diture will be shown when considering whether, in the present financial condition of India, there is any probability that such new charges can be met, without imposing taxes intolerably burdensome to the people, or accumulating an indebtedness which will augment the taxation that will ultimately have to be imposed.

Passing on to consider the second of the four chief branches of expenditure-namely, the general cost of administration-the evidence which was given before the Parliamentary Committee on Indian Finance affords almost innumerable examples of the striking manner in which the various items which compose this general cost of administration have increased during the last twenty years. A most valuable table was furnished to the committee by Mr. Gay, the Deputy Comptroller-General of the Finances, in which a comparison is made between the cost of administration in 1871 and 1856, two years before the abolition of the East India Company. From this table it appears that the cost of the government of India, excluding expenditure on the army and public works, has increased during the period referred to from 14,964,8671. to 23,271,0821.7 There is scarcely a single item in which there has not been a marked augmentation, and this growth has continued up to the present time. Thus, taking a few instances:

I believe it can be shown that a part at least of the large increase in the general cost of administration is undoubtedly due to a want of adequate enonomy; but without, for the moment, inquiring what portion of this increase of expenditure could have been prevented if India, since the abolition of the East India Company, had been governed with less extravagance, it is obvious that the greater the extent to which this additional outlay has arisen from causes the operation of which cannot be controlled, the more serious is the prospect for the future. If money has been wasted in the past, the continuance of this waste can be prevented; but a remedy cannot be so easily applied if the cost of a particular department becomes greater in consequence, for instance, of a rise in prices. The very detailed evidence which was given before the Indian Finance Committee by Mr. Harrison, Comptroller-General of India, leaves no room for doubt that a not inconsiderable portion of the increase in the cost of administration between 1856 and 1871 was due to a rise in general prices. There was during this period, and especially at the time of the American Civil War, a very large influx of silver into India. A portion of this silver was sent to purchase cotton at

• See appendix to Report of Committee on East India Finance, 1872, p. 518.

extremely high prices; and another portion represented capital which was raised in England and sent to India for the construction of railways and other works. At the present time there seem to be indications that the financial position of India may be prejudicially affected by a rise in general prices consequent on a depreciation in the value of silver. Allusion has already been made to the fact that as recently as December last an official paper was published from which it appears that the military expenditure of the present year will be greater than its estimated amount by 330,000l., which is described as 'compensation for high price of food.' It is evident that if there is a rise in general prices there is scarcely a single department, the cost of which may not, sooner or later, very materially increase. It is not, however, necessary here to pursue the subject further, because the extent to which general prices in India may be affected by the depreciation of silver can be more appropriately considered when discussing the third of the four branches of expenditure—namely, that which arises from loss by exchange.

In the current financial year the loss by exchange was estimated, when the Budget was brought forward, at no less than 3,000,000l.; but, large as this sum is, the Government, in a revised estimate issued within the last few weeks, calculate that it will be exceeded by 500,000l. In 1876-77 the loss by exchange, as appears from the table already given, was 1,676,4827. In 1874-75 the loss by exchange was only about 500,000l. A few years previous to this the loss was so trifling as scarcely to be worth notice; and in 1870 the amount which was gained by exchange exceeded, by a few thousand pounds, the amount lost. These figures show, with striking distinctness, with what remarkable rapidity this item in Indian expenditure has assumed its present serious proportions. Whether it is more likely that this charge on the Indian revenues will in future years diminish or increase, depends upon so many uncertain conditions that it would not be prudent to make a confident prediction on the subject. The loss by exchange, as previously explained, is primarily due to a depreciation in the value of silver, and one of the chief causes of this depreciation is the large additional supply of silver yielded by the Nevada mines in recent years. In 1875 the aggregate production of silver throughout the world is estimated to have been about 15,000,000l., more than half of this amount, 8,000,000l., being obtained from the American mines. Twenty years previously -namely, between 1852 and 1862-the average annual production was only from 8,000,000l. to 9,000,000l., and at that time no appreciable quantity came from the United States. Simultaneously with this large increase in the supply of silver many circumstances occurred which greatly diminished the demand for silver. Silver was demonetised in Germany; and Germany consequently not only ceased to require the large amount of silver which she had previously used

for coinage, but a great portion of the silver in circulation was withdrawn and sold by the German Government. Another circumstance which has produced a very important effect in diminishing the demand for silver is the great increase in recent years in the Indian home charges. The value of the products exported from India has always been much in excess of the value of those imported. Until quite lately the balance was liquidated by transmitting silver to India. In some years the silver thus sent amounted to more than 10,000,000l. Such a transmission of silver constituted one of the chief sources of the demand for silver, and was indeed one of the most important factors in maintaining its value. Each addition, however, that is made to the home charges diminishes pro tanto this demand for silver. An English merchant, for instance, who has purchased a hundred thousand pounds' worth of Indian produce, instead of sending silver to India to pay for it, purchases bills from the Indian Government in England, drawn upon the Indian Government in Calcutta, and the amount of bills which the Government has to sell in England increases, of course, with each increase in the home charges. It is, I think, made sufficiently clear from this brief review of the various circumstances which have produced a depreciation in the value of silver, and a consequent loss by exchange to the Indian Government, that the value of silver depends upon various causes, some of which may be regarded as entirely beyond the power of any Government to control. Thus the value of silver will be to a very considerable extent determined by the future yield of the American mines. It is impossible to foresee whether the future productiveness of these mines will increase or diminish, and it may of course happen that silver mines may be discovered in other parts of the world. It has, however, been shown that a powerful effect is being exerted at the present time in depreciating the value of silver by the large amount of bills which have to be sold by the Indian Government in England to provide for the home charges. The amount of the home charges has increased to a most serious extent in recent years. Nothing, moreover, can avert a still further increase, if the expenditure is permitted so habitually to exceed the revenue that money has to be borrowed to make good the deficit. The loans being chiefly raised in England, it is obvious that the interest on these loans represents so much more which has to be transmitted from India to England, or, in other words, so much added to the home charges.

I have thought it important to direct particular attention to the influence exerted by each increase in the home charges in adding to the loss by exchange which India has to bear, because under any circumstances it would be a cause for apprehension to see a constantly augmenting proportion of the revenue of a country not spent. in the country itself; but this circumstance becomes more serious. when it can be shown that this expenditure of the revenues of India VOL. V.-No. 24.

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out of India exerts a direct influence in depreciating the value of silver, and in thus lessening the value of all that large part of the Indian revenue which, either permanently or temporarily, is received in the form of a fixed payment made in silver.

With regard to the fourth and last branch of expenditure to which I have called attention-namely, the interest on loans-it is manifest that this subject is closely connected in many of its aspects with the question which has just been considered. The largest portion of the money which has been borrowed in recent years by the Indian Government has been obtained by loans raised in England; and the additional amount which has to be provided to meet the interest on these loans represents, of course, so much added to the home charges. In 1856 the sum annually required to pay the interest on the Indian Debt was 2,190,000l., in 1870-71 it was 3,200,000l., and in 1876-77 it was 4,350,000l. From these figures it appears that in twenty years the indebtedness of India increased by about 100 per cent. Nothing can be more certain than that, in the present financial condition of India, this indebtedness must continue steadily to increase. The figures which have already been quoted, conclusively show that the ordinary revenue of India is only barely sufficient to meet the ordinary expenditure, and that consequently, in the words of one who speaks with official authority, every fresh contingency and every new charge involves some addition to the debt of India. Thus, within the last few years, 16,000,000l. has been spent in famine relief, and nearly the whole of this amount has been obtained by loans, the interest on which involves an annual charge of about 700,000l. Money, however, is not borrowed by the Indian Government simply to meet such charges as these; it has for some time been their settled policy to borrow each year not less than 4,000,000l. for the construction of railways and works of irrigation. The public works, which are thus constructed out of borrowed money, are no doubt undertaken by the Indian Government with the idea that they will be reproductive, or, in other words, that they will yield a net revenue which will be sufficient to pay the interest on the capital expended. The experience of the past, however, proves that, although it is intended that these public works should be reproductive in the sense just described, yet, regarding the transaction simply as a financial one, the money thus spent is really embarked in a most speculative and uncertain investment. Lord Salisbury, speaking at Manchester in January 1875, when he was Secretary of State for India, said :—

The difficulties which surround the question of irrigation are very great. We can scarcely yet be said to have had one genuine instance of financial success. The irrigating projects that have been carried out, if they have had for their basis the former works of native rulers, have in many instances been a financial success; but then of course that favourable appearance of the account has been obtained by

not charging the former expenditure of the native ruler. In those cases where we have begun the projects of irrigation for ourselves we have not reached, I believe, in any one instance, the desired result of a clean balance-sheet.

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Although I think that Lord Salisbury, in making this sweeping assertion about the unsatisfactory financial results of these irrigation works, somewhat overstated the case, yet it is impossible for any one to deny the absolute correctness of the conclusion which has been officially arrived at, that on the 9,000,000l. which has been spent in recent years on schemes of irrigation in Bengal, the return which is yielded is only per cent. When it is remembered that every one of these particular works, at the time it was undertaken, was regarded as reproductive, nothing more need be said to show that, however useful or desirable public works may be in India, it is more than probable that if they are constructed out of borrowed money, they will not yield a return sufficient to meet the interest on the capital expended; and consequently there will be a deficit which will represent another item of expenditure, another charge upon the revenues of India. It therefore appears that at the present time the indebtedness of India must almost inevitably continue to be augmented by two distinct causes. In the first place, as there is no surplus of ordinary revenue beyond ordinary expenditure, every such contingency as war or famine is certain to lead to the debt being increased; and, secondly, so long as the present policy is continued of constructing public works out of borrowed money, the loans which are raised for these works represent constant additions to the debt of India.

Many other branches of Indian expenditure might be referred to besides those to which attention has been here directed. I think, however, enough has been said on the subject of revenue and expenditure to establish the following conclusions with regard to the financial position of India :

1. The revenue is characterised by great inelasticity.

2. The expenditure has increased in a marked manner in recent years, partly from the general increase in the cost of administration, and partly from a depreciation in the value of silver.

3. The military expenditure is excessive, absorbing 45 per cent. of the entire net revenue of the country; and this expenditure is likely to be greatly augmented if the frontier of India is advanced, as now seems to be contemplated.

4. A comparatively stationary revenue having to meet an increasing expenditure, it will be necessary sooner or later to add to the taxation of India. If a deficit is temporarily met by borrowing, the money which will have to be provided to pay the interest on the loan must ultimately increase the deficit, which will have to be met by increased taxation.

$ See Speech of Lord G. Hamilton in House of Commons, January 1878. Hansard, vol. ccxxxvii. p. 331.