The Approaching Indian Loan
|Written||9 February 1858|
London, Jan. 22, 1858
The buoyancy in the London money market, resulting from the withdrawal of an enormous mass of capital from the ordinary productive investments, and its consequent transfer to the security markets, has, in the last fortnight, been somewhat lessened by the prospects of an impending Indian loan to the amount of eight or ten million pounds sterling. This loan, to be raised in England, and to be authorized by Parliament immediately on its assembling in February, is required to meet the claims upon the East India Company by its home creditors, as well as the extra expenditure for war materials, stores, transport of troops, &c., necessitated by the Indian revolt. In August 1857, the British Government had, before the prorogation of Parliament, solemnly declared in the House of Commons. that no such loan was intended, the financial resources of the Company being more than sufficient to meet the crisis. The agreeable delusion thus palmed on John Bull was, however, soon dispelled when it oozed out that by a proceeding of a very questionable character, the East India Company had laid hold on a sum of about £3,500,000 sterling, intrusted to them by different companies, for the construction of Indian railways; and had, moreover, secretly borrowed £1,000,000 sterling from the Bank of England, and another million from the London joint Stock banks. The public being thus prepared for the worst, the Government did no longer hesitate to drop the mask, and by semi-official articles in The Times, Globe, and other governmental organs, avow the necessity of the loan.
It may be asked why a special act on the part of the legislative power is required for launching such a loan, and then, why such an event does create the least apprehension, since, on the contrary, every vent for British capital, seeking now in vain for profitable investment, should, under present circumstances be considered a windfall, and a most salutary, check upon the rapid depreciation of capital.
It is generally known that the commercial existence of the East India Company was terminated in 1834, when its principal remaining source of commercial profits, the monopoly of the China trade, was cut off. Consequently, the holders of East India stock having derived their dividends, nominally, at least, from the trade-profits of the Company, a new financial arrangement with regard to them had become necessary. The payment of the dividends, till then chargeable upon the commercial revenue of the Company, was transferred to its political revenue. The proprietors of East India stocks were to be paid out of the revenues enjoyed by the East India Company in its governmental capacity, and, by act of Parliament, the Indian stock, amounting to £6,000,000 sterling, bearing ten per cent interest, was converted into a capital not to be liquidated except at the rate of £200 for every £100 of stock. In other words, the original East India stock of £6,000,000 sterling was converted into a capital of £12,000,000 sterling, bearing five per cent interest, and chargeable upon the revenue derived from the taxes of the Indian people. The debt of the East India Company was thus, by a Parliamentary sleight of hand, changed into a debt of the Indian people. There exists, besides, a debt exceeding £50,000,000 sterling, contracted by the East India Company in India, and exclusively chargeable upon the Stale revenues of that country; such loans contracted by the Company in India itself having always been considered to lay beyond the district of Parliamentary legislation, and regarded no more than the debts contracted by the Colonial Government, in Canada or Australia for instance.
On the other hand, the East India Company was prohibited from contracting interest-bearing debts in Great Britain herself, without the especial sanction of Parliament. Some years ago, when the Company set about establishing railways and electric telegraphs in India, it applied for the authorization of Indian Bonds m the London market, request which was granted to the amount of £7,000,000 sterling to be issued in Bonds bearing 4 per cent interest, and secured only on the Indian State revenues At the commencement of the outbreak in India, this bond-debt stood at £3,894,400 sterling, and the very necessity of again applying to Parliament shows the East India Company to have, during the course of the Indian insurrection, exhausted its legal powers of borrowing at home.
Now it is no secret that before recurring to this step, the East India Company had opened a loan at Calcutta, which, however, turned out a complete failure. This proves, on the one hand, that Indian capitalists are far from considering the prospects of British supremacy in India in the same sanguine spirit which distinguishes the London press; and, on the other hand, exacerbates the feelings of John Bull to an uncommon pitch, since he is aware of the immense hoardings of capital having gone on for the last seven years in India, whither, according to a statement recently published by Messrs. Haggard & Paxley, there has been shipped in 1856 and 1857, from the port of London alone, bullion to the amount of £21,000,000. The London Times, in a most persuasive strain, has taught its readers that
“of all the incentives to the loyalty (if the natives, that of making them out creditors was the least doubtful; while, on the other hand among an impulsive secretive and avaricious people no temptation to discontent or treachery could be stronger than that created by the idea that they were annually taxed to send dividends to wealthy claimants in other countries.”
The Indians, however, appear not to understand the beauty of a plan which would not only restore English supremacy at the expense of Indian capital, but at the same time, in a circuitous way, open the native hoards to British commerce. If, indeed, the Indian capitalists were as fond of British rule as every true Englishman thinks. it an article of faith to assert, no better opportunity could have been afforded them of exhibiting their loyalty and getting rid of their silver. The Indian capitalists shutting up their hoards, John Bull must open, his mind to the dire necessity of defraying himself in the first instance, at least, the expenses of the Indian insurrection, without any support on the part of the natives. The impending loan constitutes, moreover, a precedent only, and looks like the first leaf in a book, bearing the title Anglo-Indian Home Debt. It is no secret that what the East India Company wants are not eight millions, or ten millions, but twenty-five to thirty millions pounds, and even these as a first installment only, not for expenses to be incurred, but for debts already due. The deficient revenue for the last three years amounted to £5,000,000; the treasure plundered by the insurgents up to the 15th October last, to £10,000,000, according to the statement of the Phoenix, an Indian governmental paper; the loss of revenue in the North-eastern provinces, consequent upon the rebellion, to £5,000,000, and the war expenses to at least £10,000,000.
It is true that successive loans by the Indian Company, in the London Money Market, would raise the value of money and prevent the increasing depreciation of capital; that is to say, the further fall in the rate of interest; but such a fall is exactly required for the revival of British industry and commerce. Any artificial check put upon the downward movement of the rate of discount is equivalent to an enhancement in the cost of production and the terms of credit, which, in its present weak state, English trade feels itself unable to bear. Hence the general cry of distress at the announcement of the Indian loan. Though the Parliamentary sanction adds no imperial guarantee to the loan of the Company, that guarantee, too, must be conceded, if money is not to be obtained on other terms; and despite all fine distinctions, as soon as the East India Company is supplanted by the British Government its debt will be merged into the British debt. A further increase of the large national debt seems, therefore, one of the first financial consequences of the Indian Revolt.