THE PROBLEM OF THE RUPEE:

ITS ORIGIN AND ITS SOLUTION

(HISTORY OF INDIAN CURRENCY & BANKING)

________________________________________________________________________________________

 

 

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

 

s.  d.

R

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.

 

TABLE XII

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.

Surplus (+) or Deficit (—)

 

d.

R.

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

2,264,848

-3,031,394

1881-82

19.895

45,471,887

27,717,249

17,754,638

11,737,688

2,421,499

3,595,451

1882-83

19.525

42,526,173

25,500,437

17,025,736

13,299,976

3,050,923

674,837

1883-84

19.536

43,591,273

23,566,381

20,024,892

14,770,257

3,375,158

1,879,477

1884-85

19.308

41,585,347

24,763,779

16,821,568

13,844,028

3,363,986

- 386,446

1885-86

18.254

42,635,953

27,352,132

15,283,821

13,755,659

4,329,888

-2,801,726

1886-87

17.441

44,804,774

25,124,335

19,680,439

14,172,298

5,329,714

178,427

1887-88

16.898

45,424,150

25,968,025

19,456,125

15,128,018

6,356,939

-2,028,832

1888-89

16.379

46,558,354

25,051,147

21,507,207

14,652,590

6,817,599

37,018

1889-90

16.566

50,005,810

26,367,855

23,637,955

14,513,155

6,512,767

2,612,033

1890-91

18.090

49,403,819

25,579,727

23,824,092

15,176,866

4,959,055

3,688,171

1891-92

16.733

50,023,142

27,013,618

23,009,524

15,716,780

6,825,909

467,535

 

To issue sterling securities was the only alternative to enable the Government to tap a bigger and a more constant reservoir for the drawing of capital to India; but as it was bound to increase the burden of the gold payments, which it was the strongest interest of the Government to reduce, the resort to the London money market, unavoidable as it became, was somewhat restrained# with the result that the expansion of extraordinary public works did not proceed at a pace demanded by the needs of the country.

 

#During the period of falling exchange the distribution of the debt of India was as follows:—

           

 

Sterling Debt

Rupee Debt

End of 1873-74

41,117,617

66,41,72,900

End of 1898-99

124,268,605

1,12,65,04,340

Indian Currency Committee (1898), Appendix II p. 179

 

The effects of this financial derangement, consequent on the fall of the exchange, were not confined to the Government, of India. They were immediately felt by the municipalities and other local bodies who were dependent upon the Government for financial aid. So long as the cash balances were overflowing in the treasury of the Government," one of the most useful ways " to employ them was found in lending a portion of them to these local institutions. As they had just then been inaugurated under the local self-government policy of Lord Ripon's regime, and were looked upon only as an experiment, their taxing and borrowing powers were rigidly limited. Consequently, this financial aid from the Central Government by way of temporary advances was a resource of inestimable value to them. When, however, the cash balances of the Central Government began to diminish owing to the continued losses by exchange, these facilities were severely curtailed, [f9]  so that the very vitality of these institutions was threatened just at the moment when they needed all help to foster their growth and strengthen their foundations.

Addressing the Secretary of State, the Government of India, in a dispatch of February 2, 1886, observed[f10] 

" 10. We do not hesitate to repeat that the facts set forth in the preceding paragraphs are, from the point of Indian interests, intolerable ; and the evils which we have enumerated do not exhaust the catalogue. Uncertainty regarding the future of silver discourages the investment of capital in India, and we find it impossible to borrow in silver except at an excessive cost.

"On the other hand, the Frontier and Famine Railways which we propose to construct, and the Coast and Frontier defences which we have planned, are imperatively required and cannot be postponed indefinitely.

 

TABLE XIII

price movements oF rupee aND sterling securities oF THE government oF india [f11] 

Year.

Rates of Exchange.

Price of 4 per cent. Rupee Paper.

Price of Sterling India Stock.

 

 

In Calcutta.

In London.

4 per cent.

3 1/2 per cent.

3 per cent.

 

Highest.

Lowest.

Highest.

Lowest.

Highest.

Lowest.

Highest.

Lowest.

Highest.

Lowest.

Highest.

Lowest.

 

d.

d.

 

 

 

 

 

 

 

 

 

 

1873

22 7/8

21 5/8

105

101 7/8

97

94

106

101

 

 

 

 

1874

23 1/8

213

104 1/2

99 1/2

98

941

103

101

 

 

 

 

1875

22 3/16

21 1/4

102 7/8

101 3/4

94

91

106

103

 

 

 

 

1876

22 3/8

18 1/2

101 7/8

98 3/4

89 3/4

78

105 7/8

101 7/8  

 

 

 

 

1877

22 1/4

20 9/16

981

93 1/4

88 1/2

81

104 5/8

102

 

 

 

 

1878

21

18 3/4

961

93 1/2

82 1/2

751

104 5/8

99

 

 

 

 

1879

20 5/8

18 5/8

941

91 1/4

80

771

105 3/8

100 7/8

 

 

 

 

1880

20 3/8

19 3/4

100

92 15/16

81 3/8

77 3/4

105 3/8

102 1/8

 

 

 

 

1881

20 1/16

19 1/2

104 5/8

100

86

811

106 3/8

103 7/8

103 7/8

100

 

 

1882

20 3/16

19 1/16

102 1/16

95 5/8

85

81

105 1/8

102 7/8

101 7/8

99

 

 

1883

19 9/16

19 3/16

101 1/8

97 9/16

82

79 3/4

104 5/8

102 7/16

103 1/8

101 3/8

 

 

1884

19 3/4

18 15/16

100 5/8

95 5/16

811

78:

104 3/8

101 5/8

107 1/8

101 3/4

96

91 3/4

1885

19 3/16

17 3/3 1/2

98 7/16

921

77 1/2

731/4

103 1/16

98 3/4

102

97

91

85

1886

18

16 1/8

97 3/4

97 3/16

73

66

103

101

102

99

90 1/8

86 5/8

1887

18 3/16

15 5/8

99 3/16

95 5/16

71 11/16

67 7/8

102

100  

103

100 1/4

92

95 3/8

1888

17 1/8

16

100 3/16

971

691

66

102 7/8

100

107 1/4

104 5/8

98

95

1889

16 15/16

16

l00 3/8

97 1/16

69 1/8

66 3/8

 

 

109 1/2

106 7/8

101 1/8  

99

1890

20 2/3 9/2

16 7/8

1031

96 13/16

87

68 3/4

 

 

108 1/2

105

100

95 1/4

1891

18 1/4

16 5/8

107 13/16

104 1/16

80

74

 

 

109 1/2

105

99

94 7/8

1892

16 11/16

14 5/8

108 15/16

103 11/16

74 1/2

62

 

 

109

106 1/8

98

94 7/8

 

"We are forced, therefore, either to increase our sterling liabilities, to which course there are so many objections, or to do without the railways required for the commercial development of the country, and its protection against invasion and the effects of famine.

***

" 11. Nor can the difficulties which local bodies experience in borrowing in India be overlooked. The Municipalities of Bombay and Calcutta require large sums for sanitary improvements, but the high rate of interest which they must pay for silver loans operates to deter them from undertaking expensive works, and we need hardly remind your Lordship that it has quite recently been found necessary for Government to undertake to lend the money required for the construction of docks at Calcutta and Bombay, and that when the Port Commissioners of Calcutta attempted to raise a loan of 75 lakhs of rupees in September, 1885, guaranteed by the Government of India, the total amount of tenders was only Rs. 40,200, and no portion of this insignificant amount was offered at par........."

The importation of capital on private account was hampered for similar reasons, to the great detriment of the country. It was urged on all hands, and was even recommended by a Royal Commission, [f12] that one avenue of escape from the ravages of recurring famines, to which India so pitifully succumbed at such frequent intervals, was the diversification of her industries. To be of any permanent benefit, such diversified industrial life could be based on a capitalistic basis alone. But that depended upon the flow of capital into the country as freely as the needs of the country required. As matters then stood, the English investor, the largest purveyor of capital, looked upon the investment of capital in India as a risky proposition. It was feared that once the capital was spread out in a silver country every fall in the price of silver would not only make the return uncertain when drawn in gold, but would also reduce the capital value of his investment in terms of gold, which was naturally the unit in which he measured all his returns and his outlays. This check to the free inflow of capital was undoubtedly the most serious evil arising out of the rupture of the par of exchange.

Another group of people, who suffered from the fall of exchange because of their obligation to make gold payments, was composed of the European members of the Civil Service in India. Like the Government to which they belonged, they received their salaries in silver, but had to make gold remittances in support of their families, who were often left behind in England. Before 1873, when the price of silver in terms of gold was fixed, this circumstance was of no moment to them. But as the rupee began to fall the face of the situation was completely altered. With every fall in the value of silver they had to pay more rupees out of their fixed salaries to obtain the same amount of gold. Some relief was no doubt given to them in the matter of their remittances. The Civil Servants were permitted, at a sacrifice to the Government, to make their remittances at what was called the Official Rate of Exchange. [f13]  It is true the difference between the market rate and the official rate was not very considerable. None the less, it was appreciable enough for the Civil Servants to have gained by 2 1/2 per cent. on the average of the years 1862-90[f14]  at the cost of the Government. The Military Servants obtained a similar relief to a greater degree, but in a different way. Their salary was fixed in sterling, though payable in rupees. It is true the Royal Warrant which fixed their salary also fixed the rate of exchange between the sterling and the rupee for that purpose. But as it invariably happened that the rate of exchange fixed by the Warrant was higher than the market rate, the Military Servants were compensated to the extent of the difference at the cost of the Indian Exchequer##.

 

##Cf. F. S. 1887-8, pp. 39-40.

This cost was as follows —

1847 –75

Rs. 6,40,000 

1885 –86

Rs. 4,00,000

1884 –85

Rs. 18,43,000            

1886 -87

Rs. 5,15,000

 

This relief was, comparatively speaking, no relief to them. The official or the warrant rates of exchange, though better than the market rates of exchange, were much lower than the rate at which they were used to make their remittances before 1873. Their burden, like that of the Government, grew with the fall of silver, and as their burden increased their attitude became alarmist. Many were the memorialists who demanded from the Government adequate compensation for their losses on exchange. [f15]  The Government was warned[f16] that

"the ignorant folk who think India would be benefited by lowering present salaries are seemingly unable to comprehend that such a step would render existence on this reduced pay simply impossible, and that recourse would of necessity be had to other methods of raising money."

Such, no doubt, was the case in the earlier days of the East India Company, when the Civil Servants fattened on pickings because their pay was small, [f17]  and it was to put a stop to their extortion’s that their salaries were raised to what appears an extra-ordinary level. That such former instances of extortion’s should have been held out as monitions showed too well how discontented the Civil Service was owing to its losses through exchange.

Quite a different effect the fall had on the trade and industry of the country. It was in a flourishing state as compared with the affairs of the Government or with the trade and industry of a gold-standard country like England. Throughout the period of falling silver there was said to be a progressive decline relatively to population in the employment afforded by various trades and industries in England. The textile manufactures and the iron and coal trade were depressed as well as the other important trades, including the hardware manufactures of Birmingham and Sheffield, the sugar-refining of Greenock, Liverpool, and London, the manufactures of earthenware, glass, leather, paper, and a multitude of minor industries. [f18] The depression in English agriculture was so widespread that the Commissioners of 1892 were " unable to point to any part of the country in which [the effects of the depression] can be said to be entirely absent," and this notwithstanding the fact that the seasons since 1882 "were on the whole satisfactory from an agricultural point of view." [f19]  Just the reverse was the case with Indian trade and industry. The foreign trade of the country, which had bounced up during the American Civil War, showed greater buoyancy after 1870, and continued to grow throughout the period of the falling exchange at a rapid pace. During the short space of twenty years the total imports and exports of the country more than doubled in their magnitude, as is shown by Table XIV.

TABLE XIV

 

imports aND exports (BOTH merchandize aND treasure) [f20] 

Year

Exports

Imports

Year

Exports

Imports

 

R.

 

 

R.

 

1870-71

57,556,951

39,913,942

1881-82

83,068,198

60,436,155

1871-72

64,685,376

43,665,663

1882-83

84,527,182

65,548,868

1872-73

56,548,842

36,431,210

1883-84

89,186,397

68,157,311

1873-74

56,910,081

39,612,362

1884-85

85,225,922

69,591,269

1874-75

57,984,549

44,363,160

1885-86

84,989,502

71,133,666

1875-76

60,291,731

44,192,378

1886-87

90,190,633

72,830,670

1876-87

65,043,789

48,876,751

1887-88

92,148,279

78,830,468

1877-78

67,433,324

58,819,644

1888-89

98,833,879

83,285,427

1878-79

64,919,741

44,857,343

1889-90

105,366,720

86,656,990

1879-80

69,247,511

52,821,398

1890-91

102,350,526

93,909,856

1880-81

76,021,043

62,104,984

1891-92

111,460,278

84,155,045

 

 

 

TABLE XV.

nature of industrial PURSUITS in england and india [f21] 

 

Distribution of Indian Exports exclusive of Treasure.

Distribution of English Exports exclusive of Treasure.

 

Manufactured Articles.

Raw Materials.

Food Articles

Unclassified Articles.

Total.

Manufactured Articles.

Raw Materials.

Food Articles

Unclassified Articles.

Total.

1857

11

34

22

23

100

90.9

4

4.9

.2

100

1858

6

35

26

33

100

91.4

3.4

5.1

.1

100

1859

6.5

40

15.5

38

100

91.5

3.8

4.6

.1

100

1860

5.7

43.6

17.7

33

100

91.9

3.6

4.4

.3

100

1861

5.8

46.5

15.3

32.4

100

90.4

4.8

4.8

100

1862

5

52

16

27

100

90.3

4

4.8

.9

100

1863

3.7

58.7

10.6

27

100

91.0

4

4

1.0

100

1864

4

69.2

9.3

17.5

100

92.5

3.7

3.7

.1

100

1865

3.5

68

12

16.6

100

92.1

3.6

3.6

.7

100

1866

4.2

67.2

10.3

18.3

100

92

3.7

3.7

.4

100

1867

4

58

11

27

100

92.2

3.8

3.7

.3

100

1868

4

58-5

11.5

26

100

92

4.4

3.4

.2

100

1869

4.8

60.5

14

20.7

100

92

4.2

3.1

.7

100

1870

4.4

63.6

9

23

100

91

4

4

1.0

100

1871

3.7

65.3

11

20

100

90

4-4

4.9

.'7

100

1872

3-3

 61.4

13.5

21.8

100

91.2

5.4

3.5

.9

100

 

 

 

TABLE XVI

changes IN industrial pursuits oF india[f22] 

 

Imports

Exports

Years

Manufactured

Raw

Manufactured

Raw

 

Rs.

Rs.

Rs.

Rs.

1879

25,98,65,827

13,75,55,837

5,27,80,340

59,67,27,991

1892

36,22,31,872

26,38,18,431

16,42,47,566

85,52,09,499

Percentage of increase

39

91

211

43

Total Annual

2.8

6.5

15

3

 

Not only had the trade of India been increasing, but the nature of her industries was also at the same time undergoing a profound change. Prior to 1870, India and England were, so to say, non-competing groups. Owing to the protectionist policy of the Navigation Laws, and owing also to the substitution of man by machinery in the field of production, India had become exclusively an agricultural and a raw-material-producing country, while England had transformed herself into a country which devoted all her energy and her resources to the manufacturing of raw materials imported from abroad into finished goods. How marked was the contrast in the industrial pursuits in the two countries is well revealed by the analysis of their respective exports in Table XV.

After 1870, the distribution of their industrial pursuits was greatly altered, and India once again began to assume the role of a manufacturing country. Analyzing the figures for Indian imports and exports for the twenty years succeeding 1870, (see Table XVI) we find that the progress in the direction of manufactures formed one of the most significant features of the period.

This change in the industrial evolution was marked by the growth of two principal manufactures. One of them was the manufacture of cotton. The cotton industry was one of the oldest industries of India, but during 100 years between 1750 and 1850 it had failed into a complete state of decrepitude. Attempts were made to resuscitate the industry on a capitalistic basis in the sixties of the nineteenth century and soon showed signs of rapid advance. The story of its progress is graphically illustrated in the following summary in Table XVII :

 

 

TABLE XVII

THE DEVELOPMENT OF INDIA COTTON TRADE AND INDUSTRY

 

 

Growth of Trade (Average Annual Quantities

 

in each Quinquennium)

 

1870-71

1875-76

1880-81

1885-86

1890-91

 

to

to

to

to

to

 

1874-75

1879-80

1884-85

1889-90

1894-95

Imports of raw cotton—thousands of cwts.

23

52

51

74

89

Imports of raw cotton—thousands of cwts.

5236

3988

5477

5330

4660

Imports of twist and yarn

33.55

33.55

44.34

49.09

44.79

 

Growth of Industry (at end of each fifth year)

Number of mills

48

58

81

114

143

Number of spindles—000—omitted

1,000

1,471

2,037

2,935

3,712

Number of looms—000—omitted

10

13

16

22

34

Number of persons employed

 

39,537

61,836

99,224

 

 

Another industry which figured largely in this expansion of Indian manufactures was jute. Unlike the cotton industry of India, the jute industry was of a comparatively recent origin. Its growth, different from that of the cotton industry, was fostered by the application of European capital, European management, and European skill, and it soon took as deep roots as the cotton industry and flourished as well as the latter did, if not better. Its history was one of continued progress as will be seen from Table XVIII.

This increasing trend towards manufactures was not without its indirect effects on the course of Indian agriculture. Prior to 1870 the Indian farmer, it may be said, had no commercial outlook. He cultivated not so much for profit as for individual self-sufficiency. After 1870 farming tended to become a business and crops came more and more to be determined by the course of market prices than by the household needs of the farmer. This is well illustrated by figures in Table XIX.

Such was the contrast in the economic conditions prevalent in the two countries. This peculiar phenomenon of a silver-standard country steadily progressing, and a gold-standard country tending to a standstill, exercised the minds of many of its observers.

 

Contents                                                               Contiuned...


 [f1] Since the Reform Act of 1920 that part of this cost which was " political " has been placed upon the British Estimates.

 [f2] Compiled from figures in Appendix II, p. 270 of the Indian Currency Committee of 1843

 [f3]Report of the Indian Currency Committee, 1893, App. II, p. 263.

 [f4] J.E.O'Conor, Report of the Indian Currency Committee, 1898, App. II, p. 182

 [f5] Cf. Report of the Public Service Commission, C. 5327 of 1887.

 [f6] This provision of the Act has been re-enacted by the Act of 1861

 [f7]Cf. evidence of Mr. Jenkins, Q. 12. Mit. of Evid. of the Select Committee on East India (Civil Servants), H. of C. 327 of 1890

 [f8] Cf. Calcutta Civil Finance Committee's Report, 1886 ; also The Report of the Civil       Finance Commissioner (1887), who completed the work of the Committee after it was dissolved.

 [f9] Cf. Financial Statement, 1876-77, p. 94.

 [f10] Cf. Financial Statement, 1876-77, p. 94. * See C. 4868 of 1886, p. 8.

 [f11] Appendix II to the Report of the Indian Currency Committee of 1893, p. 272. These prices differ slightly from those given in Appendix IV to the First Report of the Gold and Silver Commission, 1886 , and also from  those in the Statistics of division called Prices British India (First Issue) for 1906-07, Part IV, (a) Finance Tables 7 and 8 of the

 [f12]Cf. The Report of the Famine Commission of 1880, Part II, C. 2735 of 1880      pp. 175-76.

 [f13] As was explained by Mr. Waterfield before the Select Committee on East India (Civil Servants), H. C. Return 327 of 1890, Q. 1905-17, it was first instituted in 1824 and was arrived at as follows : In December of each year a calculation was made at the India Office of the cost of sending a rupee to India, based on the market price of silver in London, and of the cost of bringing a rupee from India, based on the price of bills on London in Calcutta. A mean between the two was struck and taken as the adjusting rate for the coming official year between the India Office and the British Treasury in regard to such transactions or payments undertaken by one Government as the agent of the other. It was fixed anew for each and formed a fair average rate, although it was sometimes above and sometimes below the market rate of exchange.

 [f14] Ibid., Q. 1925-26

 [f15] Cf. Report of the Indian Currency Committee, 1893, App. I, pp. 185-90 and p. 202, for memorials of the European Civil Servants.

 [f16] Cf. Col. Hughes-Hallett.M.P., The Depreciation of the Rupee : its Effect on the Anglo-Indian Official—the Wrong and the Remedy, London, 1887, p. 14.

 [f17] The connection between the rapacious conduct of the early European Civil Servants and the smallness of their salaries was well brought out by Clive in his speech dated March 30, 1772, during the course of the debate in the House of Commons on the East India Judicature Bill, Hansard. Vol. XVII, pp. 334-39.

 [f18] Report by Dunraven, Farrer, Muntz, and Lubbock in the Final Report of the Royal Commission on Depression of Trade and Industry, par., 54, C. 4893.

 [f19] Final Report of the Royal Commission on Agricultural Depression in England, C. 8540 of 1897, par. 28.

[f22] From Appendix 11 (Nos. 1 and 2) to the Report of the Indian Currency Committee of 1898

 [f21] The figures for India are calculated from the Statistical Abstract for British India, Second Number (1857-1866), Table No. 34, and the Eighth Number (1864-1873), Table No. 24. Figures for England are taken from Appendix C (Statement 6) to the First Report of the Royal Commission of the Depression of Trade and Industry, 1885, with this alteration—that the separate figures in the original under ' ' Manufactured ' ' and ' ' Partially Manufactured ' ' are here grouped under ' ' Manufactured." 'The "Unclassified Articles " under Indian Exports are for the most part "Jewellery

 [f22] From Ranade's Essays on Indian Economics, p. 104.