ECONOMIC FACTORS
If the war has wrought great changes in the political life of India, in
its status within the Empire and in its constitutional relations with
the United Kingdom, it has produced equally important changes in its
economic situation and outlook. The Montagu-Chelmsford Report had not
failed to note how largely economic factors entered into the political
situation which the Secretary of State and the Viceroy were primarily
concerned to study. India is, and probably must always remain,
essentially an agricultural country, and its economics must always
suffer from the exceptionally unstable conditions to which, except
within the relatively small areas available for irrigation, dependence
upon a precarious rainfall condemns even the most industrious
agricultural population. Many circumstances had combined to retard the
development of its vast natural resources and the growth of modern
manufacturing industries. Few British administrators during the last
half-century had realised their importance as Lord Dalhousie had done
before the Mutiny, until Lord Curzon created a special department of
commerce and industry in the Government of India. The politically minded
classes, whose education had not trained them to deal with such
questions, were apt to lose themselves in such blind alleys as the
"doctrine of drain." But as they perceived how largely dependent India
was on foreign countries for manufactured goods, whilst her own
domestic industries had been to a great extent crushed in hopeless
competition with the products of the much more highly organised and
equipped industries of European countries, they rushed to the conclusion
that an industrial revival might be promoted by a crude boycott of
foreign imported goods which would at the same time serve as a
manifestation of their political discontent. The _Swadeshi_ movement
failed, as it was bound to fail. But failure intensified the suspicion
that, as India's foreign trade was chiefly with the United Kingdom, her
industrial backwardness was deliberately encouraged in the interests of
British manufactures, and it was not altogether unjustified by the
maintenance of the excise duty on locally manufactured cotton goods,
which protected the interests of Lancashire in the one industrial field
in which Indian enterprise had achieved greatest success. The
introduction of an annual Industrial Conference in connection with the
Indian National Congress was the first organised attempt of the
politically minded classes to link up with politics a movement towards
industrial independence. It assumed increased bitterness with the
disastrous failures of Indian banks started on "national" lines in
Bombay and the Punjab. The cry for fiscal freedom and protection grew
widespread and insistent before the war broke out. Then, under the
pressure of war necessities, the Government of India explored, as it had
never done before, the whole field of India's natural resources and of
the development of Indian industries. At the same time an opportunity
arose for a group of Indian "merchant-venturers"--to use the term in its
fine old Elizabethan sense--who had set themselves to give the lead to
their countrymen, to show what Indian enterprise was capable of
achieving. What it has already achieved deserves to be studied as the
most pregnant illustration of what the future may hold in reserve.
It is a somewhat chastening reflection that the creation of the one
great metallurgical industry in India has been due not to British but to
Indian capital and enterprise, assisted in the earliest and most
critical stages not by British but by American skill, and that, had it
not been created when it was, our Syrian and Mesopotamian campaigns
could never have been fought to their victorious issue, as Jamsheedpur
produced and could alone at that juncture supply the rails for the
construction of the railways essential to the rapid success of those
great military operations. Equally chastening is the reflection that
from its very inception less than twenty years ago, the pioneers of this
vast undertaking had constantly to reckon with the indifference and
inertia of Anglo-Indian officialdom, and with the almost solitary
exceptions of Sir Thomas Holland, then at the head of the Geological
Survey, and Sir Benjamin Robertson, afterwards Chief Commissioner of the
Central Provinces where the first but unavailing explorations were made,
seldom received more than a minimum of countenance and assistance. Not
till Messrs. Tata's American prospectors had explored this region did
the Government of India realise that untold mineral wealth lay there
within 150 miles of Calcutta, almost on the surface of the soil, and not
until the pressure of the Great War and the inability of India to draw
any longer upon British industry for the most vital supplies compelled
them to turn to Jamsheedpur do they seem to have at all appreciated what
an enterprise that owed little or nothing to them meant to India and the
Empire. When the war was over, Lord Chelmsford paid a visit to
Jamsheedpur and generously acknowledged that debt. "I can hardly
imagine," said the Viceroy, "what we should have done if the Tata
Company had not been able to give us steel rails which have provided not
only for Mesopotamia, but for Egypt, Palestine, and East Africa." One
may therefore hope that the lesson of the war will not be forgotten, and
that Sir Thomas Holland, who has now exchanged the Munitions Board for
the portfolio of Industry, will prevent a relapse into the old
traditions of aloofness now that the war pressure is over.
The cotton-mills of Bombay, the jute-mills of Calcutta, the goldfields
of Mysore each contribute their own remarkable chapter to the story of
British industrial enterprise in India, but none can compare in point of
romance with the story of the iron and steel industry of Jamsheedpur. It
need only be very briefly recalled. In 1902 Mr. Jamsheedji Tata, a
veteran of the great Parsee community of Bombay and one of the founders
of the Bombay cotton industry, visited the United States. His active
mind had already for some time been busy with the idea of starting a
metallurgic industry in India, and he had received in the course of
conversation with Lord George Hamilton, then Secretary of State for
India, about the only encouragement he ever did receive in England. He
fared better in America. In New York he called with a letter of
introduction from Lord Avebury on Mr. C. Page Perin, an eminent mining
engineer, who was at once impressed both with his visitor and with the
schemes which he unfolded, though they were still quite visionary. Mr.
Perin, who is still the consulting engineer of the Tata Company, agreed
to send a party of American prospectors, and followed them in 1904 to
India. Long was the search and many the hardships undergone, and Mr.
Jamsheedji Tata himself passed away before he could see the fulfilment
of his dream. But Sir Dorab Tata proved himself not unworthy to follow
in his footsteps, and when an area hitherto almost unknown and
unexplored had been definitely located, combining in an extraordinary
degree the primary requisites of adequate coalfields, vast ore deposits
of great wealth, a sufficient water supply, a suitable site for a large
industrial town with good railway communication though still badly
needing development, he and a small group of his Bombay friends tried to
find in London the financial support which they imagined would hardly be
denied to an enterprise of such immense importance for our Indian
Empire. But they failed. It was then that, largely on the advice of Sir
George Clarke, now Lord Sydenham, who was then Governor of
Bombay--whose great services to the economic advancement of India and to
Indian technical education latter-day politicians are too apt to
forget--they appealed to their own fellow-countrymen for the capital
needed. Never had such an appeal been made, but the response was
immediate and ample. The Tata Iron and Steel Works Company was launched
as an Indian Company, and to the present day all the hard cash required
has come out of Indian pockets. In 1908 the first clearance was effected
in what had hitherto been a barren stretch of scrub-jungle sparsely
inhabited by aboriginal Sonthals, one of the most primitive of Indian
races, and in 1910 the first works, erected by an American firm, were
completed and started. As far as the production of pig-iron was
concerned success was immediate, but many difficulties had to be
overcome in the manufacture of steel which had never before been
attempted in a tropical climate. These too, however, had been surmounted
by the end of 1913 in the nick of time to meet the heavy demands and
immense strain of the Great War, towards the end of which Government
took as much as 97 per cent of the steel output and obtained it from the
Company at less than a quarter of the price that it would have commanded
in the Indian open market.
To-day, just twelve years after the first stake was driven into the
ground, Jamsheedpur is already a town of close on 100,000 inhabitants,
pleasantly situated on rising ground between a considerable river which
flows down sometimes during the rainy season in a devastating torrent
from the lofty plateau of Chota Nagpur into the Bay of Bengal and a
minor affluent whose waters mingle with it close by. The climate is dry
and therefore healthy, though the shade temperature rises in hot weather
to 116, and a finely scarped range of hills over 3500 feet high provides
within easy distance the makings of a small hill station as a refuge,
especially valuable for women and children, from the worst heat of the
torrid season. During the "cold" weather, when the thermometer falls to
between 40° and 50° at night, there can be no more delightful climate in
the world. The war gave a tremendous impetus to the Company's operations
and stimulated the rapid expansion of the works on a far larger scale
than had ever been anticipated, until they now need not fear comparison
with some of the largest and best-equipped works of the same kind in the
West. No doubt is entertained as to the demand for the enormous output
from such a plant. Nor is it contemplated that it will meet anything
like the full needs of India, which are growing apace. Before the war
India imported annually about 1,000,000 tons of steel products, of which
Germany furnished a large and increasing percentage direct or through
Belgium. Equally little room is there to question the continued supply
of either coal or ore. The life of the coal mines which the Tata Company
possess within one hundred miles of their works is estimated at two
hundred years, and they form only a very small portion of the great
carboniferous area known as the Gondwana measures. They produce the best
coking coal in India, and though much inferior as such to most British
coal mines, against this disadvantage can be set off the much greater
richness of the iron ore deposits, carrying between 60 and 67 per cent
of metallic iron. These non-titaniferous deposits are practically
inexhaustible, and those at present used are within forty to fifty miles
of Jamsheedpur. This favoured region supplies also most of the fluxes
required for the manufacture of steel, and even clays for firebricks.
Of equal promise for the future prosperity of India is the force of
attraction which Jamsheedpur is exercising on other kindred or
subsidiary industries which are establishing themselves in large
numbers, and with Indian as well as European capital behind them,
throughout the same region.
To keep pace with the growth of the population which such huge and rapid
extensions involve is no easy task, and the Tatas aim at making
Jamsheedpur a model industrial town not unworthy of the high standard
which they have reached in their works. It is to an Englishman, a son of
the late Archbishop Temple, formerly in the Public Works Department,
that the task has been entrusted. The Company own twenty-seven square
miles of land, which is none too little for a town that already has
nearly 100,000 and may in the near future have a quarter of a million
inhabitants. Fortunately the lie of the land, which is undulating and
rises gradually from the level of the river beds, adapts itself both to
aesthetic and sanitary town-planning. There is plenty of scope for
laying out round the existing nucleus a number of new and separate
quarters in which suitable provision can be made for the needs of
different classes of Europeans and Indians, and for applying new
scientific principles which should secure for all, including especially
the children, the light and air so much needed in a large industrial
centre. Many, too, are the novel problems arising out of the governance
of a great heterogeneous community in a town which, though within the
British Indian province of Behar and Orissa, is in many respects
autonomous; and to another Englishman, Mr. Gordhays, who has for the
purpose retired from the Indian Civil Service, Messrs. Tata have
entrusted this equally responsible task.
How soon such a vital undertaking can be Indian-run as well as
Indian-owned is a question upon the answer to which the future of India
in the economic sphere depends as much as upon the success or failure of
the new Councils in the sphere of political advancement.
The operations of a steel and iron foundry call for high scientific
attainments, grit, and the power to control large bodies of labour. In
addition to these qualities others are required at Jamsheedpur to deal
with the many physical and social problems which the rapid growth of a
very heterogeneous population and its harmonious and healthy governance
present. What augury can be drawn for the future from the results
already achieved? The board of directors, with whom the ultimate
responsibility rests, has always been exclusively Indian. But, being
sane business men, they realised from the first that they must for some
time rely on Western management, Western technical knowledge, and even
to some extent on Western skilled labour. Having met with little
encouragement in British official quarters in India, or in British
unofficial quarters in England, they turned in the first place to
America. Many Americans occupy responsible posts in the works. The
erection of the first plant was committed to Americans. The Indian
directors never attempted to exclude Englishmen from their employ, nor
did they hesitate to have recourse to British industry when it could
best supply their needs. To keep the balance even they turned before the
war to Germany also. Much of the machinery was purchased from German
firms, who, like the Americans and the British, sent out their own
parties to set up and work the plant which they supplied. In August 1914
the Germans numbered 250. But they were soon eliminated, and their
places for the most part filled by Englishmen, the smelters from
Middlesbrough importing not only their fine Yorkshire physique and
dialect, but their Trade Union ideas.
During the war, Government, both in Delhi and in London, were constantly
pressing for an increased output, which meant a large extension of the
works; and as nothing could be obtained from England or brought out
except at extreme risk from submarines, large orders for new plant for
the extensions now in progress had therefore to be placed in America.
The total number of covenanted employees of the Company to-day is 137,
of whom ninety-three are English and forty-four American, and there are
in addition sixty locally employed Europeans. The number of Indians
employed is about 44,500. Nearly half the population of Jamsheedpur is
directly employed by the Company, and almost the whole owes its means of
livelihood to it in less direct forms. It comprises Indians of many
races and creeds and castes and tongues. There are Bengalees and
Madrasees of the educated classes, some of them Brahmans, who are
chiefly engaged in clerical, technical, and managerial work. There are
rougher Pathans and Punjabee Mahomedans, as well as Sikhs, who take more
readily to heavy skilled manual labour. There are artisans and small
traders and shopkeepers from all parts of India, and even a few picked
carpenters from China as pattern-makers. The bulk of the unskilled
labour is drawn from the Sonthal aboriginal population, industrious,
docile, and cheerful as a rule, but abysmally ignorant and credulous,
and liable to sudden gusts of emotion and passion.
The question of the employment of Indians on the actual processes of
manufacture is largely a question of technical and physical training,
and it has not been lost sight of in Jamsheedpur. Schools have been
started for the education of the Indian children, and though in a
community still largely composed of people who are themselves young, the
number of children of a school-going age is necessarily small, a
secondary school under a Bengalee graduate in science, who was himself
originally trained in Rabindranath Tagore's remarkable school at Bolpur,
already has over 140 boys, and a training institute for higher technical
studies is to follow in due course. Nor are the adult men and women
neglected, for social welfare in all its aspects plays an important part
in the life of Jamsheedpur.
As to the actual employment of Indians, nowhere has the principle been
more carefully applied that Europeans--a term which in this connection
must be taken to include Americans--are only to be employed when and so
long as no Indian can be found competent to perform the particular work
required. The proportion of Europeans to Indians works out to-day
approximately as 1 to 230, but this figure is in itself somewhat
misleading. Out of the total of 197 Europeans, no fewer than
seventy-five are the highly skilled mechanics who are still absolutely
indispensable as supervisors at the steel-smelting furnaces and the
rolling-mills. Work of this kind requires a powerful physique, long
experience, and plenty of pluck. One has only to look at the muscular,
hard-bitten Americans and Englishmen who stand round the furnaces to see
that they represent a type of humanity which in India is still extremely
rare. The Company have tried eighteen Indians, carefully selected, but
only three have stayed. The up-country races, physically more promising,
lack the training. It will take, it is believed, twenty-five years to
bring on Indians who can be trusted to replace Europeans in these
arduous jobs.
Nevertheless, in the steel-smelting furnaces there are only forty
European supervisors to 2000 Indian workmen, and in the rolling-mills
only thirty-five to 2200. In other departments much more rapid progress
has been achieved, and the results are already remarkable. Indians do
excellent work as machinists, cranemen, electricians, etc., and even in
the rolling-mills they do all the manual work. The best of them make
reliable gangers and foremen. In the blast furnaces there are only eight
Europeans to 1600 Indians, in the mechanical department only six to
3000, and in the traffic department only one to 1500. In two other
important departments it has been already found possible to place an
Indian in full charge. One of these is the electrical department, which
requires unquestionably high scientific capacity. Another is the coke
ovens, on which 2000 Indians are employed under the sole charge of an
Indian who seemed to me to represent an almost new and very interesting
type--a young Bengalee of good family, nephew to Sir Krishna Gupta, who
was recently a member of the Secretary of State's Council in Whitehall.
He had studied at Harvard, had worked afterwards right through the mill,
and had acquired the habit of organised command, which is still rare
amongst Indians. If Jamsheedpur may be not inaptly regarded as a
microcosm of India, in which the capacity of Indians for self-government
in a wider sense than any merely political experiment connotes is being
subjected to the closest and most severe test, it assuredly holds forth
high promise for the future.
Yet at the very time when the future of Indian industries seemed to be
at last almost assured, and largely thanks to Indian enterprise, it was
gravely compromised by the miserable breakdown of the most important of
all the services on which the very life of industry depends. The Indian
railways proved altogether incapable of meeting the new demands made
upon them. Even in the essential matter of coal supplies, though the
output of the Indian coal mines suffices for present requirements, huge
dumps of coal accumulated round the mines and could not be moved owing
to the lack of rolling-stock and to the general inadequacy of the
existing railway system. The breakdown may have been due in the first
place to the rapid deterioration of rolling-stock and permanent way that
could not be made good during the war, and has not been made good yet,
but the real causes must be traced much farther back to the parsimonious
and short-sighted railway policy of the Government of India for years
past. Apart from the economic consequences, it is particularly
unfortunate, even from the political point of view, that such a
revelation of inefficiency should have occurred in a field which has
been hitherto most jealously preserved for British enterprise, and just
in the very sphere of Western activity which has appealed most strongly
to Indians of all classes.
Of all the Western inventions which we have brought to India, the
railway is certainly the most popular, perhaps because the modern love
of travel has developed largely out of the ancient practice, still
continued, of pilgrimages _en masse_ to popular shrines, near and far.
During the great days when the worship of Juganath reaches its climax
and half a million pilgrims pour into Puri from all parts of India, the
terminus of the branch-line from the Calcutta-Madras railway is busier
than Epsom Downs station on Derby Day. A big Indian railway station--the
Howrah terminus in Calcutta, the Victoria Terminus in Bombay, the
Central Station in Delhi--is in itself at all times a microcosm of
India. It is never empty, never silent by day or by night. It is always
alive, always crowded, always full of Indian sounds and smells. It is a
camping ground not only for those who are actually going to travel but
also for those who merely come to give their friends a send-off or to
greet them on arrival. No Indian of any position can be allowed to
depart or to arrive without a party of friends to garland him with
flowers, generally the crude yellow "temple" marigolds. The ordinary
Indian to whom time is of little value cares nothing for time-tables. He
goes to the station when he feels moved to do so, and waits there
patiently for the next train that will take him to his destination or
bring the friends he wants to meet. He does not in the least mind
waiting for two, three, or four hours--sometimes in more remote parts of
the country for the best part of twelve or even of twenty-four hours.
Only the Europeans and a few Western-educated Indians who have learnt
business habits ever think of "catching" a train. So the Indian railway
station has a constant and generally dense floating population that
squat in the day-time in separate groups, men, women, and children
together, according to their caste, hugging the slender bundles which
constitute their luggage, chattering and arguing, shouting and
quarrelling, as their mood may be, but on the whole wonderfully
good-humoured and patient. At night they stretch themselves out full
length on the ground, drawing their scanty garments well over their
heads and leaving their legs and feet exposed, or, if the air is chilly
and they possess a blanket, rolling themselves up in it tightly like so
many shrouded corpses in long and serried rows, till the shriek of an
incoming train arouses them. Then, whether it be their train or not,
there is a din of yelling voices, a frenzied rush up and down the
platform, and, even before those who want to get out have had time to
alight, a headlong scramble for places--as often as not in the wrong
carriages and always apparently in those that are already crammed full,
as the Indian is essentially gregarious--and out again with fearful
shouts and shrill cries if a bundle has gone astray, or an agitated
mother has mislaid her child, or a traveller discovers at the last
moment that it is not after all the train he wants. In nine cases out of
ten there is really no need for such frantic hurry. Even express trains
take their time about it whenever they do stop, and ordinary trains have
a reputation for slowness and unpunctuality to which they seldom fail to
live up. But, as if to make up for the long hours of patient waiting,
the struggling and the shouting go on _crescendo_ till the train is at
last under way again. For, besides the actual passengers coming and
going, the platforms are alive with hawkers of all sorts who minister to
their clamorous needs--sellers of newspapers and of cigarettes and of
the betel-nut which dyes the chewer's mouth red, of sweetmeats and
refreshments suited to the different castes and creeds, Mahomedan
water-carriers from whom alone their co-religionists will take water to
fill their drinking-vessels, and Brahman water-carriers who can in like
manner alone pour out water for Hindus of all castes. And all have their
own peculiar cries, discordant but insistent.
Who that has passed at night through one of the great junctions on the
Upper Indian railways, say Saharampur or Umballa or Delhi, can ever
forget such sounds and sights of pandemonium? Or who would care to miss
during the daylight hours the open window on to the kaleidoscopic scenes
of Indian life at every halt? Here a turbaned Rajput chief with his
whiskers fiercely twirled back under his ears descends from the train to
be greeted and garlanded by a throng of expectant retainers who look as
if they had stepped straight out of an old Moghul picture. Or a fat and
prosperous Mahomedan _zemindar_ in a gold-embroidered velvet coat and
patent-leather boots struts along the platform convoying his fluttering
household of heavily veiled ladies, all a-twitter with excitement, to
the _purdah_ carriage specially reserved for them. Or a band of
mendicant ascetics, their almost naked bodies smeared all over with
fresh ashes and the trident of Shiva painted on their foreheads, return
with well-filled begging-bowls from some favourite shrine. Or an excited
crowd, all wearing the little white Gandhi cap, rend the air with shouts
of _Mahatma Gandhi-ki jai!_ in honour of some travelling apostle of
"Non-co-operation." And all over India the swarm of humbler travellers,
who lend their own note of varied colour even to the smallest way-side
stations, seems to increase every year, whether one crosses the vast
drab plains of Upper India or climbs the steep face of the Western Ghats
on to the sun-scorched plateau of the Deccan, or is unmercifully jolted
through the gentler and more verdant landscapes of Southern India.
One change, however, since pre-war days none can fail to mark.
Travelling is far less comfortable. Trains are fewer and far more
crowded. The rolling-stock is war-worn and dilapidated, for it could not
be renewed during the war, as, although a great deal of railway material
can be produced in Indian workshops, some absolutely essential parts
have always been imported from England--as many Indians believe for the
purpose of subordinating Indian railways to the industrial interests of
Great Britain. Even the permanent way has deteriorated. But the mere
discomfort inflicted upon travellers is a small matter, and it is
chiefly on grounds of racial feeling that Indians are beginning to cry
out against the many outward and visible forms of discrimination in
favour of European travellers. What the most moderate and thoughtful
Indians are concerned about is the futility of talking of the
development of Indian industries and the starting of new ones when
railroads and rolling-stock can no longer handle even the existing
traffic or move the essential raw materials. The problem brought to the
front by the grave crisis through which the Indian railway system is now
passing is neither new nor accidental. It is the outcome of antiquated
methods of railway administration and finance, of which it was possible
to disguise the defects so long as they were not subjected to any
searching strain. The war provided that strain, and the system showed,
it must be admitted, wonderful endurance under it so long as the war
lasted. But since the end of the war it has betrayed such grave symptoms
of imminent collapse that Government have been compelled to appoint an
independent Committee of Inquiry, with a fair proportion of Indian
members on it, which with a man like Sir William Acworth as Chairman
will, it may be hoped, not be content merely to pass judgment upon it,
but will be able also to point to a better way in the future. The
evidence produced before the Committee furnishes ample material for a
scathing indictment of the system.
There are altogether only some 35,000 miles of railroad in India to-day,
or about as much as before the war in European Russia, the most backward
of all European countries, whose population was little more than a third
of that of India. The Government of India may claim that this is a
magnificent return for the £380,000,000 of capital expenditure that
these railways represent to-day in its books, and that the profits which
they have yielded for the last twenty years with steadily increasing
abundance to the State show the money to have been well invested. But
how if these results have been achieved only by a short-sighted and
narrow-minded policy which sacrificed the future to the present?
Of the Indian railways some are owned and worked by the State, some are
owned by the State and worked by companies, some are owned and worked by
companies under contracts with the State. The companies that own and
work their own lines are for the most part domiciled in England, and the
evidence already taken before the Committee shows how little power is
left by the London Boards to the local agents who manage them, and how
often the interests of the public and of the country appear to be
subordinated to the narrow view taken at home of the companies' own
interests. But however flagrant the special shortcomings of the
company-owned railways may be, the root of the evil common to all lies
in the policy laid down by and for the Government of India, in whom the
supreme control has always been vested as a professedly necessary
consequence of the financial guarantees given by the State and the right
of ultimate purchase reserved to it. That control, which has passed
through many different incarnations in the course of the last
half-century, has been exercised since 1905 by a Railway Board of three
members outside of, but subordinate to, the Government of India. It is
represented in the Viceroy's Executive Council by the Member for
Commerce and Industry, but its real master and the ultimate authority in
all matters of railway policy is and always has been the Finance Member
of the Government of India, who in turn has to adapt himself to the
exigencies of Whitehall. The Finance Member, who lays down the annual
amount that can be allocated to railway expenditure out of revenue, cuts
the cloth of the Railway Board in accordance not so much with the needs
of the railways themselves as with the requirements of his annual
budget. For when the yield of the Indian railways began to constitute an
important source of Government revenue, the Finance Member, instead of
devoting it to the equipment and expansion of railways, however
essential to the future prosperity of the country, was easily prevailed
upon to regard it, in part at least, as a convenient lucky-bag to draw
upon, especially in difficult times, for meeting the demands of other
departments, and especially of the Army Department, always the most
insatiable of all. In the same way, however clear a case could be made
out from the point of view of the railways for capital expenditure to be
met by raising loans at home or in India, the decision was not based so
much on the intrinsic merits of such an operation as on the immediate
effect it was likely to have on the British or Indian money market in
respect of other financial operations with which the Secretary of State
was saddled. The result has been that before the war the Indian railways
were kept on the shortest possible commons, and that having been
inevitably starved during the war, without any reserves to fall back
upon, they are clamouring to-day for financial assistance for the mere
upkeep of open lines and the renewal of rolling-stock, without which
they are threatened with complete paralysis, whilst the Government of
India, confronted on the one hand with the categorical imperative of the
Esher Committee and the fantastic extravagance of the Army Department
since the Afghan war, and on the other with the appalling losses already
incurred in consequence of Whitehall's currency and exchange policy, has
never been in a worse position to give such assistance.
The keen searchlight of the war has been turned effectively on many weak
points in the government and administration of India besides railway
policy, and the Indian currency and exchange policy stands out now as
one of the most disturbing factors in the economic situation.
India played her part in the war, and played it well, but she was never
called upon to bear any crushing share in its financial burdens. The
Indian Legislature unanimously and spontaneously granted £100,000,000 in
1917 towards Imperial war expenditure, and another £140,000,000 of
Indian money went into the two Indian war loans and issues of Treasury
notes. But the increase in India's actual military expenditure during
the war was small, as the Imperial Exchequer continued to bear all the
extra cost of the Indian forces employed outside India, and the last
Indian war budget, 1918-19, showed an excess of only about £23,000,000
over the last pre-war budget, 1913-14--an increase easily met by
relatively small additional taxation. Moreover, the Indian export trade,
after a temporary set-back on the first outbreak of hostilities,
received a tremendous impetus from the pressing demand for Indian
produce at rapidly increasing prices, and the lucrative development of
many new as well as old industries and of natural resources too long
neglected. The balance of trade which before the war had generally been
slightly against India then shifted rapidly, and the scale turned
heavily in her favour till the end of the war. The total value of the
supplies of all sorts, foodstuffs, raw materials, and manufactured
products, sent out from India to other parts of the British Empire and
to Allied countries has been estimated at some £250,000,000.
For India as a whole the war years were fat years, though the wealth
poured into the country was, as usual, very unevenly distributed, and
some sections of the population were very hard hit by the tremendous
rise in the cost of living. Lean years were bound to come in India as
elsewhere when the war was over. But the reaction would hardly have led
to such a serious crisis had it not been for complications which have
arisen out of the peculiarities of a unique exchange and currency
system. This system presumes a gold standard, but it is in reality a
gold exchange system by which, in the absence of an Indian gold
currency, the exchange as between the Indian silver rupee and the
British gold sovereign has to be kept at the gold point of the legally
established rate of the rupee to the sovereign by delicately balanced
operations directed from Whitehall. These consist in the sale of
"Council bills" at gold point by the Secretary of State for India when
the balance of trade is in favour of India, and in the sale of "Reverse
Councils" at gold point by the Government of India when the balance of
trade is against India.
The system worked fairly well until the second year of the war, when the
balance of trade turned in favour of India and soon assumed
unprecedented proportions. The enormous Indian exports could not be paid
for in goods, as the Allied countries had neither goods nor freight
available for maintaining their own export trade. Nor could they be
paid for in bullion, as gold and silver were taken under rigid control.
Nor could internal borrowings in India (though the success of the Indian
war loans was a phenomenon hitherto undreamt of) suffice to finance the
expenditure incurred in India on behalf of the Imperial Government. The
Government of India made very large purchases of silver, which combined
with the stimulated world-demand to drive the price of the white metal
up to inordinate levels, and to keep pace with this rise and avoid an
intolerable loss on the coining of rupees the rate of exchange--_i.e._
the rate at which the Secretary of State sells "Council bills" in
London--was raised until it actually reached 2s. 5d. for the rupee. To
meet the balance of Imperial expenditure in India the Government of
India issued currency notes against London Treasury bills.
The result of these operations was that at the end of the war the funds
standing to the credit of the Government of India in London had been
swollen to the unprecedented figure of £106,000,000, a large proportion
of which had to be paid back to India when, with the cessation of the
abnormal conditions induced by the war, the balance of trade turned
against her, and the rate of exchange had been raised from the legal
standard of sixteenpence to the rupee to 2s. 5d. The very important
question then arose of the future legal ratio of the rupee to the
sovereign or the £1 sterling. A Committee was appointed to advise the
Secretary of State as to the best means of securing fixity of exchange
under the new conditions; it took evidence in London during the year
1919 and reported towards the end of the year. A majority of the
Committee recommended that the rupee should be linked with the gold
sovereign and not with the £1 sterling, which had become divorced from
gold under the pressure of war finance, and that the legally established
ratio of 1s. 4d. or fifteen rupees to the sovereign should be raised to
2s., _i.e._ ten rupees to the sovereign. The Secretary of State accepted
the recommendations of the majority of the Committee, and in February
1920 steps were taken to establish the new ratio regardless of the fact
that signs were indubitably discerned in the previous month showing that
the economic current had turned against India. The rupee was to be
"stabilised" at 2s. gold. The only dissentient voice in the Currency
Committee had been that of the one Indian member, a Bombay bullion
broker, Mr. D. Merwanji Dalal, who probably had more practical knowledge
and experience of the problem than all the ten signatories of the
Majority Report, and he had pleaded in vain for the retention of the old
ratio of fifteen rupees to the sovereign. The event was soon to
demonstrate his sagacity. The Secretary of State in order to establish
the new ratio sold "Reverse Councils" at rates from 2s. 11d. downwards.
The attempt failed egregiously, for the rupee fell steadily, and has now
fallen to and under 1s. 4d. The money represented by the Indian balances
with the Secretary of State had been put down in London at 1s. 4d.
upwards, and India had to pay at the rate of 2s. 11d. downwards to get
it back. The difference between the two rates represents, it is
calculated, a loss to the Indian tax-payer of thirty-five crores of
rupees, or £35,000,000 at the "stabilised" rate ordained by Government.
But the actual loss to India on these exchange transactions is not the
worst outcome of these conjuring tricks, as they have been
contemptuously called by Indian critics of Whitehall. Faith both in the
omnipotence and in the honesty of Government was by no means extinct in
Indian business circles, and when Government undertook to "stabilise"
the rupee at 2s. gold Indian merchants assumed that Government could and
would do what it said it was going to do. Their stocks of imported goods
had been completely depleted during the war, and prosperity had bred, as
usual, a spirit of excessive optimism. Enormous orders for cotton
piece-goods and other British manufactures were placed in England on the
basis of a 2s. rupee just when prices there had soared to their
dizziest heights. By the time the British manufacturers had fulfilled
their contracts and the goods were delivered in India, not only had the
rupee fallen headlong but prices too had declined, and the Indian
importer found that he had made both ways a terribly bad bargain, of
which in many cases he could not possibly fulfil his share. There was
£15,000,000 worth of Manchester piece-goods alone lying in India at one
time last winter on board the ships that brought them out or in the
docks. Of these the Indian importer simply refused to take delivery,
because to do so would have meant ruin, as, what with the depreciation
of the rupee and the fall in market prices, they seldom represented
one-half, sometimes not a quarter, of the cost to him, if he took them
up. It was useless to preach to him about the sanctity of contract, for
had not Government itself, he declared, set the example of a gross
breach of contract by undertaking and then failing to "stabilise" its
own rupee currency? Government pleaded that it had given no undertaking
that could be construed as a contract, but the Indian retorted that the
Government's word had been hitherto held as good as its bond, and Indian
Extremists found only too ready hearers when they imputed the exchange
policy of Whitehall not so much to mere incompetence as to unholy
influences behind Whitehall which robbed India in order to fill British
pockets.
A wiser spirit ultimately prevailed, and merchants and buyers came
together and agreed to compromise, and large stocks were gradually
cleared. If this year's monsoon is followed by good harvests, and the
European markets recover something of their former activity, Indian
trade will be gradually restored to more normal conditions. But the
ordeal which it has passed through will have taught some enduring
lessons.
Remembering, too, the large profits which London firms used to make on
silver purchases for the Government of India, and the enormous Indian
balances kept in London in pre-war times which were supposed to be
essential to the maintenance of Indian credit but were still more
clearly of great convenience for London bankers who had the use of them,
Indians who are by no means Extremists ask themselves not unreasonably
why, instead of leaving the ordinary laws of supply and demand to work
through the ordinary channels of financial and commercial enterprise,
the Secretary of State should persist in carrying on big financial
operations connected with the adjustment of the balance of trade or any
purpose other than his official requirements in regard to what are known
as "home charges," _i.e._ payments to be made in England on account of
the Government of India.
That the effects of the present system as it has worked recently have
been deplorable from a political as well as from an economic point of
view is shown by the large number of recruits made by Mr. Gandhi from
what one might have regarded as the most unlikely classes. Indian
merchants whose interests would seem to be bound up with the maintenance
of order and public tranquillity, Bombay _Banias_ and Calcutta
_Marwaris_, have thrown themselves into the "Non-co-operation" movement
out of sheer bitterness and loss of confidence in British good faith,
boycotting British imported goods and supplying a large part of the
funds without which even a Mahatma cannot carry on a prolonged political
agitation.