________________________________________________________________________________________
CHAPTER III
THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY
The economic consequences of this rupture of
the par of exchange were of the most far-reaching character. It divided the commercial
world into two sharply defined groups, one using gold and the other using silver as their
standard money. When so much gold was always equal to so much silver, as was the case
previous to 1873, it mattered very little, for the purposes of international transactions, whether a country was on a gold or on
a silver standard ; nor did it make any difference in which
of the two currencies its obligations were stipulated and realised. But when, owing to the
dislocation of the fixed par, it was not possible to define how much silver was equal to
how much gold from year to year or even from month to month, this precision of value, the
very soul of pecuniary exchange, gave place to the uncertainties of gambling. Of course,
all countries were not drawn into this vortex of perplexities in the same degree and to
the same extent, yet it was impossible for any country
which participated in international commerce to escape from being dragged into it. This
was true of India as it was of no other country. She was a silver-standard country
intimately bound to a gold-standard country, so that her economic and financial life was
at the mercy of blind forces operating upon the relative values of gold and silver which
governed the rupee-sterling exchange.
The fall increased the burden of those who were under an obligation to make gold payments. Amongst such, the most heavily charged was the Government of India. Owing to the exigencies of its political constitution, that Government has been under the necessity of making certain payments in England to meet : (1) interest on debt and on the stock of the guaranteed railway companies ; (2) expenses on account of the European troops maintained in India; (3) pensions and non-effective allowances payable in England; (4) cost of the home administration[f1]; and (5) stores purchased in England for use or consumption in India. England being a gold-standard country, these payments were necessarily gold payments. But the revenues of the Government of India out of which these payments were met were received in silver, which was the sole legal-tender money of the country. It is evident that even if the gold payments were a fixed quantity their burden must increase pan passu with the fall in the gold value of silver. But the gold payments were not a fixed quantity. They have ever been on the increase, so that the rupee cost of the gold payments grew both by reason of the growth in their magnitude, and also by reason of the contraction of the medium, i.e. the appreciation of gold, in which they were payable. How greatly this double levy diminished the revenues of India, the figures in Table XI give a convincing testimony.
TABLE XI
increase IN THE rupee
cost oF gold PAYMENTS[f2]
Financial Year |
Average Rate of Exchange
for the Year |
Total Excess of Rupees
needed to provide for the net Sterling Payments of the Year over those required to meet
the Sterling Payments of 1874-75 |
Amount of this Excess due
to |
|
|
|
|
(1) Fall in the Rate of
Exchange over that of 1874-75 |
(2) Increase in gold payments over those of
the Year 1874-75 |
|
R |
R |
||
1875-76 |
1 9.626 |
86,97,980 |
41,13,723 |
45,84,257 |
1876-77 |
1 8.508 |
3,15,06,824 |
1,44,68,234 |
1,70,38,590 |
1877-78 |
1 8.791 |
1,30,05,481 |
1,14,58,670 |
1,15,46,811 |
1878-79 |
1 7.794 |
1,85,23,170 |
1,04,16,718 |
81,06,452 |
1879-80 |
1 7.961 |
39,23,570 |
1,65,37,394 |
-1,26,13,824 |
1880-81 |
1 7.956 |
3,12,11,981 |
1,92,82,582 |
1,19,29,399 |
1881-82 |
1 7.895 |
3,18,19,685 |
1,98,76,786 |
-1,19,42,899 |
1882-83 |
1 7.525 |
62,50,518 |
1,86,35,246 |
2,48,85,764 |
1883-84 |
1 7.536 |
3,44,16,685 |
2,33,46,040 |
1,10,70,645 |
1884-85 |
1 7.308 |
1,96,25,981 |
2,48,03,423 |
51,77,442 |
1885-86 |
1 6.254 |
1,82,11,346 |
2,54,95,337 |
-4,37,06,683 |
1886-87 |
1 5.441 |
4,69,16,788 |
4,46,68,299 |
22,48,489 |
1887-88 |
1 4.898 |
4,63,13,161 |
4,96,60,537 |
- 33,47,376 |
1888-89 |
1 4.379 |
9,00,38,166 |
6,59,71,998 |
2,40,66,168 |
1889-90 |
1 4.566 |
7,75,96,889 |
6,06,98,370 |
1,68,98,519 |
1890-91 |
1 6.090 |
9,06,11,857 |
4,65,48,302 |
4,40,63,555 |
1891-92 |
1 4.733 |
10,44,44,529 |
6,54,52,999 |
3,89,91,530 |
The effect of such a growing burden on the
finance of the Government may well be imagined; the
condition of the Government, embarrassing at first, later
became quite desperate under this continuously increasing burden. It enforced a policy of
high taxation and rigid economy in the finances of the Government. Analysing the resource
side of the Indian Budgets from the year 1872-73, we find that there was hardly any year
which did not expire without making an addition to the existing imposts of the country. In
1872-73, there commenced the levy of what were called Provincial Rates. The fiscal year
1875-76 witnessed the addition of R. 1 per gallon in the
excise duty on spirits. In 1877-78 the Pass Duty on Malwa
opium was raised from Rs. 600 to Rs.
650 per chest. An addition of a License Tax and Local Rates was made in the year 1878-79,
and an increase of Rs. 50 per chest took place in the Malwa Opium Duty in the following
year. With the help of these imposts the Government expected to place its finances on an
adequate basis. By the end of 1882, it felt quite secure and even went so far as to remit
some of the taxes, which it did by lowering the customs duties and the Patwari Cess in the North-Western Provinces. But the rapid
pace in the fall of the exchange soon showed that a resort to further taxation was
necessary to make up for the increased cost of the sterling payments. To the existing
burdens, therefore, was added in 1886 an Income Tax, a duty of 5 per cent. on imported and
also on non-illuminating petroleum. The Salt Duty was raised in 1888 in India from Rs. 2
to Rs. 2 1/2 and in Burma from 3 annas to R. 1 per maund. The
Patwari Cess of the North-Western Provinces, repealed in 1882, was re-imposed in 1888. The
rates of duty on imported spirit and the excise duties on spirits were not only raised in
1890, but were afterwards added to in every province. An excise duty on malt liquor was
levied in 1893, and another on salted fish at the rate of 6 annas per maund. The yield of
the taxes and duties levied from 1882-83 was[f3] as follows:—
Sources |
1882-83 |
1892-93 |
|
Rs. |
Rs. |
Salt Excise Customs Assessed Taxes |
5,67,50,000 3,47,50,000
1,08,90,000 48,40,000 |
8,14,90,000 4,97,90,000
1,41,80,000 1,63,60,000 |
All this additional burden was due to the
enhanced cost of meeting the gold payments, and "would not have been necessary but
for the fall in the exchange."[f4]
Along with this increase of resources the
Government of India also exercised the virtue of economy in the cost of administration.
For the first time in its history, the Government turned to the alternative of employing
the comparatively cheaper agency of the natives of the country in place of the imported
Englishmen. Prior to 1870, the scope of effecting economy along this line was very
limited. By the Civil Service Reforms of 1853[f5] the way was cleared for the appointment of
Indians to the posts reserved by the Statute of 1793[f6] for the members of the covenanted Civil
Service. But this reform did not conduce to any economy in the cost of the administration,
because the Indian members carried the same high scale of salaries as did the English
members of the Civil Service. It was when the Statute of 1870 (33 Vic. c. 3) was passed permitting the appointment by nomination of
non-covenanted Indians to places reserved for the covenanted Civil Service on a lower
scale of salary, that a real scope for economy presented itself to the Government of
India. Hard pressed, the Government of India availed itself of the possibilities for
economy held out by this statute. So great was
the need for economy and so powerful was the interest of the Government in reducing its
expenditure that it proceeded, notwithstanding increased demands for efficient
administration, to substitute the less expensive agency of non-covenanted civilians in
place of the more expensive agency of the covenanted civilians. The scale on which this
substitution was effected was by no means small, for we find that between 1874 and 1889
the strength of the covenanted service recruited in England was reduced by more than 22
per cent., and was further expected to be reduced by about
12 per cent., by the employment of unconvenanted Indians to the posts usually reserved for
covenanted civilians [f7]. Besides substituting a cheap for a dear
agency in the administration, the Government also sought to obtain relief by applying the
pruning knife to the rank growth in departmental extravagances.[f8] Even with such heroic efforts to increase the
revenue and reduce the expenditure the finances of the Government throughout the period of
the falling exchange were never in a flourishing state, as is shown in Table XII.
Much more regrettable was the inability of the
Government, owing to its financial difficulties, to find money for useful public works.
The welfare of the Indian people depends upon turning to best account the resources which
the country possesses. But the people have had very little of the necessary spirit of
enterprise in them. The task, therefore, has fallen upon the Government of India to
provide the country with the two prime requisites of a sustained economic life, namely a system of transport and a network of
irrigation. With this object in view the Government had inaugurated a policy of developing
what were called " Extraordinary Public Works,"
financed by capital borrowings. For such borrowings India, as was to be expected, hardly
offered any market, the people being too poor and their savings too scanty to furnish a
modicum of the required capital outlay. Like all governments of poor peoples, the
Government of India had therefore to turn to wealthier countries that had surplus capital
to lend. All these countries unfortunately happened to be on the gold standard. As long as
it was possible to say that so much gold was equal to so much silver, the English investor
was indifferent whether the securities of the Government of India were rupee securities or
sterling securities. But the fall in the gold value of silver was also a fall in the gold
value of the rupee securities, and what was once a secure investment ceased to be so any
more. This placed the Government in a difficult position in
the matter of financing its extraordinary public works. Figures in Table XIII are worth
study.
The English investor would not invest in the
rupee securities. An important customer for the Indian rupee securities was thus lost. The
response of the Indian money market was inadequate.
revenue
and expenditure of THE government oF india
Year. |
Average
Rate of Exchange. |
In
India. |
In
England. |
Final
Result. |
|||
|
|
Net
Revenue. |
Net
Expenditure excluding Exchange. |
Surplus Revenue. |
Net
Sterling Revenue. |
Exchange. |
|
|
R. |
R. |
£ |
R. |
R. |
||
1874-75 |
22.156 |
39,564,216 |
25,897,098 |
13,667,118 |
12,562,101 |
1,045,239 |
59,778 |
1875-76 |
21.626 |
40,053,419 |
24,541,923 |
15,511,496 |
12,544,813 |
1,377,428. |
1,589,255 |
1876-77 |
20.508 |
38,253,366 |
25,355,285 |
12,898,081 |
13,229,646 |
2,252,611 |
-2,584,176 |
1877-78 |
20.791 |
39,275,489 |
27,658,021 |
11,617,468 |
13,756,478 |
2,123,030 |
-4,262,040 |
1878-79 |
19.794 |
44,415,139 |
25,778,928 |
18,636,211 |
13,610,211 |
2,891,902 |
2,134,098 |
1879-80 |
19.961 |
45,258,197 |
29,384,030 |
15,874,167 |
14,223,891 |
2,878,169 |
-1,227,893 |
1880-81 |
19.956 |
44,691,119 |
34,880,434 |
9,810,085 |
11,177,231 |
||