Great Trouble in Indian Finances
|Written||30 April 1859|
London, April 8, 1859
The Indian financial crisis, which at this moment shares with the war rumors and the electioneering agitation in the privilege of absorbing public interest in England, must be considered in a double point of view. It involves both a temporary necessity and a permanent difficulty.
On the 14th of February Lord Stanley brought in a bill in the House of Commons authorizing the Government to raise a loan of £7,000,000 in England, in order to adjust the extra expenditure of the Indian administration for the current year. About six weeks later, John Bull’s self-congratulations as to the small cost of the Indian rebellion were roughly interrupted by the arrival of the Overland Mail, conveying a, cry of financial distress from the Government at Calcutta. On March 25, Lord Derby rose in the House of Lords to state that a further loan for India of £5,000,000, in addition to the £7,000,000 loan now before Parliament, would be required to meet the demands of the present year, and that even then, certain claims for compensation and prize money, amounting to £2,000,000 at least, would remain to be paid from some source not yet apparent. To make things pleasant, Lord Stanley had, in his first statement, only provided for the wants of the Indian Treasury at London, leaving the -British Government in India to its own resources, which, from the dispatches received, he could not but know to be far from sufficient. Quite apart from the expenses of the Home Government, or the Indian administration at London, Lord Canning estimated the deficit of the Government at Calcutta for the current year of 1859-60 at £12,000,000, after allowing an increase in the ordinary revenue of £800,000, and a decrease on military charges of £2 ,000,000. Such was his penury that he had stopped paying part of his civil service; such was his credit that the Government 5 per cents were quoted at 12 per cent discount; and such was his distress that he could only be saved from bankruptcy by the shipment from England to India of £3,000,000 of silver within a few months. Three points thus become evident. First: Lord Stanley’s original statement was a “dodge,” and, so far from embracing all the Indian liabilities, did not even touch the immediate wants of the Indian Government in India. Secondly: During the whole period of the insurrection, if we except the sending from London in 1857 of £1,000,000 of silver to India, the Calcutta Government was left to shift for itself, to provide out of its own resources for the main part of the extraordinary war charges which, of course, had to be disbursed in India, for the barrack accommodation of some 60,000 additional Europeans, for the restoration of the treasures plundered, and for the replacing of all the revenues of the local Administrations which had been swept away. Thirdly: There is, apart from the wants of the Home Government, a deficit of £12,000,000, to be met in the present year. By operations, the questionable nature of which we forbear to dwell upon, this sum is to be reduced to £9,000,000, of which sum £5,000,000 are to be borrowed in India and £4,000,000 in England. Of the latter, £1,000,000 in silver bullion has already been shipped to Calcutta from London, and £2,000,000 more is to be dispatched in the shortest possible period.
It will be seen from this succinct statement that the Indian Government was very unfairly dealt with by its English masters, who left it in the lurch, in order to throw dust in the eyes of John Bull; but it must, on the other hand, be admitted that the financial operations of Lord Canning surpass in awkwardness even his military and political exploits. Up to the end of January, 1859, he had contrived to raise the necessary means by loans in India, issued partly in Government stocks, partly in Treasury bills; but, strange to say, while his efforts had answered during the epoch of the revolution, they failed entirely from the moment English authority was restored by the force of arms. And not only did they fail, but there was a panic in regard to Government securities; there was an unprecedented depreciation in all funds, with protests from the Chambers of Commerce at Bombay and Calcutta, and, in the latter town, public meetings composed of English and native money-mongers, denouncing the vacillation, the arbitrary nature and the helpless imbecility of the Government measures. Now, the loanable capital of India which up to January 1859, had supplied the Government with funds, began to fail after that period, when the power of borrowing seems to have been exceeded. In point of fact the aggregate loans which from 1841 to 1857 amounted to £21,000,000, absorbed in the two years of 1857 and 1858 alone about £9,000,000, equal to almost one-half of the money borrowed during the previous sixteen years. Such a failure of resources, while accounting for the necessity of successively screwing up the rate of interest on Government loans from 4 to 6 per cent, is, of course, far from explaining the commercial panic in the Indian security market, and the utter inability of the Governor-General to meet the most urgent requirements. The riddle is solved by the fact that it has become a regular maneuver with Lord Canning to bring out new loans at higher rates of interest than those given on existing open loans, without any previous notice to the public, and with the utmost uncertainty prevailing as to the further financial operations contemplated. The depreciation of the funds, in consequence of these maneuvers, has been calculated at not less than £11,000,000. Pinched by the poverty of the Exchequer, frightened by the panic in the stock market, and roused by the protests on the part of the Chambers of Commerce and the Calcutta meetings, Lord Canning thought best to be a good boy and to try to come up to the desiderata of the monetary mind; but his notification of the 21st of February, 1859, shows again that the human understanding does not depend on human will. What was he required to do? Not to open simultaneously two loans on different conditions, and to tell the monetary public at once the sum required for the current year, instead of deceiving them by successive announcements, one contradictory of the other. And what does he do in his notification? In the first instance he says that there is to be raised by loan in the Indian market for the year 1859-60, £5,000,000, at 5 1/2 per cent, and that
“when this amount shall have been realized, the loan of 1859-60 shall be closed, and no further loan will be opened in India during that year.”
In the very same proclamation, sweeping away the entire value of the assurances just given, he proceeds:
“No loan carrying a higher rate of interest will be opened in India in the course of the year 1859-60, unless under instructions from the Home Government.”
But that is not all. He opens, in fact, a double loan on different terms. While announcing that “the issue of Treasury bills on the terms notified on Jan. 26, 1859, will be closed on April 30,” he proclaims “that a new issue of Treasury bills will be notified from the 1st of May,” bearing interest of nearly 5 3/4 per cent, and redeemable at the expiration of one year from the date of issue. Both loans are kept open together, while, at the same time, the loan opened in January has not yet been concluded. The only financial matter which Lord Canning seems able to comprehend is that his annual salary amounts to £20,000 in name, and to about £40,000 in fact. Hence, despite the sneers of the Derby Cabinet, and his notorious incapacity, he sticks to his post from “a feeling of duty.”
The effects of the Indian financial crisis on the English home market have already become apparent. In the first instance, the silver remittances on account of Government coming to swell the large remittances on mercantile account, and failing at an epoch when the ordinary silver supplies from Mexico are held back in consequence of the distracted condition of that country, have, of course, sent up the price of bar silver. On March 25, it had risen to the factitious price of 62 1/4 d. per ounce standard, causing such an influx of silver from every part of Europe that the price in London again fell to 62 3/8 d.; while the rate of discount at Hamburg rose from 2 1/2 to 3 per cent. Consequent upon these heavy importations of silver, exchanges have turned against England, and a drain of gold bullion has set in, which, for the present, only relieves the London money market of its plethora, but in the long run may seriously affect it, coupled, as it will be, with large Continental loans. The depreciation, however, on the London money market, of the Indian Government stocks and guaranteed railway securities, prejudicial as it must prove to the Government and railway loans still to be brought forward in the’ course of this season, is certainly the most serious effect on the home market as yet, resulting from the Indian financial crisis. The shares of many Indian railways, although 5 per cent interest upon them is guaranteed by the Government, are now at 2 or 3 per cent discount.
Taking all in all, however, I regard the momentary Indian financial panic as a matter of secondary importance, if compared with the general crisis of the Indian Exchequer, which I may perhaps consider on another occasion.
London, April 12, 1859
The latest overland mail, so far from showing any abatement of the financial crisis in India, reveals a state of derangement hardly anticipated. The shifts to which the Indian Government is driven in order to meet its most urgent wants, may be best illustrated by a recent measure of the Governor of Bombay. Bombay is the market where the opium of Malwa, averaging 30,000 chests annually, finds its outlet by monthly instalments of 2,000 or 3,000 chests, for which bills are drawn upon Bombay. By charging 400 rupees upon every chest imported into Bombay, the Government raises a revenue of £1,200,000 annually on Malwa opium. Now, to replenish his exhausted Exchequer, and ward off immediate bankruptcy, the Bombay Governor has issued a notification, which raises the duty on each chest of Malwa opium from 400 to 500 rupees; but, at the same time, he declares that this increased duty will not be levied till after the 1st of July, so that the holders of opium in Malwa have the privilege of bringing in the drug under the old duties for four months longer. Between the middle of March, when the notification was issued, and the 1st of July, there are only two months and a half during which opium can be imported, the monsoon setting in on the 15th of June. The holders of opium in Malwa will, of course, avail themselves of the interval allowed them for sending in opium at the old duty; and, consequently, during the two months and a half pour all their stock in hand into the Presidency. Since the balance of opium, of the old and new crops, remaining at Malwa amounts to 26,000 chests, and the price of Malwa opium reaches 1,250 rupees per chest, the Malwa merchants will have to draw upon the Bombay merchants for no less a sum than £3,000,000, of which more than £1,000,000 must come into the Bombay Treasury. The aim of this financial dodge is transparent. With a view to anticipate the annual revenue from the opium duty, and induce the dealers in the article to pay it at once, an enhancement of the duty is held out prospectively in terrorem While it would be quite superfluous to expatiate upon the empirical character of this contrivance, which fills the Exchequer for the present by creating a corresponding void a few months hence, no more striking instance could be given of the exhaustion of ways and means, on the part of the great Mogul’s successors.
Let us now turn to the general state of Indian finances, as it has grown out of the late insurrection. According to the last official accounts, the net revenue derived by the British from their Indian farm amounts to £23,208,000, say £24,000,000. This annual revenue has never sufficed to defray the annual expenses. From 1836 to 1850 the net deficit amounted to £13,171,096, or, on a rough average, to £1,000,000 annually. Even in the year 1856, when the Exchequer was exceptionally filled by the wholesale annexations, robberies and extortions of Lord Dalhousie, the income and expense did not exactly square, but, on the contrary, a deficit of about a quarter of a million was added to the usual crop of deficits. In 1857 the deficiency was £9,000,000, in 1858 it amounted to £13,000,000, and in 1859 it is estimated by the Indian Government itself at £12,000,000. The first conclusion, then, which we arrive at is that even under ordinary circumstances. deficits were accumulating, and that under extraordinary circumstances they must assume such dimensions as to reach one-half and more of the annual income.
The question which next presents itself is, To what degree has this already existing gap between the expenses and the income of the Indian Government been widened by recent events? The new permanent debt of India accruing from the suppression of the mutiny is calculated by the most sanguine English financiers at between forty and fifty millions sterling, while Mr. Wilson estimates the permanent deficit, or the annual interest for this new debt to be defrayed out of the annual revenue, at not less than three millions. However, it would be a great mistake to think that this permanent deficit of three millions is the only legacy left by the insurgents to their vanquishers. The costs of the insurrection are not only in the past tense, but are in a high degree prospective. Even in quiet times, before the outbreak of the mutiny, the military charges swallowed sixty per cent at least of the aggregate regular income, since they exceeded £12,000;000; but the state of affairs is now changed. At the beginning of the mutiny the European force in India amounted to 38,000 effective men, while the native army mustered 260,000 men. The military forces at present employed in India amount to 112,000 Europeans and 320,000 native troops, including the native police. It may be justly said that these extraordinary numbers will be reduced to a more moderate standard with the disappearance of the extraordinary circumstances which swelled them to their present size. Yet the military commission appointed by the British Government has arrived at the conclusion that there will be required in India a permanent European force of 80,000 men, with a native force of 200,000 men — the military charges being thus raised to almost double their original bight. During the debates on the Indian finances, in the House of Lords, on April 7, two points were admitted by all speakers of authority: on the one hand that an annual expenditure upon the revenue of India little short of twenty millions for the army alone was incompatible with a net revenue of twenty-four millions only; and, on the other hand, that it was difficult to imagine a state of things which for an indefinite series of years would render it safe for the English to leave India without a European force double its amount before the outbreak of the mutiny. But suppose even that it would do to add permanently to the European forces not more than one-third of their original strength, and we get at a new annual permanent deficit of four millions sterling at least. The new permanent deficit, then, derived on one hand from the consolidated debt contracted during the mutiny, and on the other hand from the permanent increase of the British forces in India, cannot, on the most moderate calculation, fall below seven millions sterling.
To this must be added two other items — the one accruing from an increase of liabilities, the other from a diminution of income. By a recent statement of the Railway Department of the Indian office at London, it results that the whole length of railways sanctioned for India is 4,817 miles, of which 559 miles only are yet opened. The whole amount of capital invested by the different railway companies amounts to £40,000,000 sterling, of which £19,000,000 are paid and £21,000,000 are still to be called in — 96 per cent of the aggregate sum having been subscribed in England and 4 per cent only in India. Upon this amount of £40,000,000, the Government has guaranteed 5 per cent interest, so that the annual interest charged upon the revenues of India reaches £2,000,000, to be paid before the railways are in working order, and before they can yield any return. The Earl of Ellenborough, estimates the loss accruing to the Indian finances from this source, for the next three years to come, at £6,000,000 sterling, and the ultimate permanent deficit upon these railways at half a million annually. Lastly, of the £24,000,000 of Indian net revenue, a sum of £3,619,000 is derived from the sale of opium to foreign countries — a source of revenue which, it is now generally admitted, must to a considerable extent be impaired by the late treaty with China. 148 It becomes, then, evident, that apart from the extra expenditure still necessitated to complete the suppression of the mutiny, an annual permanent deficit of £8,000,000 at least, will have to be defrayed out of a net revenue of £24,000,000, which the Government may, perhaps, by the imposition of new taxes, contrive to raise to £26,000,000. The necessary result of this state of things will be to saddle the English taxpayer with the liability for the Indian debt and, as Sir G. C. Lewis declared in the House of Commons,
“to vote four or five millions annually as a subsidy for what was called a valuable dependency of the British crown.”
It will be confessed that these financial fruits of the “glorious” reconquest of India have not a charming appearance; and that John Bull pays exceedingly high protective duties for securing the monopoly of the Indian market to the Manchester free-traders.