rapacious conduct of the early European Civil Servants and the smallness of their salaries was well brought out by Clive in his speech dated March 30, 1772, during the course of the debate in the House of Commons on the East India Judicature Bill, _Hansard_, Vol. XVII, pp. 334–39.

Quite a different effect the fall had on the trade and industry of the country. It was in a flourishing state as [pg 99] compared with the affairs of the Government or with the trade and industry of a gold-standard country like England. Throughout the period of falling silver there was said to be a progressive decline relatively to population in the employment afforded by various trades and industries in England. The textile manufactures and the iron and coal trade were depressed as well as the other important trades, including the hardware manufactures of Birmingham and Sheffield, the sugar-refining of Greenock, Liverpool, and London, the manufactures of earthenware, glass, leather, paper, and a multitude of minor industries.¹⁸¹ The depression in English agriculture was so widespread that the Commissioners of 1892 were “unable to point to any part of the country in which [the effects of the depression] can be said to be entirely absent,” and this notwithstanding the fact that the seasons since 1882 “were on the whole satisfactory from an agricultural point of view.”¹⁸² Just the reverse was the case with Indian trade and industry. The foreign trade of [pg 100]

¹⁸¹ Report by Dunraven, Farrer, Muntz, and Lubbock in the _Final Report of the Royal Commission on Depression of Trade and Industry_, par. 54, C. 4893,

¹⁸² _Final Report of the Royal Commission on Agricultural Depression in England_, C. 8540 of 1897, par. 28,

TABLE XIV

_Imports and Exports (Both Merchandise and Treasure)_¹⁸³

────────────────────────────────────────────────────────────────────────── Exports. Imports. Year. Exports. Imports. Year. ─────────────────────────── ───────────────────────────────────── R. R. R. R. ─────────────────────────────────── ───────────────────────────────────── 1870–71 57,556,951 39,913,942 1881–82 83,068,198 60,436,155 ─────────────────────────────────── ───────────────────────────────────── 1871–72 64,685,376 43,665,663 1882–83 84,527,182 65,548,868 ─────────────────────────────────── ───────────────────────────────────── 1872–73 56,548,842 36,431,210 1883–84 89,186,397 68,157,311 ─────────────────────────────────── ───────────────────────────────────── 1873–74 56,910,081 39,612,362 1884–85 85,225,922 69,591,269 ─────────────────────────────────── ───────────────────────────────────── 1874–75 57,984,549 44,363,160 1885–86 84,989,502 71,133,666 ─────────────────────────────────── ───────────────────────────────────── 1875–76 60,291,731 44,192,378 1886–87 90,190,633 72,830,670 ─────────────────────────────────── ───────────────────────────────────── 1876–77 65,043,789 48,876,751 1887–88 92,148,279 78,830,468 ─────────────────────────────────── ───────────────────────────────────── 1877–78 67,433,324 58,819,644 1888–89 98,333,879 83,285,427 ─────────────────────────────────── ───────────────────────────────────── 1878–79 64,919,741 44,857,343 1889–90 105,366,720 86,656,990 ─────────────────────────────────── ───────────────────────────────────── 1879–80 69,247,511 52,821,398 1890–91 102,350,526 93,909,856 ─────────────────────────────────── ───────────────────────────────────── 1880–81 76,021,043 62,104,984 1891–92 111,460,278 84,155,045 ──────────────────────────────────────────────────────────────────────────

¹⁸³ From Appendix II (Nos. 1 and 2) to the _Report of the Indian Currency Committee_ of 1898.

TABLE XV

_Nature of Industrial Pursuits in England and India_¹⁸⁴

───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Distribution of _Indian_ Distribution of _English_ Exports exclusive of Exports exclusive of Treasure. Treasure. ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Manufactured Raw Food Unclassified Total. Manufactured Raw Food Unclassified Total. Articles. Materials. Articles. Articles. Articles. Materials. Articles. Articles. ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1857 11 34 22 23 100 90·9 4 4·9 ·2 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1858 6 35 26 33 100 91·4 3·4 5·1 ·1 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1859 6·5 40 15·5 38 100 91·5 3·8 4·6 ·1 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1860 5·7 43·6 17·7 33 100 91·9 3·6 4·4 ·3 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1861 5·8 46·5 15·3 32·4 100 90·4 4·8 4·8 — 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1862 5 52 16 27 100 90·3 4 4·8 ·9 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1863 3·7 58·7 10·6 27 100 91·0 4 4 1·0 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1864 4 69·2 9·3 17·5 100 92·5 3·7 3·7 ·1 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1865 3·5 68 12 16·6 100 92·1 3·6 3·6 ·7 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1866 4·2 67·2 10·3 18·3 100 92 3·7 3·7 ·4 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1867 4 58 11 27 100 92·2 3·8 3·7 ·3 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1868 4 58·5 11·5 26 100 92 4·4 3·4 ·2 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1869 4·8 60·5 14 20·7 100 92 4·2 3·1 ·7 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1870 4·4 63·6 9 23 100 91 4 4 1·0 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1871 3·7 65·3 11 20 100 90 4·4 4·9 ·7 100 ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 1872 3·3 61·4 13·5 21·8 100 91·2 5·4 3·5 ·9 100 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

¹⁸⁴ The figures for India are calculated from the _Statistical Abstract for British India_, Second Number (1857–1866), Table No. 34, and the Eighth Number (1864–1873), Table No. 24. Figures for England are taken from Appendix C (Statement 6) to the _First Report of the Royal Commission of the Depression of Trade and Industry_, 1885, with this alteration—that the separate figures in the original under “Manufactured” and “Partially Manufactured” are here grouped under “Manufactured.” The “Unclassified Articles” under Indian Exports are for the most part “Jewellery.”

[pg 101] the country, which had bounced up during the American Civil War, showed greater buoyancy after 1870, and continued to grow throughout the period of the falling exchange at a rapid pace. During the short space of twenty years the total imports and exports of the country more than doubled in their magnitude, as is shown by Table XIV., p. 99.

Not only had the trade of India been increasing, but the nature of her industries was also at the same time undergoing a profound change. Prior to 1870 India and England were, so to say, non-competing groups. Owing to the protectionist policy of the Navigation Laws, and owing also to the substitution of man by machinery in the field of production, India had become exclusively an agricultural and a raw-material-producing country, while England had transformed herself into a country which devoted all her energy and her resources to the manufacturing of raw materials imported from abroad into finished goods. How marked was the contrast in the industrial pursuits in the two countries is well revealed by the analysis of their respective exports on opposite page.

After 1870 this distribution of their industrial pursuits was greatly altered, and India once again began to assume the rôle of a manufacturing country. Analysing the figures for Indian imports and exports for the twenty years succeeding 1870 (_see_ table below), we find that the progress in [pg 102] the direction of manufactures formed one of the most significant features of the period.

TABLE XVI

_Changes in Industrial Pursuits of India_¹⁸⁵

───────────────────────────────────────────────────────────────────────── Imports. Exports. ────────────────────────────────────────────────────────────── Years Manufactured. Raw. Manufactured. Raw. ────────────────────────────────────────────────────────────── Rs. Rs. Rs. Rs. ───────────────────────────────────────────────────────────────────────── 1879 25,98,65,827 13,75,55,837 5,27,80,340 59,67,27,991 ───────────────────────────────────────────────────────────────────────── 1892 36,22,31,872 26,38,18,431 16,42,47,566 85,52,09,499 ───────────────────────────────────────────────────────────────────────── Percentage of increase ───────────────────────────────────────────────────────────────────────── Total 39 91 211 43 ───────────────────────────────────────────────────────────────────────── Annual 2·8 6·5 15 3 ─────────────────────────────────────────────────────────────────────────

¹⁸⁵ From Ranade’s _Essays on Indian Economics_, p. 104.

This change in the industrial evolution was marked by the growth of two principal manufactures. One of them was the manufacture of cotton. The cotton industry was one of the oldest industries of India, but during 100 years between 1750 and 1850 it had fallen into a complete state of decrepitude. Attempts were made to resuscitate the industry on a capitalistic basis in the sixties of the nineteenth century and soon showed signs of rapid advance. The story of its progress is graphically illustrated in the following summary table:—

TABLE XVII

_The Development of Indian Cotton Trade and Industry_

─────────────────────────────────────────────────────────────────────────── Growth of Trade (Average Annual Quantities in each Quinquennium). ─────────────────────────────────────────────────────── 1870–71 1875–76 1880–81 1885–86 1890–91 to to to to to 1874–75. 1879–80. 1884–85. 1889–90. 1894–95. ─────────────────────────────────────────────────────────────────────────── Imports of raw 23 52 51 74 89 cotton—thousands of cwts. ─────────────────────────────────────────────────────────────────────────── Exports of raw 5,236 3,988 5,477 5,330 4,660 cotton—thousands of cwts. ─────────────────────────────────────────────────────────────────────────── Imports of twist 33·55 33·55 44·34 49·09 44·79 and yarn ─────────────────────────────────────────────────────────────────────────── Growth of Industry (at end of each fifth year). ─────────────────────────────────────────────────────────────────────────── Number of mills 48 58 81 114 143 ─────────────────────────────────────────────────────────────────────────── Number of 1,000 1,471 2,037 2,935 3,712 spindles—000 omitted ─────────────────────────────────────────────────────────────────────────── Number of looms—000 10 13 16 22 34 omitted ─────────────────────────────────────────────────────────────────────────── Number of persons — 39,537 61,836 99,224 — employed ───────────────────────────────────────────────────────────────────────────

Another industry which figured largely in this expansion of Indian manufactures was jute. Unlike the cotton industry [pg 103] of India, the jute industry was of a comparatively recent origin. Its growth, different from that of the cotton industry, was fostered by the application of European capital, European management, and European skill, and it soon took as deep roots as the cotton industry and flourished as well as it did, if not better. Its history was one of continued progress.

TABLE XVIII

_Development of Jute Industry and Trade_

──────────────────────────────────────────────────────────────────────── Average Annual of each Quinquennium. ─────────────────────────────────────────────────────── Growth of Trade. 1870–71 1875–76 1880–81 1885–86 1890–91 to to to to to 1874–75. 1879–80. 1884–85. 1889–90. 1894–95. ──────────────────────────────────────────────────────────────────────── Exports— ──────────────────────────────────────────────────────────────────────── Raw, million 5·72 5·58 7·81 9·31 10·54 cwt. ──────────────────────────────────────────────────────────────────────── Gunny bags, 6·44 35·96 60·32 79·98 120·74 millions. ──────────────────────────────────────────────────────────────────────── Cloth, million — 4·71 6·44 19·79 54·20 yds. ──────────────────────────────────────────────────────────────────────── _Growth of Industry_. ──────────────────────────────────────────────────────────────────────── Number of — ──────────────────────────────────────────────────────────────────────── Mills — 21 21 24 26 ──────────────────────────────────────────────────────────────────────── Looms, 000 — 5·5 5·5 7 8·3 omitted ──────────────────────────────────────────────────────────────────────── Spindles, 000 — 88 88 138·4 172·4 omitted ──────────────────────────────────────────────────────────────────────── Persons — 38·8 38·8 52·7 64·3 employed, in thousands ────────────────────────────────────────────────────────────────────────

This increasing trend towards manufactures was not without its indirect effects on the course of Indian agriculture. Prior to 1870 the Indian farmer, it may be said, had no commercial outlook. He cultivated not so much for profit as for individual self-sufficiency. After 1870 farming tended to become a business and crops came more and more to be determined by the course of market prices than by the household needs of the farmer. [pg 104]

TABLE XIX

_Growth of Agricultural Exports of India_

────────────────────────────────────────────────────────────────────────── 1868–69. 1873–74. 1877–78. 1882–83. 1887–88. 1891–92. ────────────────────────────────────────────────────────────────────────── Wheat 100 637·41 2,313·47 5,152·36 4,914·37 11,001·44 ────────────────────────────────────────────────────────────────────────── Opium 100 118·38 123·83 122·47 120·20 116·82 ────────────────────────────────────────────────────────────────────────── Seeds 100 111·26 305·87 239·97 403·60 480·99 ────────────────────────────────────────────────────────────────────────── Rice 100 131·66 119·84 203·28 185·55 220·36 ────────────────────────────────────────────────────────────────────────── Indigo 100 116·91 121·57 142·17 140·76 126·33 ────────────────────────────────────────────────────────────────────────── Tea 100 169·35 293·17 507·25 775·09 1,075·75 ────────────────────────────────────────────────────────────────────────── Coffee 100 86·04 69·98 85·31 64·59 74·11 ──────────────────────────────────────────────────────────────────────────

Such was the contrast in the economic conditions prevalent in the two countries. This peculiar phenomenon of a silver standard country steadily progressing, and a gold-standard country tending to a standstill, exercised the minds of many of its observers. The chief cause was said to be the inability of the English manufacturers to hold out in international competition. This inability to compete with his European rivals was attributed to the prevalence of protective tariffs and subsidies which formed an essential part of the industrial and commercial code of the European countries. Nothing of the kind then existed in India, where trade was as free and industry as unprotected as any could have been, and yet the Lancashire cotton-spinner, the Dundee jute manufacturer, and the English wheat-grower complained that they could not compete with their rivals in India. The cause, in this case, was supposed to be the falling exchange.¹⁸⁶ So much were some people impressed by this view that even the extension of the Indian trade to the Far East was attributed to this cause. Already, it was alleged, the dislocation of the par of exchange between gold and silver had produced a kind of segregation of gold-using countries and silver-using countries to the exclusion of each other. In a transaction between two countries using the same metal as standard it was said the element of uncertainty arising from the use of two metals varying in terms of each other [pg 105] was eliminated. Trade between two such countries could be carried on with less risk and less inconvenience than between two countries using different standards, as in the latter case the uncertainty entered into every transaction and added to the expense of the machinery by which trade was carried on. That the Indian trade should have been deflected to other quarters¹⁸⁷ where, owing to the existence of a common standard the situation trade had to deal with was immune from uncertainties, was readily admitted. But it was contended that there was no reason why, as a part of the segregation of commerce it should have been possible for the Indian manufacturer to oust his English rival from the Eastern markets to the extent he was able to do (_see_ Table XX, p. 106). [pg 106]

¹⁸⁶ Cf. The _Final Report of the Royal Commission on Gold and Silver_