THE FINANCIAL AND FISCAL RELATIONS BETWEEN INDIA AND GREAT BRITAIN.
When Lord Morley introduced his Indian reforms scheme, a section at
least of the party to which he belongs supported it not only on general
grounds, but more especially in the belief that it would strengthen the
hands of the Imperial Government in dealing with the hide-bound
officialism of which the Government of India is in the eyes of some
British Radicals the visible embodiment. None of them, probably,
anticipated that the boot would be on the other leg. If the Government
of India have sometimes sacrificed Indian interests to British
interests, it has been almost exclusively in connexion with the
financial and fiscal relations between the two countries, and often
against the better judgment and sense of justice of Anglo-Indian
officials. In this respect the enlarged Indian Councils will lend far
greater weight than in the past to any representations which the
Government of India may make at Whitehall.
Even in the course of its first session at Calcutta the Imperial Council
has given abundant indications of its attitude. In the Budget debate,
Sir Vithaldas Thackersey, one of the Indian elected members from Bombay,
remarked very pointedly that "there is an impression abroad that, in
deciding most important questions of economic and financial policy, the
Government are obliged to be guided by political exigencies." Official
secrets have a way of leaking out in India, and Sir Vithaldas knew what
he was talking about when he added with regard to the Budget under
discussion--"It is generally believed that, if the Government of India
had had a freer hand, they would have preferred the raising of the
general tariff or a duty on sugar, which would have been less
objectionable than the levying of the proposed enhanced duties in the
teeth of the practically unanimous opposition of the non-official
members of this Council and of the public generally".
It is certainly unfortunate that on the first occasion on which the
Government of India had to lay a financial statement before the enlarged
Council, Indian members should have come to the conclusion that the
unpopular Budget submitted to them was not the one originally proposed
by the Indian Finance Department, but that it had been imposed upon that
Department by the Secretary of State in deference to the exigencies of
British party politics. Equally unfortunate is it that the financial
difficulties which this Budget had to meet were mainly due to the loss
of revenue on opium in consequence of the arrangements made by Great
Britain with China, in which Indian interests had received very scant
consideration. Not only had Sir Edward Baker, when he was Finance
Minister three years ago, given an assurance that the new opium policy
would be carried out without any resort to extra taxation, but there is
a strong feeling in India that the praiseworthy motives which have
induced the Imperial Government to come to terms with China on the
subject of the opium trade would be still more creditable to the British
people had not the Indian taxpayer been left, with his fellow-sufferers
in Hong-Kong and Singapore, to bear the whole cost of British moral
rectitude. The Imperial Council did not confine itself, either, to
criticism of what had happened. Sir Vithaldas Thackersey had probably
every Indian and many official members with him when he made the
following very clear intimation as to the future:--"We are prepared to
bear our burdens, and all that we ask is that the country should be
allowed greater freedom in choosing the methods of raising revenue. I am
unable to see how it will be injurious to the interests of Government if
this Council is allowed a more real share as regards what articles shall
be taxed and what duties shall be paid."
It is upon such questions as these that the voice of the enlarged
Councils will in future cause much more frequent embarrassment to the
Imperial Government than to the Government of India, and I shall be much
surprised if they have not to listen to it in regard to various "home
charges" with which the Government of India have from time to time very
reluctantly agreed to burden Indian finance at the bidding of Whitehall.
The Indian Nationalist Press has not been alone in describing the recent
imposition on the Indian taxpayer of a capitation allowance amounting to
£300,000 a year to meet the increased cost of the British soldier as
"the renewed attempt of a rapacious War Office to raid the helpless
Indian Treasury," and even the increase in the pay of the native
soldier, which Lord Kitchener obtained for him, does not prevent him and
his friends from drawing their own comparison between the squalor of the
quarters in which he is still housed and the relatively luxurious
barracks built for Tommy Atkins under Lord Kitchener's administration at
the expense of the Indian taxpayer. It is no secret that the Government
of India have also frequently remonstrated in vain when India has been
charged full measure and overflowing in respect of military operations
in which the part borne by her has been governed less by her own direct
interests than by the necessity of making up with the help of Indian
contingents the deficiencies of our military organization at home. It
was no Indian politician but the Government of India who expressed the
opinion that:--
The Imperial Government keeps in India and quarters
upon the revenues of that country as large a portion of its
army as it thinks can possibly be required to maintain its
dominion there; that it habitually treats that army as a
reserve force available for Imperial purposes; that it has
uniformly detached European regiments from the garrison
of India to take part in Imperial wars whenever it has been
found necessary or convenient to do so; and, more than this,
that it has drawn not less freely upon the native army of
India, towards the maintenance of which it contributes
nothing, to aid in contests outside of India with which the
Indian Government has had little or no concern.
All these are, however, but secondary issues to the much larger one
which the creation of the new Councils must tend to bring to the front
with all the force of the increased weight given to them by the recent
reforms. For that issue will raise the whole principle of our fiscal
relations with India, if it results in a demand for the protection of
Indian industries against the competition of imported manufactures by an
autonomous tariff. It must be remembered that the desire for Protection
is no new thing in India. Whether we like it or not, whether we be Free
Traders or Tariff Reformers, we have to reckon with the fact that almost
every Indian is a Protectionist at heart, whatever he may be in theory.
The Indian National Congress has hitherto fought shy of making
Protection a prominent plank of its platform, lest it should offend its
political friends in England. Yet as far back as 1902 a politician as
careful as Mr. Surendranath Banerjee to avoid in his public utterances
anything that might alienate British Radicalism, declared in his
inaugural address at the 18th session of the Congress that "if we had a
potential voice in the government of our own country there would be no
question as to what policy we should follow. We would unhesitatingly
adopt a policy of Protection." This note has been accentuated since the
political campaign in favour of militant Swadeshism, and when English
Radicals sympathize with the _Swadeshi_ boycott as a protest against
the Partition of Bengal, they would do well to recollect that, before
Indian audiences, the most violent forms of _Swadeshi_ are constantly
defended on the ground that British industrial greed, of which Free
Trade is alleged to be the highest expression, has left no other weapons
to India for the defence of her material interests. Mr. Lala Lajpat Rai,
who has the merit of often speaking with great frankness, addressed
himself once in the following terms to "those estimable gentlemen in
India who believe in the righteousness of the British nation as
represented by the electors of Great Britain and Ireland, and who are
afraid of offending them by the boycott of English-made goods":
If there are any two classes into which the British nation
can roughly be divided they are either manufacturers or
the working men. Both are interested in keeping the Indian
market open for the sale and consumption of their manufactures.
They are said to be the only friends to whom we
can appeal against the injustice of the Anglo-Indian bureaucracy.
Offend them, we are told, and you are undone. You
lose the good will of the only classes who can help you and
who are prepared to listen to your grievances. But, boycott
or no boycott, any movement calculated to increase the manufacturing
power of India is likely to incur the displeasure
of the British elector. He is a very well-educated animal,
a keen man of business, who can at once see through things
likely to affect his pocket, however cleverly they may be
put or arranged by those who hold an interest which is really
adverse to his. He is not likely to be hoodwinked by the
cry of _Swadeshi_ minus the boycott, because, really speaking,
if effectively worked and organized, both are one and the
same thing.
That _Swadeshi_ as understood by educated Indians of all classes and of
all political complexions means in some form or other Protection was
made clear even in the Imperial Council. The Finance Member, Sir
Fleetwood Wilson, was himself fain to pay homage to it, but his sympathy
did not disarm Mr. Chitnavis, an Indian member whose speech deserves to
be recorded, as it embodied the opinions entertained by 99 out of every
1,000 Indians who are interested in economic questions and by a very
large number of Anglo-Indians, both official and non-official:--
The country must be grateful to him [the Finance Member]
for his sympathetic attitude towards Indian industries.
"I think _Swadeshi_ is good, and if the outcome of the changes
I have laid before the Council result in some encouragement
of Indian industries, I for one shall not regret it." For a
Finance Minister to say even so much is not a small thing
in the present state of India's dependence upon the most
pronounced and determined Free Trade country in the
world.... At the same time we regret the absence
of fiscal autonomy for India and the limitations under which
this Government has to frame its industrial policy. We
regret that Government cannot give the country a protective
tariff forthwith. However excellent Free Trade may be for
a country in an advanced stage of industrial development,
it must be conceded that Protection is necessary for the
success and development of infant industries. Even pronounced
protagonists of Free Trade do not view this idea
with disfavour. That Indian manufacturing industry is
in its infancy does not admit of controversy. Why should
not India, then, claim special protection for her undeveloped
industry? Even countries remarkable for their industrial
enterprise and excellence protect their industries. The
United States and Germany are decidedly Protectionist. The
British Colonies have protective tariffs... protective
in purpose, scope, and effect. They are not like the Indian
import duties, levied for revenue purposes. The Indian
appeal for Protection cannot in the circumstances be unreasonable.
The development of the industries is a matter
of great moment to the Empire, and the popular leanings
towards Protectionism ought to engage the sympathy of
Government. The imposition of import duties for revenue
purposes is sanctioned by precedent and principle alike.
... And yet for a small import duty of 3-1/2 per cent,
upon cotton goods a countervailing Excise duty upon home
manufactures is imposed in disregard of Indian public opinion,
and the latest pronouncement of the Secretary of State has
dispelled all expectations of the righting of this wrong.
No measure has done greater injury to the cause of Free Trade in India
or more permanent discredit to British rule than this Excise duty on
Indian manufactured cotton, for none has done more to undermine Indian
faith in the principles of justice upon which British rule claims, and,
on the whole, most legitimately claims, to be based. In obedience to
British Free Trade principles, all import duties were finally abolished
in India at the beginning of the eighties, except on liquors and on
salt, which were subject to an internal Excise duty. In 1894, however,
the Government of India were compelled by financial stress to revive the
greater part of the old 5 per cent tariff on imports, excluding cottons,
until the end of the year when cottons were included and under pressure
from England. Lord Elgin's Government had to agree to levy a
countervailing Excise duty of 5 per cent on cotton fabrics manufactured
in Indian power mills. After a good deal of heated correspondence the
Government of India were induced in February, 1896, to reduce the duty
on cotton manufactured goods imported from abroad to 3-1/2 per cent., with
the same reduction of the Indian Excise duty, whilst cotton yarns were
altogether freed from duty. This arrangement is still in force.
Rightly or wrongly, every Indian believes that the Excise duty was
imposed upon India for the selfish benefit of the British cotton
manufacturer and under the pressure of British party politics. He
believes, as was once sarcastically remarked by an Indian member of the
Viceroy's Legislative Council, that, so long as Lancashire sends 60
members to Westminster, the British Government will always have 60
reasons for maintaining the Excise duty. To the English argument that
the duty is "only a small one" the Indian reply is that, according to
the results of an elaborate statistical inquiry conducted at the
instance of the late Mr. Jamsetjee N. Tata, a 3-1/2 per cent Excise duty on
cotton cloth is equivalent to a 7 per cent duty on capital invested in
weaving under Indian conditions. The profits are very fluctuating and
the depreciation of plant is considerable. Equally fallacious is
another argument that the duty is in reality paid by Englishmen. The
capital engaged in the Indian cotton industry is, it is contended, not
British, but almost exclusively Indian, and a large proportion is held
by not over-affluent Indian shareholders.
There is nothing to choose between the records of the two great
political parties at home in their treatment of England's financial and
fiscal relations with India, and English Tariff Reformers have as a rule
shown little more disposition than English Free Traders to study Indian
interests. In fact, until Mr. M. de P. Webb, a member of the Bombay
Legislative Council, published under the title of "India and the Empire"
an able exposition of the Tariff problem in relation to India, very few
Tariff Reformers seemed even to take India into account in their schemes
of Imperial preference. I hope, therefore, to be absolved from all
suspicion of party bias in drawing attention to a question which is, I
believe, destined to play in the near future a most important--perhaps
even a determining--part in the relations of India to the British
Empire.
One of the first things that struck me on my return to India this
year--and struck me most forcibly--was the universality and vehemence of
the demand for a new economic policy directed with energy and system to
the expansion of Indian trade and industry. It is a demand with which
the great majority of Anglo-Indian officials are in full sympathy, and
it is in fact largely the outcome of their own efforts to stimulate
Indian interest in the question. There is very little doubt that the
Government of India would be disposed to respond to it speedily and
heartily on the lines I have already briefly indicated. Will the
Imperial Government and the British democracy lend them a helping hand
or even leave a free hand to them? If not, we shall assuredly find
ourselves confronted with an equally universal and vehement demand for
Protection pure and simple by the erection of an Indian Tariff wall
against the competition of imported manufactures. I need hardly point
out how the rejection of such a demand would be exploited by the
political agitator or how it would rally to the side of active
disaffection some of the most conservative and influential classes in
India. For if, as those Englishmen who claim a monopoly of sympathy with
the people of India are continually preaching, we must be prepared to
sacrifice administrative efficiency to sympathy, how could we shelter
ourselves on an economic issue behind theories of the greater economic
efficiency of Free Trade? If we are to try "to govern India in
accordance with Indian ideas"--a principle with which I humbly but fully
agree--how could we justify the refusal to India, of the fiscal autonomy
for which there is a far more widespread and genuine demand than for
political autonomy?