5,318
Revenues of India, 1913-14 (in thousands of pounds sterling)
£
Land-revenue
21,391
Opium
1,624
Salt .
Revenues of India, 1913-14 (in thousands of pounds sterling)
£
Land-revenue
21,391
Opium
1,624
Salt .
Cambridge History of India - v4 - Indian Empire
The principle adopted was that certain
branches of administration, such as the postal services and railways,
should be treated as wholly imperial and their receipts taken by the
central government. That government, being responsible for the
heaviest charges on the state revenues, retained in its hands the income
from certain main heads, such as salt, opium and customs. The
revenues from other heads, viz. land-revenue, excise, stamps, forests
and registration, were shared in a proportion determined according
to the requirements of the several provinces. From the income de-
rived from their share, the latter met the expenses of the collection
of the revenues and the greater part of the expenses of their civil
administration. The financial arrangements between the central and
provincial governments were for some time subject to periodical
revision, when they were amended according to the state of the public
revenues; but, ultimately, more permanent shares in the divided
revenues were assigned to the different provinces. As originally
framed the system had nothing of a federal character about it. The
object in view was mainly to effect an administrative improvement
by relieving the central office of an impossible burden of work and
freeing the provincial governments from unnecessary interference.
The control over, finance was not surrendered, since the central
government was always at liberty to view the terms of the settlement.
Roughly, the provincial expenditure amounted to one-third of the
imperial.
Previously to 1873 currency questions had played little part in
Indian finance: from that date they dominated it. Though an attempt
had been made in 1868 to introduce the sovereign into India, it had
not proved successful and the rupee remained the basis of the currency.
Silver being received without limit when tendered for coinage at the
Indian mints, the gold value of the rupee depended on the gold price
of silver bullion. This value had continued up to 1872-3 fairly con-
stant at about 2s. , and fluctuations in exchange had been compara-
tively small. About this time, however, largely in consequence of
the demonetisation of silver, first by Germany and subsequently by
the Latin Union, the rupee exchange began to drop. Its downward
course was for some time gradual, and temporary improvements
favoured a policy of inaction. By 1885 it had fallen to an average rate
of is. 7d. From this point the decline was more rapid and by 1890
i Strachey, op. cit. chap. ix; Hunter, Life of the Earl of Mayo, vol. 11, chap. vi.
: Decentralisation Commission Report, Parl. Papers, 1907.
; Barbour, The Standard of Value, chap. xii, 1893.
## p. 321 (#359) ############################################
THE FALL IN EXCHANGE
321
it had fallen to is. 4d. For a brief period in 1891 the decision of the
United States to purchase annually large quantities of silver brought
about a sharp rise to is. 6d. , only to be followed by a reaction until,
in 1893, the average rate was in the region of is. 2d. 1 This depre-
ciation disastrously affected India's finances by increasing the cost of
making remittances to liquidate her gold obligations in England.
These consisted mainly of interest on the sterling debt, guaranteed
interest on the railways or, after their purchase, of the annuity
charges, payment fo railway stores, army charges, and furlough and
pension allowances of civil and military servants. They were defrayed
by the secretary of state's selling for sterling rupee drafts on the Indian
treasuries. But so long as the mints remained open to the free coinage
of silver, the sterling amounts obtainable at the secretary of state's
sales could not ordinarily exceed the cost of procuring silver and
remitting it to India for coinage. Each fall in the gold value of the
rupee meant proportionately increased cost in defraying the charges
to be met in England. In 1892-3, when the exchange had fallen to
IS. 2d. , the government had to pay 87,300,000 more rupees to meet its
gold obligations, amounting to £16,500,000, than would have been
required had the exchange stood at the same rate as in 1873.
It will now be convenient to outline the main events between 1873
and 1893 which moulded the course of Indian finance. During the
early part of this period India was visited by a cycle of bad seasons
which resulted in partial or total failure of the crops over wide areas
of country. Two famines, onc in Bihar and the other in Southern
India, called for expenditure on an unprecedented scale. These and
other minor disasters cost the government in relief operations, or
remission of revenue, over £15,000,000. A commission appointed in
1877 to enquire into the subject of famine relief recommended that
a sum of £1,500,000 should be set aside in prosperous years to meet
the cost of these recurring calamities, without further increase of debt.
In years free from famine, the surplus was to be devoted, either to the
paying off of existing debt, or the avoidance of debt by constructing
works, such as railways, the cost of which must otherwise have been
met by borrowing. As the condition of the finances did not admit of
the sum required being set aside from revenue, additional funds were
provided by a fresh cess on land, the imposition of a licence tax on
the trading classes, and by reducing provincial assignments. Wars,
threats of wars, and falls in exchange caused these arrangements to
break down on several occasions, but, as soon as pressure was relieved,
the grant was resumed. The operations under the famine insurance
scheme enabled the Government of India, in addition to meeting
the cost of famine relief, to spend on development projects roughly
£5,000,000 from the inception of the scheme up to 1893. During these
| Report of Indian Currency Committee (Parl. Papers, 1893, Accounts, c. 7060).
Report of Indian Famine Commission, 1878.
CHIVI
21
## p. 322 (#360) ############################################
322
THE FINANCES OF INDIA, 1858-1918
years the government was in constant financial difficulties. The
Afghan war which broke out in 1878 proved very costly. Hardly had
the situation improved, when the Government of India was called
upon, in deference to the free-trade views obtaining in England, to
abolish the duty on all imported cotton goods, the import tax on
coarser goods, which formed the main product of the Indian mills,
having been removed in 1879. With the abolition of the duty on these
goods, which provided the bulk of the customs revenue, it was im-
possible to justify the retention of the rest of the import tariff levied
on a number of miscellaneous articles, many of which yielded an
insignificant revenue. It was accordingly decided to abolish all import
duties, except those levied on articles, such as liquor and salt, which
were subject to internal taxation.
From 1885 the government was again confronted with heavy
military expenditure as a result of the threatened advance on India
by Russia, and the operations which terminated in the annexation of
Upper Burma. An increase in the strength of the army and defensive
works on the frontier entailed a steady growth in expenditure between
1886 and 1893. With the limitations imposed on the customs tariff,
it was necessary to fall back on other heads of taxation which promised
to yield the additional income required. In 1886 the licence tax was
converted to an income-tax leviable on all non-agricultural incomes
above Rs. 500, and in 1887 the salt-tax was raised from Rs. 2 to
Rs. 2} per maund. With the aid of the revenue thus obtained
and by the exercise of rigid economy, a deficit was avoided, but the
income-tax in its new form had not been imposed without a good deal
of opposition, while the enhancement of the salt-tax was open to the
objection that it fell most heavily on the poorest class of the popula-
tion. The fiscal policy at the time was affording a handle of attack to
the newly formed congress party. Though these attacks contained
much misrepresentation, they indicate the growing irritation at the
financial straits to which the government had been reduced, mainly
owing to the neglect to deal with the currency problem. When a fresh
crisis in exchange took place in 1892-3, it became obvious that the
Indian finances could not support the strain of the enormous losses
involved and that a reform of the currency system could no longer
be avoided.
The first proposals to this effect were made in 1878, in which the
Government of India pressed for the establishment of a gold standard
and control of silver coinage: the scheme involved acceptance of gold
in payment of government demands but not its immediate recognition
as legal tender. Though it differed in many of its features from the
system ultimately adopted, the main principle was the same, and
some reform on these lines could undoubtedly have been carried out
more easily at that time than at a later date when exchange had fallen
further and the country was flooded with silver coin. When its pro-
a
1
1
1
## p. 323 (#361) ############################################
CURRENCY REFORM
323
posals were rejected by the secretary of state, the Government of India
turned its attention to international bimetallism as a solution of its
currency difficulties. Its hopes were kept alive by international
monetary conferences, at which the question came under discussion,
and the pronounced desire of other governments to rehabilitate silver.
But the condition into which the finances of India had fallen, and
international currency events from 1890 onward, finally forced the
hands of the government and the secretary of state. The world pro-
duction of silver showed a very decided increase and, in spite of pur-
chases on a large scale by the United States Government, imports into
India were rising. India's trade was becoming disorganised by the
constant fluctuations of silver, and the banking and trading classes
brought pressure to bear on the Government of India to close the
mint: and establish a gold standard. There was also a grave appre-
hension that the United States Government might discontinue its
purchases of silver, in which case it was impossible to foresee to what
lower levels the gold price of silver might fall
. Proposals were again
submitted for the adoption of a gold standard which were referred
by the secretary of state to a committee of which Lord Herschell
was chairman. Its recommendations were carried into effect in
1893
In accordance with these recommendations the mints were closed
to the free coinage of silver, the government reserving to itself the right
of coining silver as required. It was notified at the same time that
sovereigns and half-sovereigns would be received by government at
the equivalent of Rs. 15 and Rs. 7} respectively, and that gold coin
and bullion would be held in the paper currency reserve as a backing
against notes. No action was taken with regard to making gold coin
legal tender. It was believed that, with the closing of the mints to free
coinage, a scarcity value would be placed on the rupee and, as it was
no longer possible to settle the excess of exports over imports by
sending silver to India and coining it into rupees, settlement would
have to be made mainly through the secretary of state's council
drafts. If the rate of these sales could be kept at about is. 4d. the
rupee, the exchange value of the rupee might be forced to this level.
,
With the gradual accumulation of gold coin, it was hoped to build up
a reserve which would make the gold standard effective. As soon as
the mints were closed exchange rose to the desired level of is. 4d. , but
soon fell to lower rates. Several factors militated against the imme-
diate success of the scheme. The heavy coinage before and after the
closing of the mints—the government having taken over the silver in
transit and with the banks—had led to a redundancy of silver coin
over currency requirements. The closing of the mints in India and
1 Cf. Barbour, The theory of bimetallism and effects of partial demonetization of silver on
England and India.
• Report of Indian Currency Committee, 1893 ut supra.
Act VIII of 1893.
• Cf. Barbour, The Standard of Value, chap. xvii.
21-2
## p. 324 (#362) ############################################
324
THE FINANCES OF INDIA, 1858–1918
the repeal of the Sherman Act in the United States caused a heavy
drop in the gold price of silver, and bullion poured into the country
to be used for commercial purposes, thereby decreasing the demand
for the secretary of state's bills. The rate of exchange continued to
decline with the diminishing value of silver, the average for 1894-5
being only slightly over is. id. From this point it rose steadily, being
materially influenced by the expansion of th, internal and external
trade of the country. These favourable trade conditions tended to
absorb the superfluous currency, thus accelerating the effect of the
closure of the mints. The progress was, however, so slow that the
government seriously considered the possibility of melting down large
numbers of rupees and even of reducing the standard to be aimed at
to is. 3d. In 1897 there was definite improvement, the average rate
being nearly is. 3d. , and by 1898–9 the goal had been reached and
the exchange value of the rupee forced up to is. 4d. , though its
bullion alue had fallen as low as rod. At this rate it remained with
minor fluctuations, until circumstances arising out of the war com-
pletely upset pre-existing standards.
Little confidence was felt at the time that the rate would be main-
tained. The feeling of uncertainty was reflected in representations by
the various chambers of commerce regarding the unstable condition
of the currency which was disturbing the trade of the country and
driving away capital. Fresh proposals by the Government of India for
stabilising exchange led the secretary of state to appoint a committee
under the presidency of Sir Henry Fowler to review the situation. 1
This committee approved of the closing of the mints as the only
practical method of securing a stable exchange between India and
the countries with which she principally traded. It recommended the
establishment of a gold currency as well as of a gold standard, to
secure which it proposed that the sovereign should be legal tender in
India and that the Indian mints should be open to unrestricted coinage
of gold. The committee was impressed by the view that it would not
be feasible to maintain the gold standard without an actual gold
currency, and, for this reason, it urged the encouragement of the use
of gold in currency. Th conviction led it to reject schemes, strongly
supported at the time, of establishing a gold standard without a gold
currency in India. The advocates of these views held that a gold
currency was not wanted in India and that exchange with other coun-
tries could be adequately maintained with a sufficient reserve of gold. ?
The most fruitful of the suggestions of the committee was that any
profit on the coinage of rupees should not be treated as revenue, but
credited to a special reserve to be used for supporting exchange. Its
adoption led to the establishment of the special reserve known as the
Gold Standard Reserve.
>
2
1 Report of Indian Currency Committee (Parl. Papers, 1899, Accounts, c. 9390).
* Lindsay, Ricardo's Exchange Remedy.
## p. 325 (#363) ############################################
A GOLD CURRENCY
325
The Government of India, acting on these recommendations, passed
an act making the sovereign and half-sovereign legal tender at Rs. 15
and Rs. 7} respectively. The proposal for coining gold in India fell
through, owing to difficulties with the English treasury. The efforts to
put gold into circulation were the reverse of successful. The currency
was not popular, and was continually finding its way back to the
treasuries. The result was that the stock of gold in the Paper Currency
Reserve, where it was held as a backing to notes issued, rose steadily
and the silver reserve came to be inconveniently low. In March,
1900, the stock of silver had fallen to about £3,500,000 and gold had
increased in proportion. So long as the public was unwilling to take
gold, this small reserve of rupees had to maintain the convertibility
of some £18,000,000 of notes. To relieve the strain fresh efforts were
made to force gold into circulation, under which the sovereign went
to a discount. The coinage of silver was then taken up in earnest, the
profits being devoted to building up a special gold reserve. These
were transferred to London and, for the most part, invested in govern-
ment securities,
During the years immediately following 1893 the only events of
financial importance were those connected with the improvement of
the currency. Until there was a definite rise in the rate of exchange,
the main concern of the administration was to balance the budget and
curtail expenditure. In 1894 the general import duty at the rate of
5 per cent. ad valorem was reimposed. The duty extended to cotton
goods, but, to deprive it of its protective character, a countervailing
excise duty was imposed on fabrics manufactured at the power mills
in India. a' Aided by this new revenue and the steady growth of the
ordinary revenues, the government was enabled to tide over the period
of transition to a stable rupee. In 1896–7 Northern India suffered
from a famine of unusual severity which cost over £4,000,000 in direct
relief. A frontier war in the following year, involving military opera-
tions on an extensive scale, caused further embarrassment and both
these financial years showed considerable deficits. These, however,
may be described as the last of the lean years; from this time onward,
owing to the steadiness of exchange, growth of revenues, and improved
receipts from public works, the aspect of Indian finances underwent
an entire change and, with flowing balances, the government was not
only able to reduce taxation but also to provide more adequately for
the public services, the development of which had been retarded by
the enforced economy of the preceding years.
One of the main factors in the improvement of the finances was
that the railways and irrigation works became, about the beginning
of the present century, a source of direct profit to the public revenues. 3
a
1 Indian Cuinage and Paper Currency Act, XXII of 1899.
Cf. Roberts, History of British India, pt 11, chap. xii.
• Robertson, Report on the Administration and Working of Indian Railways.
## p. 326 (#364) ############################################
326
THE FINANCES OF INDIA, 1858–1918
In arriving at these results all interest charges, not only on open works
but also on those under construction, were charged against revenue,
as well as annuities for the redemption of commuted capital and
annual outgoings of every description. Many of the older undertakings
had been returning handsome dividends on the capital invested for
a number of years past, but the profits did not counterbalance the loss
on newer constructions. In 1900 the revenue account drawn up on
the above method showed a small gain, which by 1901–2 had risen
to three-quarters of a million and in 1904-5 to two millions. The
profits, as in all operations of a commercial character, varied with the
season, and in 1907-8 a loss again was incurred, largely owing to
increased working expenses. In the following year there was a re-
covery and from that time the net receipts became an important item
in the national revenue.
The greatly improved condition of its finances after 1901–2 enabled
the Government of India to allot funds on a largescale to the provincial
governments for the purposes of education, sanitation and agricultural
development, as well as to reduce taxation. The salt-tax was reduced
by successive stages from Rs. 2} per maund to Ri. Incomes
under Rs. 1000 per annum were exempted from income-tax, and, as
a relief to the agricultural population, certain cesses on the land were
abolished. When the periodical settlements with the provinces were
revised in 1904-5, definite shares in the incomes realised within the
provinces were permanently surrendered. This was the first step
towards the grant of fiscal independence to the provincial legislative
councils, some measure of which was essential if any genuine system
of local self-government were to be set up. But in 1907–8 there was
a turn in the tide. The monsoon was poor and the sources of income
which varied with the prosperity of season declined: exports fell off
and an exchange crisis supervened. The Government of India was
further faced with the problem of losing the greater part of its opium
revenue under the terms of the Indo-Chinese agreement of 1907. 1
As three-quarters of the opium revenue was derived from the China
trade, this meant that by 191° a sum of about £3,000,000 would have
to be made good from other sources. To provide for future losses in
revenue, the customs-duties on a number of articles, such as tobacco,
beer, spirits and petroleum, were raised and a higher ad valorem duty
imposed on silver bullion. The seasons following, up to the outbreak
of the war, were prosperous. Revenues from almost all sources showed
increases, and speculative purchases of the exportable opium greatly
reduced the losses anticipated in the receipts from sale of the drug.
In the financial year ending March, 1911, there was a budget surplus
of nearly £6,000,000, and in 1913 an even larger surplus of £7,600,000.
These large balances excited some criticism of under-estimation of the
revenue; but they left India in a strong financial position when the
Strachey, India, note to chap. x.
1
## p. 327 (#365) ############################################
REVENUES AND DEBT
327
war broke out, and enabled the government to meet successfully some
of the difficulties which arose during its early stages.
Figures of revenue have hitherto been sparingly quoted. The rupee
has varied so greatly in value that it is impossible to adopt any fixed
standard for conversion into sterling. Apart from this, owing to
alterations in the system of keeping the public accounts, no compari-
sons of any accuracy can be instituted between the figures of different
periods. But by 1913–14 the rupee had become comparatively stable,
and the figures of that year may usefully be quoted to illustrate
generally the increase in revenues since 1860 and the main sources
from which they were derived.
. . .
. . .
. . .
5,318
Revenues of India, 1913-14 (in thousands of pounds sterling)
£
Land-revenue
21,391
Opium
1,624
Salt . . .
3,445
Stamps
Excise
8,894
Customs
7,558
Income-tax
1,893
Forests
2,220
Interest
1,352
Post Office and Telegraphs (net receipts) 3,598
Railways (less working expenses)
17,625
Irrigation
4,713
Military receipts
1,369
Other heads. . .
4. 307
. . .
. . .
. . .
Total . . .
£85,307
. . .
The gross revenue of the country had nearly doubled, but, though
the sources remained much the same, there had been a material
change in their relative importance. The contribution of land-revenue
to the total had fallen to 24 per cent. , while the commercial services
were yielding a steadily increasing surplus. The opium revenue had
become unimportant. Though excise and customs had increased in
productiveness, the proportion of economic to tax revenues was still
high. But the pressing demands of the state in war time could only
be met by resort to taxation, and, consequently, in the following years
there was a great expansion in the receipts from excise, customs and,
above all, income-tax.
The total debt after the Mutiny amounted to some £98,000,000,
the whole of which had been borrowed for unproductive purposes and
the interest was a dead weight on the revenues. There were additions
to the debt in 1877-8, as a consequence of the famine of that year and
the military operations in Afghanistan which followed the famine.
Some further debt was incurred in 1896 to 1898, again to meet deficits
caused by famine and war, but, with these exceptions, the great bulk
of the rupee and sterling debt was incurred in connection with the
## p. 328 (#366) ############################################
328
THE FINANCES OF INDIA, 1858–1918
construction of railways and other public works. By a system in-
stituted in 1880-1, an amount of the ordinary debt, equivalent to the
capital expenditure on public works supplied from ordinary revenues,
or from the famine insurance grant, was transferred to the public
works portion of the debt. As the state of finances improved after
1901-2, larger allotments were made to public works, resulting in a
corresponding reduction of the ordinary debt. In 1881–2, reckoning
the rupee at is. 4d. for purposes of comparison, the ordinary debt
stood at £74,000,000 and the public works debt at £48,000,000. By
1898–9, the figures were £63,000,000 and £169,000,000 respectively.
There were subsequent changes in the method of distributing the debt
between the productive and unproductive heads, but the net result
of the transactions up to the outbreak of the war was that by far the
greater portion of the debt stood invested in public works which more
than repaid the interest due on the capital outlay, while that portion
of the debt which imposed an actual burden on the country had been
reduced to very small limits. The position was summed up by the
finance minister as follows:
Out of a total debt equivalent to £274,000,000 outstanding at the end of March,
1914, only about £13,000,000 represented ordinary, or unproductive debt. Our
total annual interest charges amounted to some £9,250,000. Railways and irriga-
tion works in the same year yielded us a return of £15,250,000. Thus we had still
left some £6,000,000 of clear revenue from our great undertakings after meeting
interest charges on our entire public debt. "
During the years between 1900 and the opening of the war the
currency system was undergoing further developments, and assuming
a shape somewhat different from that contemplated at the time of the
closing of mints. When that measure came into effect, India's trade
balance could be defrayed, either through the secretary of state's bills,
or remittance of gold to be exchanged into rupees, the only currency
medium which circulated freely throughout the country. The govern-
ment being under an obligation to give rupees or notes in exchange
for gold, a succession of favourable trade balances led to an incon-
venient accumulation of gold in the reserve treasuries. By 1904 it
became apparent that the secretary of state's drawings could not be
limited to his own requirements and must be expanded to meet trade
demands, and council bills were accordingly offered for sale at a
fixed rate without limit. These drafts were met in India in rupees or
notes from the cash balances or reserves. As the latter became de-
pleted, the outgoings were replaced by fresh coinage of rupees. Under
this system the increase of coinage became more or less automatically
regulated, for, so far as practicable, it was undertaken only when trade
demands called for it and to the extent necessary to make good the
depletion of silver in the currency reserves. The profits on coinage,
which, owing to the low bullion value of silver, were considerable,
1 The Financial Statement and Budget, 1915-16.
## p. 329 (#367) ############################################
THE GOLD EXCHANGE STANDARD
329
were remitted to London to strengthen the gold standard reserve. To
maintain exchange there were thus cash balances in London, gold
reserves in the paper currency reserve, held partly in London but
mainly in India, and, finally, the gold securities in the special
reserve.
These resources were fully called upon in the exchange crisis of
1907. The harvest of that year was a partial failure and the volume
of exports declined; a financial crisis in America had resulted in a
stringency in the London money market. Exchange began to drop
ominously and the situation showed no improvement when the sale
of council bills was altogether suspended. The Government of India
at first showed some reluctance to part with its gold, but, as ex-
change further weakened, the expedient was adopted of selling in
India sterling bills on the secretary of state in London at a fixed rate.
The secretary of state met these bills by drawing on the branch of the
paper currency reserve in London, and then on the gold standard
reserve, and by temporary loans. This method of maintaining a stable
exchange by the issue of what is known as “reverse councils” has since
become an integral part of the currency system. With the return of
normal seasons, the gold reserves in England were replenished by the
sale of council drafts against the rupees which had accumulated in the
Indian treasuries during the period of weak exchange. The experience
of the year 1907-8, which had drained their gold assets to the extent
of some £18,000,000, had impressed on those responsible for the
finances of India the necessity of large, fluid reserves in London to
meet similar emergencies. Heavy council drawings and the resump-
tion of coinage of rupees on a large scale enabled them to carry this
policy into effect. But the working of the gold exchange standard was
imperfectly understood both in England and India, and the magnitude
of the balances, their utilisation and location became subjects of
criticism from somewhat different points of view in both countries.
A royal commission was appointed to enquire into these matters and
generally into the working of the currency system. The commission
reported in 1914, and in the main found in favour of the system which
had been built up, since it had successfully and at a comparatively
cheap cost established what was of essential importance to India,
viz. a stable exchange. It arrived at the definite conclusion that a
gold standard could be worked without a gold currency and that it
was not advantageous to encourage the use of gold in active circula-
tion. In view of the necessity of strong gold reserves to maintain
exchange, it did not propose that any present limit should be
placed on the gold standard reserve, the location of which it agreed
should be in London. The principal modifications suggested were in
the direction of making the paper currency system more elastic and
Keynes, Indian Currency and Finance, chap. vi; Findlay-Shirras, Indian Finance and
Banking, chap. vi.
## p. 330 (#368) ############################################
330
THE FINANCES OF INDIA, 1858–1918
of 1915
encouraging the use of notes as an alternative to the more costly issue
of silver coin. 1
Though no moratorium was found necessary in India on the out-
break of the war, there was a general feeling of insecurity which was
reflected in a run on the savings bank and an abnormal demand for
the conversion of currency notes into rupees. To restore confidence,
the government offered special facilities for the withdrawal of de-
posits and the encashment of notes. There was a shrinkage of some
£11,000,000 in the gross note circulation, but, as the fears of invasion
proved groundless, the drain on government resources diminished
and by 1916 normal circulation was resumed. It was, however,
found impossible to continue the issue of gold in exchange for rupees
and notes, a sum of nearly £2,000,000 having been paid out in the
first few days of August, 1914. The weakness of exchange which
developed was met by the now accepted policy of offering reverse
council bills for sale and by an undertaking by government to support
exchange to the extent of its resources. The sale of some £8,000,000
reverse council bills sufficed to steady exchange and by the beginning
the rate was approaching its former level. The balances which
had accumulated both in India and in London, where the assets of
the gold standard reserve exceeded £25,000,000, were strong enough
to meet the strain, and it was no small tribute to the soundness of the
currency system which had been established that it successfully stood
the test of the initial difficulties of the war.
The subsequent problems arose from the larger share India was
called upon to take in financing the outlay on the war, and the in-
creasing demand for her products in allied countries at a time when
the customary methods of paying for her exports had become com-
pletely dislocated. In the five years preceding the war, the balance
of exports over imports, averaging some £50,000,000 per annum, had
been met, partly by the secretary of state's council drafts and partly
by the import of bullion and gold coin. The strain of the war on her
finances made it impossible for England to part with her gold, while
the production of silver, as the war proceeded, fell off and its price
rose materially. The necessary consequence was to throw in an in-
creasing degree on the secretary of state's council drafts the burden
of defraying the trade balance, with the resultant depletion, in the
absence of sufficient supplies of silver for fresh coinage, of the silver
reserves. As it became impracticable to meet all the trade demands,
the council drafts had to be limited in amount to the rupee resources
of the Government of India, in order to preserve sufficient rupees to
maintain convertibility of the note issue. Coinage was continued so
far as silver was procurable, but its price rose to a point at which the
Report of the Royal Commission on Indian Finance and Currency (Parl. Papers, 1914,
Returns, etc. , c. 7236-7).
? Findlay-Shirras, Indian Finance and Banking, chap. vii.
## p. 331 (#369) ############################################
CURRENCY AND THE WAR
331
bullion value of the rupee appreciated beyond its face value. The
combined result of the insistent demands for his bills and the rise in
the world's price of silver compelled the secretary of state in August,
1917, to abandon the is. 4d. standard of the rupee and raise the price
of his bills to is. 5d. As silver soared upwards, the rate had to be
raised in proportion, to avoid coinage at a loss and as a safeguard
against rupees being melted down and smuggled out of the country
for their bullion value.
With the expansion of military operations in the East, larger forces
were recruited and equipped in India and there was an ever-growing
demand for material of all descriptions and foodstuffs for the armies
in the field. The disbursements for war supplies and services were
made in India, but the corresponding payments were made to the
secretary of state in England, whose only means of remittance of the
funds locked up in London was by purchase of silver when obtainable.
A stage was thus reached when the balances in London were very
large, while those in India were subject to constant strain and diminu-
tion. The financial history of the later years of the war is one of con-
tinued struggle on the part of the Government of India to raise the
funds necessary to meet the obligations undertaken, and to stave off
inconvertibility of the note issue which was threatened by the absorp-
tion of rupees and the steady depletion of the silver reserves.
Fortunately the country was prosperous; its industries were
flourishing and expanding; its agricultural and mineral products were
realising high prices. The government was able to raise loans in India
on an unprecedented scale, a new departure being made in the offer
of short-dated treasury bills. In the year 1917-18 the rupee bor-
rowings reached the high figure of £62,000,000, though hitherto the
total rupee debt had amounted only to some £98,000,000. In com-
tion with other belligerent countries, the government was compelled
to finance itself to some extent by the expansion of the note issue.
As a consequence of the rise in prices and stagnation of the rupee
circulation, due partly to the decline in imports checking the normal
down-flow of silver from the agricultural districts, the currency
became inadequate to the demands of trade and efforts were made,
with a considerable degree of success, to encourage the use of notes
as a circulating medium. The paper currency reserves in London
were increased by the purchase of British treasury bills and an issue
of notes in India was made against this holding. The note circulation
rose from some £44,000,000 to £58,000,000 by 31 March, 1917, and
the necessities of the situation compelled a still larger increase in the
following year. Issues were made of notes of small denominations of
Rs. 2 and R. I, which gradually came into use for smaller transactions
as rupees decreased in circulation. In 1917, and even more in 1918,
the moving of the big jute and cotton crops was largely financed by
1 Acts XI and XIX of 1917.
## p. 332 (#370) ############################################
332
THE FINANCES OF INDIA, 1858–1918
notes. The restrictions that government was obliged to impose on
encashment led to notes changing hands at a discount, and full
confidence was not restored until the receipt of large quantities of
silver from America.
In 1914 the paper currency reserve had consisted of £14,000,000
in silver, £21,000,000 in gold and £9,000,000 in securities to back
a corresponding note issue. By March, 1918, the silver portion had
been reduced to £6,000,000, while securities had risen to £40,000,000,
or 60 per cent. of the reserve. The government had been driven to
war-time expedients to maintain the metallic portion of the reserve.
An ordinance issued in June, 1917,' required that all gold imported
into India should be sold to government at the exchange rate. Later
on, the import of silver on private account was prohibited so as not
to interfere with the secretary of state's purchases, while the export
of silver coin and bullion was further declared illegal. In spite of these
and other temporary measures, inconvertibility, which would have
been attended by serious financial and political dangers, seemed
inevitable when the silver balance sunk in June, 1918, to £3,000,000.
At this juncture the situation was relieved by the arrival of the first
consignment of silver from America, The United States Government
had been requested some time previously to release a portion of the
large silver reserve stored in its currency vaults. The negotiations took
time and an agreement was not finally reached until April, 1918, in
which month an act was passed in congress authorising the breaking
up and sale to allied governments of a large quantity of silver dollars,
of which some 200 million fine ounces were allotted to India. To
further relieve the strain on the silver balances, the coinage of gold
was undertaken in India. As part of the gold acquired was not in
sovereigns, but in bullion or foreign currency, a branch of the Royal
Mint was established at Bombay for the coinage of sovereigns. The
issue did not remain long in circulation, but, as an emergency
measure, it served its purpose of relieving the pressure on the silver
balances.
The embarrassments of the Government of India during the war
were those incidental to an economically backward country in which
the banking system was undeveloped and the people wedded by their
customs to a metallic currency. Intrinsically, the financial position
was sound: the revenues were generally adequate to meet expenditure
and large balances had accumulated with the secretary of state in
London. In the first two years of the war, the dislocation of trade
affected customs and railway receipts, and a falling off of revenue
combined with higher expenditure for frontier defence resulted in
small deficits. In 1916–17 the general tariff was raised to 7) per cent.
1 Under the Gold (Import) Act, XXII of 1917.
2 Act No. CXXXIX, 65th Congress, 1918.
3 Bombay Mint Proclamation of 1917.
## p. 333 (#371) ############################################
WAR FINANCE
333
and there were considerable increases in the duties on liquor and
tobacco. In the following year, the import duty on cotton fabrics was
raised to the general tariff level, the excise duty on articles manu-
factured in Indian mills remaining at the previous 31 per cent.
Export duties were also levied on jute and tea. In 1916–17 the income-
tax was graduated and raised to a maximum of 1 anna in the rupee
(about is. 3d. in the pound) on higher incomes. This was followed by
a super-tax which might run up to 3 annas in the rupee on incomes
in excess of Rs. 50,000 per annum. As the demands for Indian products
increased, a trade boom set in, which was reflected in increased
receipts from the more elastic sources of revenue. In 1917–18 receipts
from customs rose to £11,056,000, from excise to f10,161,000 and
from income-tax to £6,308,000. The railway receipts of that year
broke all previous records. The surplus of the year ending March,
1917, amounted to nearly £10,000,000, and that of the following year
exceeded this figure. Meanwhile the gold standard reserve had risen
to £34,000,000 in securities and cash at short notice. Though India
prospered during the war, her financial contribution was no less
generous and whole-hearted than her military, for in 1917 she
proffered a sum of £100,000,000 as a war gift to the home government,
and part of the taxation imposed was to meet the interest
on the loans
raised for the purpose of making this subvention.
The revenues at the end of the financial year 1917–18 amounted
to £113,000,000, a large advance on the figures of the first regular
budget. In spite of this increase, there was no considerable source of
central taxation, excluding the super-tax levied at a late stage of the
war,
which had not already been imposed in 1860, and in many cases
the rate of assessment had been lowered. The salt-tax had been con-
siderably reduced, and customs duties were levied at a lower rate.
Though the income-tax on higher incomes was somewhat heavier,
the minimum taxable limit had been raised and agricultural incomes
excluded from direct taxation. The incidence of the land-revenue per
cultivated acre was lower and, in view of the great rise in the prices
of produce, it imposed a far lighter burden on the occupier of the land.
The increase in total receipts was due mainly to the greater wealth
and prosperity of the country, and the development of the commercial
services which accounted for over 25 per cent. of the gross revenues.
The unproductive debt, which had sunk to the low figure of
£3,000,000 in 1915, had risen under the stress of war to £67,000,000;
but the greater part of the debt, viz. £283,000,000, had been incurred
on works of a productive character. When the period under review
opened, India was almost unequipped with the public utility services
of a modern state, while its finances were liable to be paralysed by the
frequent occurrence of disastrous famines. Without its system of rail-
ways and canals, the commercial and industrial development of the
i Finance and Revenue Accounts.
## p. 334 (#372) ############################################
334
THE FINANCES OF INDIA, 1858-1918
country, reflected in the increase of its revenues, would have been
impossible; and by the protection they ensured, these undertakings
had so far mitigated the effects of the uncertainty of the weather thai
famines in their former severity had become things of the past. The
two outstanding achievements of the era were the financing of these
great public works during a period of great monetary stress and the
stabilising of the currency by the setting up of the gold exchange
standard. The latter not only served its immediate purpose by rescuing
the finances of the state from the depths of depression into which they
had fallen, but, when perfected, permitted of the building up of a
substantial gold reserve without trenching on the ordinary income.
The best evidence of its success was its wide imitation throughout the
East. Commenting on this, Mr J. M. Keynes wrote: “I believe it con-
tains one essential—the use of a cheap local currency artificially
maintained at par with the international currency or standard of
value (whatever it may ultimately turn out to be)-in the ideal
currency of the future”'1
· Keynes, op. cit. chap. ii.
## p. 335 (#373) ############################################
CHAPTER XIX
THE GROWTH OF EDUCATIONAL POLICY
1858–1918
The Mutiny threw back large tracts of Northern India into anarchy.
In important provinces the law courts were closed for months. When
reorganisation began, the finances of the country were in grave
disorder. Large expenditure was required in all directions; and a
succession of famines occurring at intervals of no long duration
impressed very strongly upon the government the urgent need of
railways, roads and a large extension of canals. Profit from such
reproductive works did not come in at once and meantime various
military needs constantly asserted themselves. Sufficient funds for
education were difficult to find; but had they been abundant, it would
still have been a most arduous task to cause a stream of useful know-
ledge to percolate through the innumerable strata of immense popu-
lations rooted in institutions immemorial in their antiquity and unique
in the complex character of their framework. The contrast between
conditions in England and conditions in India had been clearly
pointed out by Sir Charles Wood in 1853. In the former country
there was every possible stimulus to active exertion, both public and
private, public ambition, private rivalry, large capital, general educa-
tion, and every motive which could make an energetic race urge on
progressive improvements and suffer no prejudices to interfere.
"In India", said Wood," you have on the contrary a race of people slow to change,
bound up by religious prejudices and antiquated customs. There are there in fact
many—I had almost said all—the obstacles to rapid progress, whereas in this
country there exist every stimulus and every motive to accelerated advance. ''
Lord Stanley, the first secretary of state for India, lost no time in
turning his attention to the subject of education. In a dispatch dated
7 April, 1859, he summarised all information up to that time received
regarding the results of the policy laid down in 1854 and asked for
more. But his term of office was short; and his letter had hardly
reached India when he was succeeded by Wood, the chief author of
the policy proclaimed in 1854. Stanley's dispatch® had dealt with all
the main points in issue, laying down that as a general rule appoint-
ments in the department of education should be filled by individuals
unconnected with the civil or military service of the government.
Grants-in-aid for Anglo-vernacular schools had evidently been much
1 Napier, Life of Lord Napier of Magdala, pp. 260–2.
• Hansard, 3 June, 1853, CXXVII, 101.
• Richey, Selections, p. 426; Satthianadhan, History of Education in Madras, Appendix
D, p. xliii.
## p. 336 (#374) ############################################
336
THE GROWTH OF EDUCATIONAL PCLICY
appreciated, but it was generally impossible to procure local support
for the establishment of any new elementary (vernacular) schools.
Educational officers should apparently be relieved of the invidious
task of soliciting contributions for the support of such institutions from
classes whose means were generally extremely limited and whose
appreciation of the advantages of education did not dispose them to
make sacrifices for obtaining it. The means of elementary education
should be provided by the direct instrumentality of the officers of
government according to one or other of the plans in operation in
certain provinces. Teaching in state schools must be entirely secular.
branches of administration, such as the postal services and railways,
should be treated as wholly imperial and their receipts taken by the
central government. That government, being responsible for the
heaviest charges on the state revenues, retained in its hands the income
from certain main heads, such as salt, opium and customs. The
revenues from other heads, viz. land-revenue, excise, stamps, forests
and registration, were shared in a proportion determined according
to the requirements of the several provinces. From the income de-
rived from their share, the latter met the expenses of the collection
of the revenues and the greater part of the expenses of their civil
administration. The financial arrangements between the central and
provincial governments were for some time subject to periodical
revision, when they were amended according to the state of the public
revenues; but, ultimately, more permanent shares in the divided
revenues were assigned to the different provinces. As originally
framed the system had nothing of a federal character about it. The
object in view was mainly to effect an administrative improvement
by relieving the central office of an impossible burden of work and
freeing the provincial governments from unnecessary interference.
The control over, finance was not surrendered, since the central
government was always at liberty to view the terms of the settlement.
Roughly, the provincial expenditure amounted to one-third of the
imperial.
Previously to 1873 currency questions had played little part in
Indian finance: from that date they dominated it. Though an attempt
had been made in 1868 to introduce the sovereign into India, it had
not proved successful and the rupee remained the basis of the currency.
Silver being received without limit when tendered for coinage at the
Indian mints, the gold value of the rupee depended on the gold price
of silver bullion. This value had continued up to 1872-3 fairly con-
stant at about 2s. , and fluctuations in exchange had been compara-
tively small. About this time, however, largely in consequence of
the demonetisation of silver, first by Germany and subsequently by
the Latin Union, the rupee exchange began to drop. Its downward
course was for some time gradual, and temporary improvements
favoured a policy of inaction. By 1885 it had fallen to an average rate
of is. 7d. From this point the decline was more rapid and by 1890
i Strachey, op. cit. chap. ix; Hunter, Life of the Earl of Mayo, vol. 11, chap. vi.
: Decentralisation Commission Report, Parl. Papers, 1907.
; Barbour, The Standard of Value, chap. xii, 1893.
## p. 321 (#359) ############################################
THE FALL IN EXCHANGE
321
it had fallen to is. 4d. For a brief period in 1891 the decision of the
United States to purchase annually large quantities of silver brought
about a sharp rise to is. 6d. , only to be followed by a reaction until,
in 1893, the average rate was in the region of is. 2d. 1 This depre-
ciation disastrously affected India's finances by increasing the cost of
making remittances to liquidate her gold obligations in England.
These consisted mainly of interest on the sterling debt, guaranteed
interest on the railways or, after their purchase, of the annuity
charges, payment fo railway stores, army charges, and furlough and
pension allowances of civil and military servants. They were defrayed
by the secretary of state's selling for sterling rupee drafts on the Indian
treasuries. But so long as the mints remained open to the free coinage
of silver, the sterling amounts obtainable at the secretary of state's
sales could not ordinarily exceed the cost of procuring silver and
remitting it to India for coinage. Each fall in the gold value of the
rupee meant proportionately increased cost in defraying the charges
to be met in England. In 1892-3, when the exchange had fallen to
IS. 2d. , the government had to pay 87,300,000 more rupees to meet its
gold obligations, amounting to £16,500,000, than would have been
required had the exchange stood at the same rate as in 1873.
It will now be convenient to outline the main events between 1873
and 1893 which moulded the course of Indian finance. During the
early part of this period India was visited by a cycle of bad seasons
which resulted in partial or total failure of the crops over wide areas
of country. Two famines, onc in Bihar and the other in Southern
India, called for expenditure on an unprecedented scale. These and
other minor disasters cost the government in relief operations, or
remission of revenue, over £15,000,000. A commission appointed in
1877 to enquire into the subject of famine relief recommended that
a sum of £1,500,000 should be set aside in prosperous years to meet
the cost of these recurring calamities, without further increase of debt.
In years free from famine, the surplus was to be devoted, either to the
paying off of existing debt, or the avoidance of debt by constructing
works, such as railways, the cost of which must otherwise have been
met by borrowing. As the condition of the finances did not admit of
the sum required being set aside from revenue, additional funds were
provided by a fresh cess on land, the imposition of a licence tax on
the trading classes, and by reducing provincial assignments. Wars,
threats of wars, and falls in exchange caused these arrangements to
break down on several occasions, but, as soon as pressure was relieved,
the grant was resumed. The operations under the famine insurance
scheme enabled the Government of India, in addition to meeting
the cost of famine relief, to spend on development projects roughly
£5,000,000 from the inception of the scheme up to 1893. During these
| Report of Indian Currency Committee (Parl. Papers, 1893, Accounts, c. 7060).
Report of Indian Famine Commission, 1878.
CHIVI
21
## p. 322 (#360) ############################################
322
THE FINANCES OF INDIA, 1858-1918
years the government was in constant financial difficulties. The
Afghan war which broke out in 1878 proved very costly. Hardly had
the situation improved, when the Government of India was called
upon, in deference to the free-trade views obtaining in England, to
abolish the duty on all imported cotton goods, the import tax on
coarser goods, which formed the main product of the Indian mills,
having been removed in 1879. With the abolition of the duty on these
goods, which provided the bulk of the customs revenue, it was im-
possible to justify the retention of the rest of the import tariff levied
on a number of miscellaneous articles, many of which yielded an
insignificant revenue. It was accordingly decided to abolish all import
duties, except those levied on articles, such as liquor and salt, which
were subject to internal taxation.
From 1885 the government was again confronted with heavy
military expenditure as a result of the threatened advance on India
by Russia, and the operations which terminated in the annexation of
Upper Burma. An increase in the strength of the army and defensive
works on the frontier entailed a steady growth in expenditure between
1886 and 1893. With the limitations imposed on the customs tariff,
it was necessary to fall back on other heads of taxation which promised
to yield the additional income required. In 1886 the licence tax was
converted to an income-tax leviable on all non-agricultural incomes
above Rs. 500, and in 1887 the salt-tax was raised from Rs. 2 to
Rs. 2} per maund. With the aid of the revenue thus obtained
and by the exercise of rigid economy, a deficit was avoided, but the
income-tax in its new form had not been imposed without a good deal
of opposition, while the enhancement of the salt-tax was open to the
objection that it fell most heavily on the poorest class of the popula-
tion. The fiscal policy at the time was affording a handle of attack to
the newly formed congress party. Though these attacks contained
much misrepresentation, they indicate the growing irritation at the
financial straits to which the government had been reduced, mainly
owing to the neglect to deal with the currency problem. When a fresh
crisis in exchange took place in 1892-3, it became obvious that the
Indian finances could not support the strain of the enormous losses
involved and that a reform of the currency system could no longer
be avoided.
The first proposals to this effect were made in 1878, in which the
Government of India pressed for the establishment of a gold standard
and control of silver coinage: the scheme involved acceptance of gold
in payment of government demands but not its immediate recognition
as legal tender. Though it differed in many of its features from the
system ultimately adopted, the main principle was the same, and
some reform on these lines could undoubtedly have been carried out
more easily at that time than at a later date when exchange had fallen
further and the country was flooded with silver coin. When its pro-
a
1
1
1
## p. 323 (#361) ############################################
CURRENCY REFORM
323
posals were rejected by the secretary of state, the Government of India
turned its attention to international bimetallism as a solution of its
currency difficulties. Its hopes were kept alive by international
monetary conferences, at which the question came under discussion,
and the pronounced desire of other governments to rehabilitate silver.
But the condition into which the finances of India had fallen, and
international currency events from 1890 onward, finally forced the
hands of the government and the secretary of state. The world pro-
duction of silver showed a very decided increase and, in spite of pur-
chases on a large scale by the United States Government, imports into
India were rising. India's trade was becoming disorganised by the
constant fluctuations of silver, and the banking and trading classes
brought pressure to bear on the Government of India to close the
mint: and establish a gold standard. There was also a grave appre-
hension that the United States Government might discontinue its
purchases of silver, in which case it was impossible to foresee to what
lower levels the gold price of silver might fall
. Proposals were again
submitted for the adoption of a gold standard which were referred
by the secretary of state to a committee of which Lord Herschell
was chairman. Its recommendations were carried into effect in
1893
In accordance with these recommendations the mints were closed
to the free coinage of silver, the government reserving to itself the right
of coining silver as required. It was notified at the same time that
sovereigns and half-sovereigns would be received by government at
the equivalent of Rs. 15 and Rs. 7} respectively, and that gold coin
and bullion would be held in the paper currency reserve as a backing
against notes. No action was taken with regard to making gold coin
legal tender. It was believed that, with the closing of the mints to free
coinage, a scarcity value would be placed on the rupee and, as it was
no longer possible to settle the excess of exports over imports by
sending silver to India and coining it into rupees, settlement would
have to be made mainly through the secretary of state's council
drafts. If the rate of these sales could be kept at about is. 4d. the
rupee, the exchange value of the rupee might be forced to this level.
,
With the gradual accumulation of gold coin, it was hoped to build up
a reserve which would make the gold standard effective. As soon as
the mints were closed exchange rose to the desired level of is. 4d. , but
soon fell to lower rates. Several factors militated against the imme-
diate success of the scheme. The heavy coinage before and after the
closing of the mints—the government having taken over the silver in
transit and with the banks—had led to a redundancy of silver coin
over currency requirements. The closing of the mints in India and
1 Cf. Barbour, The theory of bimetallism and effects of partial demonetization of silver on
England and India.
• Report of Indian Currency Committee, 1893 ut supra.
Act VIII of 1893.
• Cf. Barbour, The Standard of Value, chap. xvii.
21-2
## p. 324 (#362) ############################################
324
THE FINANCES OF INDIA, 1858–1918
the repeal of the Sherman Act in the United States caused a heavy
drop in the gold price of silver, and bullion poured into the country
to be used for commercial purposes, thereby decreasing the demand
for the secretary of state's bills. The rate of exchange continued to
decline with the diminishing value of silver, the average for 1894-5
being only slightly over is. id. From this point it rose steadily, being
materially influenced by the expansion of th, internal and external
trade of the country. These favourable trade conditions tended to
absorb the superfluous currency, thus accelerating the effect of the
closure of the mints. The progress was, however, so slow that the
government seriously considered the possibility of melting down large
numbers of rupees and even of reducing the standard to be aimed at
to is. 3d. In 1897 there was definite improvement, the average rate
being nearly is. 3d. , and by 1898–9 the goal had been reached and
the exchange value of the rupee forced up to is. 4d. , though its
bullion alue had fallen as low as rod. At this rate it remained with
minor fluctuations, until circumstances arising out of the war com-
pletely upset pre-existing standards.
Little confidence was felt at the time that the rate would be main-
tained. The feeling of uncertainty was reflected in representations by
the various chambers of commerce regarding the unstable condition
of the currency which was disturbing the trade of the country and
driving away capital. Fresh proposals by the Government of India for
stabilising exchange led the secretary of state to appoint a committee
under the presidency of Sir Henry Fowler to review the situation. 1
This committee approved of the closing of the mints as the only
practical method of securing a stable exchange between India and
the countries with which she principally traded. It recommended the
establishment of a gold currency as well as of a gold standard, to
secure which it proposed that the sovereign should be legal tender in
India and that the Indian mints should be open to unrestricted coinage
of gold. The committee was impressed by the view that it would not
be feasible to maintain the gold standard without an actual gold
currency, and, for this reason, it urged the encouragement of the use
of gold in currency. Th conviction led it to reject schemes, strongly
supported at the time, of establishing a gold standard without a gold
currency in India. The advocates of these views held that a gold
currency was not wanted in India and that exchange with other coun-
tries could be adequately maintained with a sufficient reserve of gold. ?
The most fruitful of the suggestions of the committee was that any
profit on the coinage of rupees should not be treated as revenue, but
credited to a special reserve to be used for supporting exchange. Its
adoption led to the establishment of the special reserve known as the
Gold Standard Reserve.
>
2
1 Report of Indian Currency Committee (Parl. Papers, 1899, Accounts, c. 9390).
* Lindsay, Ricardo's Exchange Remedy.
## p. 325 (#363) ############################################
A GOLD CURRENCY
325
The Government of India, acting on these recommendations, passed
an act making the sovereign and half-sovereign legal tender at Rs. 15
and Rs. 7} respectively. The proposal for coining gold in India fell
through, owing to difficulties with the English treasury. The efforts to
put gold into circulation were the reverse of successful. The currency
was not popular, and was continually finding its way back to the
treasuries. The result was that the stock of gold in the Paper Currency
Reserve, where it was held as a backing to notes issued, rose steadily
and the silver reserve came to be inconveniently low. In March,
1900, the stock of silver had fallen to about £3,500,000 and gold had
increased in proportion. So long as the public was unwilling to take
gold, this small reserve of rupees had to maintain the convertibility
of some £18,000,000 of notes. To relieve the strain fresh efforts were
made to force gold into circulation, under which the sovereign went
to a discount. The coinage of silver was then taken up in earnest, the
profits being devoted to building up a special gold reserve. These
were transferred to London and, for the most part, invested in govern-
ment securities,
During the years immediately following 1893 the only events of
financial importance were those connected with the improvement of
the currency. Until there was a definite rise in the rate of exchange,
the main concern of the administration was to balance the budget and
curtail expenditure. In 1894 the general import duty at the rate of
5 per cent. ad valorem was reimposed. The duty extended to cotton
goods, but, to deprive it of its protective character, a countervailing
excise duty was imposed on fabrics manufactured at the power mills
in India. a' Aided by this new revenue and the steady growth of the
ordinary revenues, the government was enabled to tide over the period
of transition to a stable rupee. In 1896–7 Northern India suffered
from a famine of unusual severity which cost over £4,000,000 in direct
relief. A frontier war in the following year, involving military opera-
tions on an extensive scale, caused further embarrassment and both
these financial years showed considerable deficits. These, however,
may be described as the last of the lean years; from this time onward,
owing to the steadiness of exchange, growth of revenues, and improved
receipts from public works, the aspect of Indian finances underwent
an entire change and, with flowing balances, the government was not
only able to reduce taxation but also to provide more adequately for
the public services, the development of which had been retarded by
the enforced economy of the preceding years.
One of the main factors in the improvement of the finances was
that the railways and irrigation works became, about the beginning
of the present century, a source of direct profit to the public revenues. 3
a
1 Indian Cuinage and Paper Currency Act, XXII of 1899.
Cf. Roberts, History of British India, pt 11, chap. xii.
• Robertson, Report on the Administration and Working of Indian Railways.
## p. 326 (#364) ############################################
326
THE FINANCES OF INDIA, 1858–1918
In arriving at these results all interest charges, not only on open works
but also on those under construction, were charged against revenue,
as well as annuities for the redemption of commuted capital and
annual outgoings of every description. Many of the older undertakings
had been returning handsome dividends on the capital invested for
a number of years past, but the profits did not counterbalance the loss
on newer constructions. In 1900 the revenue account drawn up on
the above method showed a small gain, which by 1901–2 had risen
to three-quarters of a million and in 1904-5 to two millions. The
profits, as in all operations of a commercial character, varied with the
season, and in 1907-8 a loss again was incurred, largely owing to
increased working expenses. In the following year there was a re-
covery and from that time the net receipts became an important item
in the national revenue.
The greatly improved condition of its finances after 1901–2 enabled
the Government of India to allot funds on a largescale to the provincial
governments for the purposes of education, sanitation and agricultural
development, as well as to reduce taxation. The salt-tax was reduced
by successive stages from Rs. 2} per maund to Ri. Incomes
under Rs. 1000 per annum were exempted from income-tax, and, as
a relief to the agricultural population, certain cesses on the land were
abolished. When the periodical settlements with the provinces were
revised in 1904-5, definite shares in the incomes realised within the
provinces were permanently surrendered. This was the first step
towards the grant of fiscal independence to the provincial legislative
councils, some measure of which was essential if any genuine system
of local self-government were to be set up. But in 1907–8 there was
a turn in the tide. The monsoon was poor and the sources of income
which varied with the prosperity of season declined: exports fell off
and an exchange crisis supervened. The Government of India was
further faced with the problem of losing the greater part of its opium
revenue under the terms of the Indo-Chinese agreement of 1907. 1
As three-quarters of the opium revenue was derived from the China
trade, this meant that by 191° a sum of about £3,000,000 would have
to be made good from other sources. To provide for future losses in
revenue, the customs-duties on a number of articles, such as tobacco,
beer, spirits and petroleum, were raised and a higher ad valorem duty
imposed on silver bullion. The seasons following, up to the outbreak
of the war, were prosperous. Revenues from almost all sources showed
increases, and speculative purchases of the exportable opium greatly
reduced the losses anticipated in the receipts from sale of the drug.
In the financial year ending March, 1911, there was a budget surplus
of nearly £6,000,000, and in 1913 an even larger surplus of £7,600,000.
These large balances excited some criticism of under-estimation of the
revenue; but they left India in a strong financial position when the
Strachey, India, note to chap. x.
1
## p. 327 (#365) ############################################
REVENUES AND DEBT
327
war broke out, and enabled the government to meet successfully some
of the difficulties which arose during its early stages.
Figures of revenue have hitherto been sparingly quoted. The rupee
has varied so greatly in value that it is impossible to adopt any fixed
standard for conversion into sterling. Apart from this, owing to
alterations in the system of keeping the public accounts, no compari-
sons of any accuracy can be instituted between the figures of different
periods. But by 1913–14 the rupee had become comparatively stable,
and the figures of that year may usefully be quoted to illustrate
generally the increase in revenues since 1860 and the main sources
from which they were derived.
. . .
. . .
. . .
5,318
Revenues of India, 1913-14 (in thousands of pounds sterling)
£
Land-revenue
21,391
Opium
1,624
Salt . . .
3,445
Stamps
Excise
8,894
Customs
7,558
Income-tax
1,893
Forests
2,220
Interest
1,352
Post Office and Telegraphs (net receipts) 3,598
Railways (less working expenses)
17,625
Irrigation
4,713
Military receipts
1,369
Other heads. . .
4. 307
. . .
. . .
. . .
Total . . .
£85,307
. . .
The gross revenue of the country had nearly doubled, but, though
the sources remained much the same, there had been a material
change in their relative importance. The contribution of land-revenue
to the total had fallen to 24 per cent. , while the commercial services
were yielding a steadily increasing surplus. The opium revenue had
become unimportant. Though excise and customs had increased in
productiveness, the proportion of economic to tax revenues was still
high. But the pressing demands of the state in war time could only
be met by resort to taxation, and, consequently, in the following years
there was a great expansion in the receipts from excise, customs and,
above all, income-tax.
The total debt after the Mutiny amounted to some £98,000,000,
the whole of which had been borrowed for unproductive purposes and
the interest was a dead weight on the revenues. There were additions
to the debt in 1877-8, as a consequence of the famine of that year and
the military operations in Afghanistan which followed the famine.
Some further debt was incurred in 1896 to 1898, again to meet deficits
caused by famine and war, but, with these exceptions, the great bulk
of the rupee and sterling debt was incurred in connection with the
## p. 328 (#366) ############################################
328
THE FINANCES OF INDIA, 1858–1918
construction of railways and other public works. By a system in-
stituted in 1880-1, an amount of the ordinary debt, equivalent to the
capital expenditure on public works supplied from ordinary revenues,
or from the famine insurance grant, was transferred to the public
works portion of the debt. As the state of finances improved after
1901-2, larger allotments were made to public works, resulting in a
corresponding reduction of the ordinary debt. In 1881–2, reckoning
the rupee at is. 4d. for purposes of comparison, the ordinary debt
stood at £74,000,000 and the public works debt at £48,000,000. By
1898–9, the figures were £63,000,000 and £169,000,000 respectively.
There were subsequent changes in the method of distributing the debt
between the productive and unproductive heads, but the net result
of the transactions up to the outbreak of the war was that by far the
greater portion of the debt stood invested in public works which more
than repaid the interest due on the capital outlay, while that portion
of the debt which imposed an actual burden on the country had been
reduced to very small limits. The position was summed up by the
finance minister as follows:
Out of a total debt equivalent to £274,000,000 outstanding at the end of March,
1914, only about £13,000,000 represented ordinary, or unproductive debt. Our
total annual interest charges amounted to some £9,250,000. Railways and irriga-
tion works in the same year yielded us a return of £15,250,000. Thus we had still
left some £6,000,000 of clear revenue from our great undertakings after meeting
interest charges on our entire public debt. "
During the years between 1900 and the opening of the war the
currency system was undergoing further developments, and assuming
a shape somewhat different from that contemplated at the time of the
closing of mints. When that measure came into effect, India's trade
balance could be defrayed, either through the secretary of state's bills,
or remittance of gold to be exchanged into rupees, the only currency
medium which circulated freely throughout the country. The govern-
ment being under an obligation to give rupees or notes in exchange
for gold, a succession of favourable trade balances led to an incon-
venient accumulation of gold in the reserve treasuries. By 1904 it
became apparent that the secretary of state's drawings could not be
limited to his own requirements and must be expanded to meet trade
demands, and council bills were accordingly offered for sale at a
fixed rate without limit. These drafts were met in India in rupees or
notes from the cash balances or reserves. As the latter became de-
pleted, the outgoings were replaced by fresh coinage of rupees. Under
this system the increase of coinage became more or less automatically
regulated, for, so far as practicable, it was undertaken only when trade
demands called for it and to the extent necessary to make good the
depletion of silver in the currency reserves. The profits on coinage,
which, owing to the low bullion value of silver, were considerable,
1 The Financial Statement and Budget, 1915-16.
## p. 329 (#367) ############################################
THE GOLD EXCHANGE STANDARD
329
were remitted to London to strengthen the gold standard reserve. To
maintain exchange there were thus cash balances in London, gold
reserves in the paper currency reserve, held partly in London but
mainly in India, and, finally, the gold securities in the special
reserve.
These resources were fully called upon in the exchange crisis of
1907. The harvest of that year was a partial failure and the volume
of exports declined; a financial crisis in America had resulted in a
stringency in the London money market. Exchange began to drop
ominously and the situation showed no improvement when the sale
of council bills was altogether suspended. The Government of India
at first showed some reluctance to part with its gold, but, as ex-
change further weakened, the expedient was adopted of selling in
India sterling bills on the secretary of state in London at a fixed rate.
The secretary of state met these bills by drawing on the branch of the
paper currency reserve in London, and then on the gold standard
reserve, and by temporary loans. This method of maintaining a stable
exchange by the issue of what is known as “reverse councils” has since
become an integral part of the currency system. With the return of
normal seasons, the gold reserves in England were replenished by the
sale of council drafts against the rupees which had accumulated in the
Indian treasuries during the period of weak exchange. The experience
of the year 1907-8, which had drained their gold assets to the extent
of some £18,000,000, had impressed on those responsible for the
finances of India the necessity of large, fluid reserves in London to
meet similar emergencies. Heavy council drawings and the resump-
tion of coinage of rupees on a large scale enabled them to carry this
policy into effect. But the working of the gold exchange standard was
imperfectly understood both in England and India, and the magnitude
of the balances, their utilisation and location became subjects of
criticism from somewhat different points of view in both countries.
A royal commission was appointed to enquire into these matters and
generally into the working of the currency system. The commission
reported in 1914, and in the main found in favour of the system which
had been built up, since it had successfully and at a comparatively
cheap cost established what was of essential importance to India,
viz. a stable exchange. It arrived at the definite conclusion that a
gold standard could be worked without a gold currency and that it
was not advantageous to encourage the use of gold in active circula-
tion. In view of the necessity of strong gold reserves to maintain
exchange, it did not propose that any present limit should be
placed on the gold standard reserve, the location of which it agreed
should be in London. The principal modifications suggested were in
the direction of making the paper currency system more elastic and
Keynes, Indian Currency and Finance, chap. vi; Findlay-Shirras, Indian Finance and
Banking, chap. vi.
## p. 330 (#368) ############################################
330
THE FINANCES OF INDIA, 1858–1918
of 1915
encouraging the use of notes as an alternative to the more costly issue
of silver coin. 1
Though no moratorium was found necessary in India on the out-
break of the war, there was a general feeling of insecurity which was
reflected in a run on the savings bank and an abnormal demand for
the conversion of currency notes into rupees. To restore confidence,
the government offered special facilities for the withdrawal of de-
posits and the encashment of notes. There was a shrinkage of some
£11,000,000 in the gross note circulation, but, as the fears of invasion
proved groundless, the drain on government resources diminished
and by 1916 normal circulation was resumed. It was, however,
found impossible to continue the issue of gold in exchange for rupees
and notes, a sum of nearly £2,000,000 having been paid out in the
first few days of August, 1914. The weakness of exchange which
developed was met by the now accepted policy of offering reverse
council bills for sale and by an undertaking by government to support
exchange to the extent of its resources. The sale of some £8,000,000
reverse council bills sufficed to steady exchange and by the beginning
the rate was approaching its former level. The balances which
had accumulated both in India and in London, where the assets of
the gold standard reserve exceeded £25,000,000, were strong enough
to meet the strain, and it was no small tribute to the soundness of the
currency system which had been established that it successfully stood
the test of the initial difficulties of the war.
The subsequent problems arose from the larger share India was
called upon to take in financing the outlay on the war, and the in-
creasing demand for her products in allied countries at a time when
the customary methods of paying for her exports had become com-
pletely dislocated. In the five years preceding the war, the balance
of exports over imports, averaging some £50,000,000 per annum, had
been met, partly by the secretary of state's council drafts and partly
by the import of bullion and gold coin. The strain of the war on her
finances made it impossible for England to part with her gold, while
the production of silver, as the war proceeded, fell off and its price
rose materially. The necessary consequence was to throw in an in-
creasing degree on the secretary of state's council drafts the burden
of defraying the trade balance, with the resultant depletion, in the
absence of sufficient supplies of silver for fresh coinage, of the silver
reserves. As it became impracticable to meet all the trade demands,
the council drafts had to be limited in amount to the rupee resources
of the Government of India, in order to preserve sufficient rupees to
maintain convertibility of the note issue. Coinage was continued so
far as silver was procurable, but its price rose to a point at which the
Report of the Royal Commission on Indian Finance and Currency (Parl. Papers, 1914,
Returns, etc. , c. 7236-7).
? Findlay-Shirras, Indian Finance and Banking, chap. vii.
## p. 331 (#369) ############################################
CURRENCY AND THE WAR
331
bullion value of the rupee appreciated beyond its face value. The
combined result of the insistent demands for his bills and the rise in
the world's price of silver compelled the secretary of state in August,
1917, to abandon the is. 4d. standard of the rupee and raise the price
of his bills to is. 5d. As silver soared upwards, the rate had to be
raised in proportion, to avoid coinage at a loss and as a safeguard
against rupees being melted down and smuggled out of the country
for their bullion value.
With the expansion of military operations in the East, larger forces
were recruited and equipped in India and there was an ever-growing
demand for material of all descriptions and foodstuffs for the armies
in the field. The disbursements for war supplies and services were
made in India, but the corresponding payments were made to the
secretary of state in England, whose only means of remittance of the
funds locked up in London was by purchase of silver when obtainable.
A stage was thus reached when the balances in London were very
large, while those in India were subject to constant strain and diminu-
tion. The financial history of the later years of the war is one of con-
tinued struggle on the part of the Government of India to raise the
funds necessary to meet the obligations undertaken, and to stave off
inconvertibility of the note issue which was threatened by the absorp-
tion of rupees and the steady depletion of the silver reserves.
Fortunately the country was prosperous; its industries were
flourishing and expanding; its agricultural and mineral products were
realising high prices. The government was able to raise loans in India
on an unprecedented scale, a new departure being made in the offer
of short-dated treasury bills. In the year 1917-18 the rupee bor-
rowings reached the high figure of £62,000,000, though hitherto the
total rupee debt had amounted only to some £98,000,000. In com-
tion with other belligerent countries, the government was compelled
to finance itself to some extent by the expansion of the note issue.
As a consequence of the rise in prices and stagnation of the rupee
circulation, due partly to the decline in imports checking the normal
down-flow of silver from the agricultural districts, the currency
became inadequate to the demands of trade and efforts were made,
with a considerable degree of success, to encourage the use of notes
as a circulating medium. The paper currency reserves in London
were increased by the purchase of British treasury bills and an issue
of notes in India was made against this holding. The note circulation
rose from some £44,000,000 to £58,000,000 by 31 March, 1917, and
the necessities of the situation compelled a still larger increase in the
following year. Issues were made of notes of small denominations of
Rs. 2 and R. I, which gradually came into use for smaller transactions
as rupees decreased in circulation. In 1917, and even more in 1918,
the moving of the big jute and cotton crops was largely financed by
1 Acts XI and XIX of 1917.
## p. 332 (#370) ############################################
332
THE FINANCES OF INDIA, 1858–1918
notes. The restrictions that government was obliged to impose on
encashment led to notes changing hands at a discount, and full
confidence was not restored until the receipt of large quantities of
silver from America.
In 1914 the paper currency reserve had consisted of £14,000,000
in silver, £21,000,000 in gold and £9,000,000 in securities to back
a corresponding note issue. By March, 1918, the silver portion had
been reduced to £6,000,000, while securities had risen to £40,000,000,
or 60 per cent. of the reserve. The government had been driven to
war-time expedients to maintain the metallic portion of the reserve.
An ordinance issued in June, 1917,' required that all gold imported
into India should be sold to government at the exchange rate. Later
on, the import of silver on private account was prohibited so as not
to interfere with the secretary of state's purchases, while the export
of silver coin and bullion was further declared illegal. In spite of these
and other temporary measures, inconvertibility, which would have
been attended by serious financial and political dangers, seemed
inevitable when the silver balance sunk in June, 1918, to £3,000,000.
At this juncture the situation was relieved by the arrival of the first
consignment of silver from America, The United States Government
had been requested some time previously to release a portion of the
large silver reserve stored in its currency vaults. The negotiations took
time and an agreement was not finally reached until April, 1918, in
which month an act was passed in congress authorising the breaking
up and sale to allied governments of a large quantity of silver dollars,
of which some 200 million fine ounces were allotted to India. To
further relieve the strain on the silver balances, the coinage of gold
was undertaken in India. As part of the gold acquired was not in
sovereigns, but in bullion or foreign currency, a branch of the Royal
Mint was established at Bombay for the coinage of sovereigns. The
issue did not remain long in circulation, but, as an emergency
measure, it served its purpose of relieving the pressure on the silver
balances.
The embarrassments of the Government of India during the war
were those incidental to an economically backward country in which
the banking system was undeveloped and the people wedded by their
customs to a metallic currency. Intrinsically, the financial position
was sound: the revenues were generally adequate to meet expenditure
and large balances had accumulated with the secretary of state in
London. In the first two years of the war, the dislocation of trade
affected customs and railway receipts, and a falling off of revenue
combined with higher expenditure for frontier defence resulted in
small deficits. In 1916–17 the general tariff was raised to 7) per cent.
1 Under the Gold (Import) Act, XXII of 1917.
2 Act No. CXXXIX, 65th Congress, 1918.
3 Bombay Mint Proclamation of 1917.
## p. 333 (#371) ############################################
WAR FINANCE
333
and there were considerable increases in the duties on liquor and
tobacco. In the following year, the import duty on cotton fabrics was
raised to the general tariff level, the excise duty on articles manu-
factured in Indian mills remaining at the previous 31 per cent.
Export duties were also levied on jute and tea. In 1916–17 the income-
tax was graduated and raised to a maximum of 1 anna in the rupee
(about is. 3d. in the pound) on higher incomes. This was followed by
a super-tax which might run up to 3 annas in the rupee on incomes
in excess of Rs. 50,000 per annum. As the demands for Indian products
increased, a trade boom set in, which was reflected in increased
receipts from the more elastic sources of revenue. In 1917–18 receipts
from customs rose to £11,056,000, from excise to f10,161,000 and
from income-tax to £6,308,000. The railway receipts of that year
broke all previous records. The surplus of the year ending March,
1917, amounted to nearly £10,000,000, and that of the following year
exceeded this figure. Meanwhile the gold standard reserve had risen
to £34,000,000 in securities and cash at short notice. Though India
prospered during the war, her financial contribution was no less
generous and whole-hearted than her military, for in 1917 she
proffered a sum of £100,000,000 as a war gift to the home government,
and part of the taxation imposed was to meet the interest
on the loans
raised for the purpose of making this subvention.
The revenues at the end of the financial year 1917–18 amounted
to £113,000,000, a large advance on the figures of the first regular
budget. In spite of this increase, there was no considerable source of
central taxation, excluding the super-tax levied at a late stage of the
war,
which had not already been imposed in 1860, and in many cases
the rate of assessment had been lowered. The salt-tax had been con-
siderably reduced, and customs duties were levied at a lower rate.
Though the income-tax on higher incomes was somewhat heavier,
the minimum taxable limit had been raised and agricultural incomes
excluded from direct taxation. The incidence of the land-revenue per
cultivated acre was lower and, in view of the great rise in the prices
of produce, it imposed a far lighter burden on the occupier of the land.
The increase in total receipts was due mainly to the greater wealth
and prosperity of the country, and the development of the commercial
services which accounted for over 25 per cent. of the gross revenues.
The unproductive debt, which had sunk to the low figure of
£3,000,000 in 1915, had risen under the stress of war to £67,000,000;
but the greater part of the debt, viz. £283,000,000, had been incurred
on works of a productive character. When the period under review
opened, India was almost unequipped with the public utility services
of a modern state, while its finances were liable to be paralysed by the
frequent occurrence of disastrous famines. Without its system of rail-
ways and canals, the commercial and industrial development of the
i Finance and Revenue Accounts.
## p. 334 (#372) ############################################
334
THE FINANCES OF INDIA, 1858-1918
country, reflected in the increase of its revenues, would have been
impossible; and by the protection they ensured, these undertakings
had so far mitigated the effects of the uncertainty of the weather thai
famines in their former severity had become things of the past. The
two outstanding achievements of the era were the financing of these
great public works during a period of great monetary stress and the
stabilising of the currency by the setting up of the gold exchange
standard. The latter not only served its immediate purpose by rescuing
the finances of the state from the depths of depression into which they
had fallen, but, when perfected, permitted of the building up of a
substantial gold reserve without trenching on the ordinary income.
The best evidence of its success was its wide imitation throughout the
East. Commenting on this, Mr J. M. Keynes wrote: “I believe it con-
tains one essential—the use of a cheap local currency artificially
maintained at par with the international currency or standard of
value (whatever it may ultimately turn out to be)-in the ideal
currency of the future”'1
· Keynes, op. cit. chap. ii.
## p. 335 (#373) ############################################
CHAPTER XIX
THE GROWTH OF EDUCATIONAL POLICY
1858–1918
The Mutiny threw back large tracts of Northern India into anarchy.
In important provinces the law courts were closed for months. When
reorganisation began, the finances of the country were in grave
disorder. Large expenditure was required in all directions; and a
succession of famines occurring at intervals of no long duration
impressed very strongly upon the government the urgent need of
railways, roads and a large extension of canals. Profit from such
reproductive works did not come in at once and meantime various
military needs constantly asserted themselves. Sufficient funds for
education were difficult to find; but had they been abundant, it would
still have been a most arduous task to cause a stream of useful know-
ledge to percolate through the innumerable strata of immense popu-
lations rooted in institutions immemorial in their antiquity and unique
in the complex character of their framework. The contrast between
conditions in England and conditions in India had been clearly
pointed out by Sir Charles Wood in 1853. In the former country
there was every possible stimulus to active exertion, both public and
private, public ambition, private rivalry, large capital, general educa-
tion, and every motive which could make an energetic race urge on
progressive improvements and suffer no prejudices to interfere.
"In India", said Wood," you have on the contrary a race of people slow to change,
bound up by religious prejudices and antiquated customs. There are there in fact
many—I had almost said all—the obstacles to rapid progress, whereas in this
country there exist every stimulus and every motive to accelerated advance. ''
Lord Stanley, the first secretary of state for India, lost no time in
turning his attention to the subject of education. In a dispatch dated
7 April, 1859, he summarised all information up to that time received
regarding the results of the policy laid down in 1854 and asked for
more. But his term of office was short; and his letter had hardly
reached India when he was succeeded by Wood, the chief author of
the policy proclaimed in 1854. Stanley's dispatch® had dealt with all
the main points in issue, laying down that as a general rule appoint-
ments in the department of education should be filled by individuals
unconnected with the civil or military service of the government.
Grants-in-aid for Anglo-vernacular schools had evidently been much
1 Napier, Life of Lord Napier of Magdala, pp. 260–2.
• Hansard, 3 June, 1853, CXXVII, 101.
• Richey, Selections, p. 426; Satthianadhan, History of Education in Madras, Appendix
D, p. xliii.
## p. 336 (#374) ############################################
336
THE GROWTH OF EDUCATIONAL PCLICY
appreciated, but it was generally impossible to procure local support
for the establishment of any new elementary (vernacular) schools.
Educational officers should apparently be relieved of the invidious
task of soliciting contributions for the support of such institutions from
classes whose means were generally extremely limited and whose
appreciation of the advantages of education did not dispose them to
make sacrifices for obtaining it. The means of elementary education
should be provided by the direct instrumentality of the officers of
government according to one or other of the plans in operation in
certain provinces. Teaching in state schools must be entirely secular.
