The disclosures which the last paragraph speaks of with smooth certitude, revealed themselves in 1869 only glimpse by glimpse, and amid a wide divergence of opinion on the part of the responsible advisers of the Government. It required the resolute exercise of his individual will to enable the new Viceroy to tear the truth out of the conflicting accounts, and to get at the whole facts of the situation. 'I am beginning to find,' he wrote to a friend, as early as May, 1869, 'that our finances are not in as comfortable a state as they ought to be. The enormous distances, the number of treasuries, and the complicity of accounts as between each, render accurate forecasts and rapid information almost insurmountably difficult. The waste of public money is great, and I have been obliged to take strong measures, and say some very hard things about it.'3
3 The Earl of Mayo to Sir Stafford Northcote, 16th May, 1869.
Each week found the Viceroy poring with a deeper anxiety and a graver face over the accounts. As he probed into their hollow places, he found one estimate after another break down beneath his scrutiny. His letters and papers during that summer disclose, scene by scene, and with a painful tension of personal responsibility, the slowly developing drama of deficit; but throughout every line breathes a firm resolve that, cost him what it might in ease and popularity, he would establish and maintain equilibrium in the finances of India. Three months after the letter above quoted, he wrote to Sir Henry Durand: 'I have just received information which leads me to believe that in two items of revenue alone, we may look for a decrease of half a million in the first quarter of 1869-70. Now it is our clear duty to do all that we can to meet this. I am determined not to have another deficit, even if it leads to the diminution of the Army, the reduction of Civil Establishments, and the stoppage of Public Works. The longer I look at the thing, the more I am convinced that our financial position is one of great weakness; and that our national safety absolutely requires that it should be dealt with at once, and in a very summary manner.' 'I should be sorry,' he wrote to the Duke of Argyll, 'to say how much I feel the hard lot that is now cast upon us, to recover the finances from a state of deficit. But unless we have a war, which God forbid, we will do it.'
Lord Mayo mapped out for himself two distinct methods of dealing with the situation. In the first place, he resolved that the circumstances were so grave as to demand immediate measures for meeting the impending deficit without waiting to the end of the Financial Year. In the second place, he determined to attack the permanent causes which had led to deficit, and to prevent their recurrence by a systematic readjustment of the finances.
The first step taken by Lord Mayo and Sir John Strachey was to reduce the overgrown grant for Public Works by about £800,000,—a measure suggested and carried out with unsparing faithfulness by Colonel, now Lieut.-General, Richard Strachey, then Secretary to the Government of India in the Public Works Department. Other Departments, equally important and equally clamorous, had augmented their expenditure at a rapid rate. In fact, the ten years which had elapsed since the dominions of the Company passed to the Crown had seen the administration rendered more efficient in many ways; and the cost of the improvements, however admirable they were in themselves, had in the aggregate become too great for the revenues to bear. In addition to the reduction of £800,000 for Public Works, Lord Mayo found himself compelled to curtail temporarily by £350,000 the grants to the spending Departments which had received so rapid a development during the decade since India passed to the Crown. The whole saving amounted to £1,150,000 during the current year 1869-70.
It became apparent, however, that reductions alone would not suffice to produce equilibrium. Lord Mayo had therefore to decide whether he would permit the Budget arrangements of the year to stand, with the knowledge that they would result in deficit, or resort to the unusual, and in India almost unprecedented, expedient of additional taxation in the middle of the year. He decided, after careful inquiry, that the circumstances demanded the latter course. Had the threatened deficit been preceded by a period of prosperity and financial accuracy, he would not have deemed so severe a policy needful. But the public expenditure had, during three consecutive years, largely exceeded the revenue, and Lord Mayo found that solvency could only be secured, in the first place, by immediate and most stringent measures; in the second place, by a permanent improvement in the finances to the extent of three millions sterling a year. I mean, of course, the aggregate improvement derived from the twofold sources of reduced expenditure and increased taxation.
For these and other cogent reasons, Lord Mayo determined to make it clear by measures of unmistakable vigour that his Government was resolved to place the finances upon a permanently sound basis. He raised the income tax from 1 to 2½ per cent. during the second half of the financial year, and enhanced the salt duty in Madras and Bombay. The former measure was estimated to add £320,000 and the latter £180,000 to the revenue of the year; total, £500,000.
By means of this half-million of increased taxation, and the £1,150,000 of reduced expenditure, Lord Mayo hoped to cover the estimated deficit of the current year, namely, £1,650,000. He thus explained his views to the Secretary of State.
'While the accumulated deficits of the three years ending with 1868-69 have amounted to 5¾ millions, the cash balances in our Indian treasuries have fallen from £13,770,000 at the close of 1865-66 to £10,360,000 at the close of 1868-69, and, notwithstanding our recent loan of £2,400,000, are at this moment lower than they have been at this season for many years. During the same period our debt has been increased by 6½ millions, of which not more than 3 millions have been spent on reproductive works.4 Your Grace has reminded us that successive Secretaries of State have enjoined us so to frame our estimates as to show a probable surplus of from half a million to a million sterling. We entirely agree with your Grace in acknowledging the soundness of this policy. We have no doubt that, excluding charges for Extraordinary Works provided for by loan, our expenditure in time of peace ought to be so adjusted to our income as to leave an annual surplus of not less than one million. The necessary conclusion to which we are thus led is, that nothing short of a permanent improvement in the balance now subsisting between our annual income and expenditure of at least three millions sterling will suffice to place our finances in a really satisfactory condition. How, by reducing our expenditure and increasing our income, we can best obtain such a result, is the problem that we have now to solve.
'We are satisfied that there is only one course which we can properly follow. We must no longer continue to make good the deficit of each succeeding year by adding to the public debt. And we must determine, whatever be the difficulty of the task, that there shall henceforth be no room for doubt that, in time of peace, our income will always be in excess of our ordinary expenditure.'