Part 7 (1/2)

It became apparent, however, that reductions alone would not suffice to produce equilibrium. Lord Mayo had therefore to decide whether he would permit the Budget arrangements of the year to stand, with the knowledge that they would result in deficit, or resort to the unusual, and in India almost unprecedented, {145} expedient of additional taxation in the middle of the year. He decided, after careful inquiry, that the circ.u.mstances demanded the latter course.

Had the threatened deficit been preceded by a period of prosperity and financial accuracy, he would not have deemed so severe a policy needful. But the public expenditure had, during three consecutive years, largely exceeded the revenue, and Lord Mayo found that solvency could only be secured, in the first place, by immediate and most stringent measures; in the second place, by a permanent improvement in the finances to the extent of three millions sterling a year. I mean, of course, the aggregate improvement derived from the twofold sources of reduced expenditure and increased taxation.

For these and other cogent reasons, Lord Mayo determined to make it clear by measures of unmistakable vigour that his Government was resolved to place the finances upon a permanently sound basis. He raised the income tax from 1 to 2-1/2 per cent. during the second half of the financial year, and enhanced the salt duty in Madras and Bombay. The former measure was estimated to add 320,000 pounds and the latter 180,000 pounds to the revenue of the year; total, 500,000 pounds.

By means of this half-million of increased taxation, and the 1,150,000 pounds of reduced expenditure, Lord Mayo hoped to cover the estimated deficit of the current year, namely, 1,650,000 pounds. He thus explained his views to the Secretary of State.

'While the acc.u.mulated deficits of the three years {146} ending with 1868-69 have amounted to 5-3/4 millions, the cash balances in our Indian treasuries have fallen from 13,770,000 pounds at the close of 1865-66 to 10,360,000 pounds at the close of 1868-69, and, notwithstanding our recent loan of 2,400,000 pounds, are at this moment lower than they have been at this season for many years.

During the same period our debt has been increased by 6-1/2 millions, of which not more than 3 millions have been spent on reproductive works.[4] Your Grace has reminded us that successive Secretaries of State have enjoined us so to frame our estimates as to show a probable surplus of from half a million to a million sterling. We entirely agree with your Grace in acknowledging the soundness of this policy. We have no doubt that, excluding charges for Extraordinary Works provided for by loan, our expenditure in time of peace ought to be so adjusted to our income as to leave an annual surplus of not less than one million. The necessary conclusion to which we are thus led is, that nothing short of a permanent improvement in the balance now subsisting between our annual income and expenditure of at least three millions sterling will suffice to place our finances in a really satisfactory condition. How, by reducing our expenditure and increasing our income, we can best obtain such a result, is the problem that we have now to solve.

'We are satisfied that there is only one course {147} which we can properly follow. We must no longer continue to make good the deficit of each succeeding year by adding to the public debt. And we must determine, whatever be the difficulty of the task, that there shall henceforth be no room for doubt that, in time of peace, our income will always be in excess of our ordinary expenditure.'

[Footnote 4: Par. 71 of Despatch to Secretary of State No. 240, dated 20th Sept. 1869.]

I have mentioned the immediate measures by which Lord Mayo endeavoured to stay the impending deficit. But he felt that such measures strained the whole mechanism of the Government; that to stop public works on a sudden involved waste of material, while the increase of taxation during the current year disclosed in a most undesirable manner the shortcomings of our system, and might prove a cause of perilous discontent among the Indian people. 'We have played our last card,' he once said in conversation, 'and we have nothing left in our hands to fall back upon, except to devise measures which will prevent the recurrence of a similar crisis hereafter.' He accordingly resolved to find a permanent remedy, by removing the causes of the financial misfortunes in past years.

His reforms divide themselves into three branches. First, improvements in the mechanism of the Financial Department of the Supreme Government itself. Lord Mayo thought that it would be vain to ask the Local Governments to set their houses in order, if they could point to confusion or want of prevision in his own. Second, the more rigid enforcement on the Local Governments of economy in framing their {148} estimates, and of accuracy in keeping within them. While thus increasing their fiscal responsibility, Lord Mayo also extended their financial powers. Third, a systematic and permanent readjustment of the revenues and the expenditure.

First, as regards defects in the mechanism of the Financial Department, Lord Mayo found that the disastrous series of fiscal surprises were due in part to unpunctuality in the submission of the yearly estimates by the Local Governments and Departments, so that the Supreme Government had not sufficient time to examine and collate the accounts before the season for delivering the financial statement arrived. He discovered, also, grave deficiencies in the Financial Department itself as regards intelligent observation of the progress of the finances during the year. While, therefore, the Local Governments throughout India were complaining of the number and complexity of the statistical returns required from them, the last act in the process which would have rendered these returns fruitful of results, namely, their careful collation by the Finance Department, was inefficiently performed.

Without such final collation, the gathering of statistics is indeed a thankless task. I merely repeat the statement of the Member of the Government best qualified to speak on the subject, when I say that, up to Lord Mayo's time, no sufficient provision existed for the intelligent use of the statistical materials which daily poured in.

It did not seem to be understood that the toil expended by scattered {149} Departments upon the compilation of returns can bear no fruit unless they are intelligently studied by the central bureau for which they are compiled. Statistics as they existed in India before Lord Mayo's rule were sorrowful memorials of faithful subordinate labour, rendered unavailing by the indifference or neglect of higher officials.

The financial collapse in 1869, forming as it did one of a series of similar catastrophes, gave a new impulse to better work. The preparation of cla.s.sified statistics was undertaken on a systematic basis and with an extended scope. Having thus put his own house in order, Lord Mayo took measures to ensure punctuality in the submission of the Estimates by Local Governments and Departments. He also organised, or to speak more correctly, remodelled a system by which the Supreme Government now obtains full information bearing upon the progress of the finances month by month. Mr. Chapman, the Secretary to the Department and the officer most competent to speak, thus wrote of the results:--'It is not too much to say that it has become impossible for the Government to remain long ignorant of any important fact affecting the finances. Expectation may be disappointed, misfortune or mistakes may occur; but the Government will at least be promptly informed of the event, and it is difficult to exaggerate the importance of prompt.i.tude in this respect.'

The second great branch of Lord Mayo's financial reforms consisted in his more rigid enforcement of {150} economy upon the Local Governments. A fertile source of financial difficulty has always existed in the division of the British administration of India into a number of governments, separated from, although subordinate to, the Governor-General in Council. Before Lord Mayo's Viceroyalty the separate governments, while so far independent ent.i.ties as to be responsible for the civil administration and improvement of their several Provinces at the cost of the imperial revenues, had, in regard to their revenues, no independent financial powers. Towards the end of every year, each Local Government presented to the Governor-General in Council its estimates of expenditure during the coming twelve months. The Governor-General in Council, after comparing these aggregate estimates with the expected revenue from all India, granted to each Local Government such sums as could be spared for its local services.

The system acted in a manner most unfavourable to economy. The Local Governments were under no compulsion to adjust their expenditure to any limited scale of income, and several of them fell into the habit of framing their demands upon the Imperial Treasury, with an eye rather to what they would like to spend than what was absolutely required. 'Practically,' writes one who had the official control of the system, 'the more a Government asked, the more it got; the relative requirements of the Local Governments being measured by their relative demands. Accordingly they asked freely and {151} increasingly. Again, knowing that any money saved at the end of the year was lost to the provincial administration, a Local Government was little anxious to save.' These words, while representing the facts, do not necessarily involve a reproach. In India more money can be spent with advantage on almost every branch of the administration than the revenues will permit.

Lord Mayo clearly discerned that, in order to secure the co-operation of the Local Governments in the work of financial reform, he must invest those Governments with a share of the financial responsibility. After an exhaustive preliminary correspondence with each separate Administration, he issued a Resolution on the 14th December, 1870, which may be called the Charter of the Provincial Governments. By this doc.u.ment, which in due time received the approval of the Secretary of State, a fixed yearly consolidated grant was made to each Government, to enable it to defray the cost of its princ.i.p.al services, exclusive of the Army, but including Public Works. The grants thus made were final, for a period usually of five years, and were liable to reduction only in case of severe financial distress happening to the Supreme Government. They belong absolutely to the respective Local Governments. No savings from any one of them revert to the Imperial Treasury. Their distribution is left to the discretion of the Local Governments, without interference on the part of the Governor-General in Council.

The services thus made over to them included the {152} protection of person and property, the education of the people, the record of changes or transfers connected with landed property, sanitation, Local Public Works, and a number of minor branches of government. For official purposes they were grouped as follows: Jails, Registration, Police, Education, Medical Services (except 'Medical Establishments'), Printing (an enormous item in India), Roads, Civil Buildings, and various Public Works, Miscellaneous Public Improvements, and various minor services.

This well-jointed system of Provincial and Imperial Finance continues to be the basis of Indian Finance to this day. It has received further developments since Lord Mayo's time, but its principles remain unchanged. Sir John Strachey thus summarised the state of things which preceded it:--

'For many years before Lord Mayo became Viceroy, the ordinary financial condition of India had been one of chronic deficit, and one of the main causes of this state of affairs was the impossibility of resisting the constantly increasing demands of the Local Governments for the means of providing many kinds of improvement in the administration of their respective Provinces. Their demands were practically unlimited, because there was almost no limit to their legitimate wants. The Local Governments had no means of knowing the measure by which their annual demands upon the Government of India ought to be regulated. They had a purse to draw upon of unlimited, because of unknown, depth. They saw on every side the {153} necessity for improvements, and their constant and justifiable desire was to obtain for their own Provinces and people as large a share as they could persuade the Government of India to give them out of the general revenues of the Empire. They found by experience, that the less economy they practised, and the more importunate their demands, the more likely they were to persuade the Government of India of the urgency of their requirements. In representing those requirements they felt that they did what was right; and they left to the Government of India, which had taken the task upon itself, the responsibility of refusing to provide the necessary means.

'The Government of India had totally failed to check the constant demands for increased expenditure. There was but one remedy: namely, to prevent the demands being made; and this could only be done by imposing on the Local Governments a real and an effectual responsibility for maintaining equilibrium in their local finances.

There could be no standard of economy until apparent requirements were made absolutely dependent upon known available means. It was impossible for either the Supreme or Local Governments to say what portion of the provincial revenues was properly applicable to local wants. The revenues of the whole of India went into a common fund, and to determine how much of this fund ought fairly to be given to one Province and how much to another, was impracticable.'

'The distribution of the public income,' {154} Major-General R.

Strachey wrote, 'degenerates into something like a scramble, in which the most violent has the advantage. As local economy leads to no local advantage, the stimulus to avoid waste is reduced to a minimum.

So as no local growth of the income leads to an increase of the local means of improvement, the interest in developing the public revenues is also brought down to the lowest level.' It is right to add that the reforms by which Lord Mayo put an end to this unprofitable state of things were in a large measure due to the initiative of General Richard Strachey, supported by the administrative authority and experience of his brother, Sir John Strachey. But the question of Local Finance first presented itself to Lord Mayo during his inquiries in the India Office, and he discussed it at Madras on his way out to Calcutta.

Lord Mayo's third and heaviest task was the permanent readjustment of the revenues to the expenditure. He accomplished this task partly by new taxation, but chiefly by economy and retrenchment. On his arrival in January, 1869, Lord Mayo found two Despatches awaiting his consideration. One was a Despatch from his predecessor, Lord Lawrence, urging on the Secretary of State the imposition of an income tax; or, more strictly, the expansion of the certificate tax into an income tax for the year 1869-70 then about to begin. The other was a Despatch from the Secretary of State sanctioning the proposal. Lord Mayo's first measure with a view to raising the revenues of India was, therefore, to carry {155} out this decision which had been arrived at before he reached India, and to levy an income tax. By efforts to equalise the salt duty in certain provinces, and at the same time to develop new sources of salt supply, and to cheapen the cost of carriage, he laid the foundation of a further increase of revenue, with the least possible addition to the burdens of the people.

It was, however, to economy rather than to increased taxation that Lord Mayo looked for a surplus. Indeed, he strongly felt the necessity of abandoning some of the old objectionable forms of Indian taxation, such as the export duties; and he made a beginning by abolis.h.i.+ng the export duty on wheat. On the other hand, every Department of Expenditure was keenly scrutinised, and severely cut down to the lowest point compatible with efficiency. As a matter of fact, and notwithstanding the new income-tax, the total revenue which he levied from India during his three years of office averaged nearly a million less than the revenue levied during the year 1868-69 preceding his Viceroyalty; while the expenditure averaged about five millions per annum less than that of the year preceding his Viceroyalty. The following table exhibits the results of the system of vigilant economy by which Lord Mayo converted a series of years of deficit into a series of years of surplus. For purposes of reference to the Parliamentary accounts it reproduces the conversion at the then official rate. It does not, accordingly, show the exact balance in sterling, as worked out for the table earlier in this chapter.

{156}

_Indian Revenue and Expenditure under Lord Mayo (at the then official rate of ten rupees to the pound)_.

+---------+------------+----------------------+--------------+

Ordinary

Year.

Revenue.

Expenditure.

+---------+------------+----------------------+--------------+

pounds

Year of Deficit

pounds

1868-69

51,657,658

preceding Lord

54,431,688