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.