CHAPTER XXIII.
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?