Appendix Iv to the First Report of the Gold and Silver Commission,

1886, and also from those in the Statistics of British India (First Issue) for 1906–07, Part IV, (a) Finance Tables 7 and 8 of the division called Prices.

Addressing the Secretary of State, the Government of India, in a despatch of February 2, 1886, observed¹⁷³:—

¹⁷² Cf. Financial Statement, 1876–77, p. 94.

¹⁷³ See C. 4868 of 1886, p. 8.

“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.

“We are forced, therefore, either to increase our sterling liabilities, to which course there are so many objections, or [pg 96] 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,¹⁷⁴ 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 [pg 97] inflow of capital was undoubtedly the most serious evil arising out of the rupture of the par of exchange.

¹⁷⁴ Cf. The Report of the Famine Commission of 1880, Part II, C. 2735 of 1880, pp. 175–76.

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.¹⁷⁵ 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 2½ per cent. on the average of the years 1862–90¹⁷⁶ 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 [pg 98] 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.¹⁷⁷ 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.¹⁷⁸ The Government was warned¹⁷⁹ that

¹⁷⁵ 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.

¹⁷⁶ Ibid., Q. 1925–26,

¹⁷⁷ Cf. F.S. 1887–8, pp. 39–40. This cost was as follows:

──────────────────────────────────────────────────────────────────── 1874–75 Rs. 6,400,000 1885–86 Rs. 4,00,000 1884–85 Rs. 18,43,000 1886–87 Rs. 5,15,000 ────────────────────────────────────────────────────────────────────

¹⁷⁸ Cf. Report of the Indian Currency Committee, 1893, App. I, pp. 185–90 and p. 202, for memorials of the European Civil Servants.

¹⁷⁹ 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.

“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,¹⁸⁰ and it was to put a stop to their extortions that their salaries were raised to what appears an extraordinary level. That such former instances of extortions should have been held out as monitions showed too well how discontented the Civil Service was owing to its losses through exchange.

¹⁸⁰ 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.

Quite a different effect the fall had on the trade and industry of the country. It was in a flourishing state as [pg 99] 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.¹⁸¹ 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.”¹⁸² Just the reverse was the case with Indian trade and industry. The foreign trade of [pg 100]

¹⁸¹ 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,

¹⁸² Final Report of the Royal Commission on Agricultural Depression in England, C. 8540 of 1897, par. 28,

TABLE XIV

Imports and Exports (Both Merchandise and Treasure)¹⁸³

────────────────────────────────────────────────────────────────────────── Exports. Imports. Year. Exports. Imports. Year. ─────────────────────────── ───────────────────────────────────── R. R. 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 ─────────────────────────────────── ───────────────────────────────────── 1876–77 65,043,789 48,876,751 1887–88 92,148,279 78,830,468 ─────────────────────────────────── ───────────────────────────────────── 1877–78 67,433,324 58,819,644 1888–89 98,333,879 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 ──────────────────────────────────────────────────────────────────────────

¹⁸³ From Appendix II (Nos. 1 and 2) to the Report of the Indian Currency Committee of 1898.

TABLE XV

Nature of Industrial Pursuits in England and India¹⁸⁴

───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Distribution of Indian Distribution of English Exports exclusive of Exports exclusive of Treasure. Treasure. ──────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── Manufactured Raw Food Unclassified Total. Manufactured Raw Food Unclassified Total. Articles. Materials. Articles. Articles. Articles. Materials. Articles. Articles. ───────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────── 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 ─────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────────

¹⁸⁴ 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.”

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 on opposite page.

After 1870 this distribution of their industrial pursuits was greatly altered, and India once again began to assume the rôle of a manufacturing country. Analysing the figures for Indian imports and exports for the twenty years succeeding 1870 (see table below), we find that the progress in [pg 102] the direction of manufactures formed one of the most significant features of the period.

TABLE XVI

Changes in Industrial Pursuits of India¹⁸⁵

───────────────────────────────────────────────────────────────────────── 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 ───────────────────────────────────────────────────────────────────────── Total 39 91 211 43 ───────────────────────────────────────────────────────────────────────── Annual 2·8 6·5 15 3 ─────────────────────────────────────────────────────────────────────────

¹⁸⁵ From Ranade’s Essays on Indian Economics, p. 104.

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 fallen 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 table:—

TABLE XVII

The Development of Indian 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 23 52 51 74 89 cotton—thousands of cwts. ─────────────────────────────────────────────────────────────────────────── Exports of raw 5,236 3,988 5,477 5,330 4,660 cotton—thousands of cwts. ─────────────────────────────────────────────────────────────────────────── Imports of twist 33·55 33·55 44·34 49·09 44·79 and yarn ─────────────────────────────────────────────────────────────────────────── Growth of Industry (at end of each fifth year). ─────────────────────────────────────────────────────────────────────────── Number of mills 48 58 81 114 143 ─────────────────────────────────────────────────────────────────────────── Number of 1,000 1,471 2,037 2,935 3,712 spindles—000 omitted ─────────────────────────────────────────────────────────────────────────── Number of looms—000 10 13 16 22 34 omitted ─────────────────────────────────────────────────────────────────────────── Number of persons — 39,537 61,836 99,224 — employed ───────────────────────────────────────────────────────────────────────────

Another industry which figured largely in this expansion of Indian manufactures was jute. Unlike the cotton industry [pg 103] 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 it did, if not better. Its history was one of continued progress.

TABLE XVIII

Development of Jute Industry and Trade

──────────────────────────────────────────────────────────────────────── Average Annual of each Quinquennium. ─────────────────────────────────────────────────────── Growth of Trade. 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. ──────────────────────────────────────────────────────────────────────── Exports— ──────────────────────────────────────────────────────────────────────── Raw, million 5·72 5·58 7·81 9·31 10·54 cwt. ──────────────────────────────────────────────────────────────────────── Gunny bags, 6·44 35·96 60·32 79·98 120·74 millions. ──────────────────────────────────────────────────────────────────────── Cloth, million — 4·71 6·44 19·79 54·20 yds. ──────────────────────────────────────────────────────────────────────── Growth of Industry. ──────────────────────────────────────────────────────────────────────── Number of — ──────────────────────────────────────────────────────────────────────── Mills — 21 21 24 26 ──────────────────────────────────────────────────────────────────────── Looms, 000 — 5·5 5·5 7 8·3 omitted ──────────────────────────────────────────────────────────────────────── Spindles, 000 — 88 88 138·4 172·4 omitted ──────────────────────────────────────────────────────────────────────── Persons — 38·8 38·8 52·7 64·3 employed, in thousands ────────────────────────────────────────────────────────────────────────

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. [pg 104]

TABLE XIX

Growth of Agricultural Exports of India

────────────────────────────────────────────────────────────────────────── 1868–69. 1873–74. 1877–78. 1882–83. 1887–88. 1891–92. ────────────────────────────────────────────────────────────────────────── Wheat 100 637·41 2,313·47 5,152·36 4,914·37 11,001·44 ────────────────────────────────────────────────────────────────────────── Opium 100 118·38 123·83 122·47 120·20 116·82 ────────────────────────────────────────────────────────────────────────── Seeds 100 111·26 305·87 239·97 403·60 480·99 ────────────────────────────────────────────────────────────────────────── Rice 100 131·66 119·84 203·28 185·55 220·36 ────────────────────────────────────────────────────────────────────────── Indigo 100 116·91 121·57 142·17 140·76 126·33 ────────────────────────────────────────────────────────────────────────── Tea 100 169·35 293·17 507·25 775·09 1,075·75 ────────────────────────────────────────────────────────────────────────── Coffee 100 86·04 69·98 85·31 64·59 74·11 ──────────────────────────────────────────────────────────────────────────

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. The chief cause was said to be the inability of the English manufacturers to hold out in international competition. This inability to compete with his European rivals was attributed to the prevalence of protective tariffs and subsidies which formed an essential part of the industrial and commercial code of the European countries. Nothing of the kind then existed in India, where trade was as free and industry as unprotected as any could have been, and yet the Lancashire cotton-spinner, the Dundee jute manufacturer, and the English wheat-grower complained that they could not compete with their rivals in India. The cause, in this case, was supposed to be the falling exchange.¹⁸⁶ So much were some people impressed by this view that even the extension of the Indian trade to the Far East was attributed to this cause. Already, it was alleged, the dislocation of the par of exchange between gold and silver had produced a kind of segregation of gold-using countries and silver-using countries to the exclusion of each other. In a transaction between two countries using the same metal as standard it was said the element of uncertainty arising from the use of two metals varying in terms of each other [pg 105] was eliminated. Trade between two such countries could be carried on with less risk and less inconvenience than between two countries using different standards, as in the latter case the uncertainty entered into every transaction and added to the expense of the machinery by which trade was carried on. That the Indian trade should have been deflected to other quarters¹⁸⁷ where, owing to the existence of a common standard the situation trade had to deal with was immune from uncertainties, was readily admitted. But it was contended that there was no reason why, as a part of the segregation of commerce it should have been possible for the Indian manufacturer to oust his English rival from the Eastern markets to the extent he was able to do (see Table XX, p. 106). [pg 106]

¹⁸⁶ Cf. The Final Report of the Royal Commission on Gold and Silver