to be sacrificed to the exigencies of English' politics. Not only, therefore, would it be unfair to concentrate all the blame for what is now proposed either upon Sir John Strachey or the authorities at Calcutta, but I think it would be unjust to hold the present Indian Government, whether at Calcutta or in London, solely responsible for the existing embarrassment in Indian finance. Some of the causes which have brought about embarrassment have no doubt been solely the creation of the present Government. They are alone responsible for the addition to the strength of the army, and the consequent increase in military expenditure, which are said to be rendered necessary by the attempt to secure a more scientific' frontier for our Indian empire. There are, however, many causes that have contributed to bring upon India her present financial difficulties, which came into operation long before the present Government took office. Thus it will be generally admitted that, in order to place the finances of India on a more satisfactory basis, it is above all things essential to reduce her present excessive military expenditure, which absorbs no less than 45 per cent. of her entire net revenue. Although this expenditure must be increased by the addition to the strength of the army to which reference has just been made, yet, in order to effect any important reduction in the cost of the Indian army, it will be necessary fundamentally to change the present military system, and to undo a great part of the work which was done when, under the auspices of Lord Palmerston's Government, and in spite of the remonstrances of every Indian statesman of experience, the army amalgamation scheme was carried out, and India was compulsorily made a partner in all the costly military arrangements of England. Next to military expenditure it will, I think, be acknowledged that there is no question which more urgently demands immediate attention, than the large outlay on public works which has been continued for many years in India. It cannot, however, be said that the present Government is more responsible than its predecessors for the policy, which has proved financially so disastrous, of borrowing large sums of money each year for the construction of public works, which, though called at one time reproductive,' and at another time remunerative,' seldom, as is now shown by official returns, repay even a small part of the interest on the capital expended. Then, again, the present unfavourable exchange is due to many causes, some of which at least are altogether beyond the control of the Indian Government. As already explained, an unfavourable exchange is a necessary accompaniment of a depreciation in the value of silver; and the present great depreciation in the value of silver is partly due to the discovery of new silver mines in the United States, to a falling off in the demand for silver consequent on a demonetisation of silver by Germany, and to the restriction of the silver coinage in those countries which have joined what

6

is known as the Latin Union. Although the present unfavourable state of the Indian exchange is no doubt in part to be attributed to the causes just mentioned, yet, as the rate of exchange is intimately connected with the amount which India has to remit to England, each addition to the home charges must make the exchange more unfavourable; and these home charges have been permitted to increase, not under one, but under successive Indian Governments.

If for no other reason, I should think it particularly important fully to acknowledge that the present Government is not solely responsible for the existing condition of Indian finance, because I believe it is almost impossible to exaggerate the harm that may be done, if, in attempting to remedy the present state of things, the subject is approached in a spirit of political partisanship. It is scarcely necessary to remark that when the financial condition of a country is such as that of India at the present time, it is impossible for her finances to be placed in a more satisfactory position unless a policy of rigorous retrenchment is carried out with the most persistent determination. Any government that is prepared to do this is certain to have to bear a load of unpopularity. Expenditure cannot be curtailed, salaries cannot be reduced, and unnecessary offices abolished, without producing a great amount of discontent, and without bringing into active operation the keen opposition of those who consider that they have a vested interest in the continuance of the present system. Far, therefore, from desiring in the slightest degree to add to the difficulties which have now to be encountered by those who are responsible for the finances of India, no effort should be spared to give every possible assistance to any ministry that is willing at once to frankly recognise the fact that India has hitherto been far too expensively governed, and that consequently it is necessary at all hazards to reduce expenditure by adopting a policy of the strictest economy. The financial proposals of the present year unfortunately afford scarcely any indication, that the extreme gravity of the present financial situation is adequately appreciated either by the Government at Calcutta or by the Secretary of State. With the single exception that there is to be a reduction of 1,000,000l. in the outlay on public works, it appears that no serious attempt is to be made to effect retrenchment in any other branch of expenditure. Enormous as have been the military charges during the last few years, there is only too much reason to fear that these charges are more likely to increase than to diminish. The Afghan war is estimated to cost 2,600,000l., and I believe those military and financial authorities, on whose judgment most reliance is to be placed, unanimously agree that this is far too low an estimate of cost. Moreover, it is to be remembered that when this estimate was made it was assumed that the war was virtually concluded, and that our occupation of territory would be confined within, comparatively speaking, very narrow limits.

The Prime Minister on the 13th of February said: 'Her Majesty's Government have the satisfaction of feeling that the object of their interference in Afghanistan has been completely accomplished. . . We have secured the object for which the expedition was undertaken, and we have obtained that frontier which we hope and believe will render our Empire invulnerable.' There seems little chance that this confident expectation will be realised. As long as active operations have to be undertaken, a heavy outlay must be incurred, and, far from the war having been concluded, scarcely a day elapses without the news of some movement in the field, and of skirmishes more or less important. The negotiations with Yakoob Khan do not apparently promise so speedy a termination of the war as was expected; for it is now stated that the Viceroy and his advisers. consider it to be not improbable that, in order to bring Yakoob Khan to terms, it will be necessary, at least temporarily, to occupy Cabul. If such an onward movement is undertaken, it is obvious that all estimates of the cost of the war which were based on the calculation that peace was near at hand, and that our occupation of territory would, as was said by the Prime Minister in the speech already quoted, be confined to retaining possession of the three highways which connect Afghanistan with India,' will have to be entirely modified. An advance on Cabul might lead to a prolongation of the war, and might involve an expenditure so large that, in order to defray it, a very considerable portion of the 15,500,000l., which the Indian Government propose to take authority to borrow during the present year, would have to be expended. It is therefore most important to bear in mind that, whatever may be the reasons which are put forward to justify the exceptionally large borrowing powers the Indian Government seek to obtain, almost the entire proceeds of the loans which they desire to have authority to raise, may have to be devoted to meet the expenses of continued military operations in Afghanistan. I desire, however, on the present occasion not to discuss the subject from this point of view, because I think it is very important carefully to consider the reasons which are adduced by the Government in support of their financial proposals.

The reduction of the cotton duties having been already referred to, it will only be necessary to direct attention to the three different ways in which the Indian Government propose to borrow money during the present year. As already stated, a 4 per cent. loan of 3,500,000l. is to be raised in India. Parliament is asked to give authority to the Indian Government to borrow 10,000,000l. in England, and 2,000,000l. is to be advanced, free of interest, by England to India, as a contribution towards the expenses of the Afghan war. Before the announcement was made that it was the intention of the Government to take authority to borrow the exceptionally large amount of 10,000,000l. in England, it was supposed

that the entire borrowing operations of the year would be confined to raising a loan of 3,500,000l. in India. For some years past successive Secretaries of State have agreed that it is most important, both on political and financial grounds, not to increase the obligations of India in England. In a despatch to the Government of India, in which Lord Salisbury reviewed the Budget of 1874, he declared it to be indispensable that none but works which were likely to prove remunerative should be constructed from borrowed money, and he insisted, with the utmost emphasis, that the money required for their construction should be obtained by loans raised in India and not in England. No one questioned the soundness of this policy, for the fact was beginning to be recognised that from political considerations it was not prudent to be constantly adding to the obligations incurred by India abroad. Upon financial grounds it was agreed to be equally important not to increase the Indian debt in England, because each addition to this debt, by increasing the amount which India had to remit to England, tended to produce a more unfavourable rate of exchange. It is obvious that the principles which were thus to regulate the future financial administration of India have been completely set aside, when, in a single year, it is sought to obtain authority to borrow in England more than twice as much as it is proposed to borrow in India. So far as can be ascertained, the only reasons which are alleged in explanation of this departure from the policy which was so distinctly enunciated by Lord Salisbury, are that it may be found difficult to borrow in India the whole amount required; and, secondly, that it is necessary to raise a large loan in England, in order that the Government may have a reserve to fall back upon, and so be enabled to withhold their bills from the market when the exchange is unfavourable. It will at once be seen that it is impossible for the Government to put forward the first of these pleas, without virtually endorsing all the most unfavourable opinions that have been expressed with regard to the state of Indian finance. If it is difficult for the Government to borrow comparatively so small a sum as 3,500,000l. from the people of India themselves, it is evident either that they are too poor to lend, or that they are unwilling to entrust their savings to the State. Again, it must be borne in mind that those who lend one year have probably so much less to lend the next year, and consequently, if it is now found difficult to borrow 3,500,000. in India, there will be still greater difficulty in borrowing a similar amount hereafter. Unless, therefore, something is immediately done to place the finances of India on a sounder basis, the deficits which will have to be annually met must necessarily, in an increasing proportion, be made good by loans raised in England. At the present time there appears unfortunately little ground for hope that there will be any diminution in the amount of the Indian deficits. As already stated, it appears that no attempt is to be made to carry out

in any of the spending departments such a policy of rigorous economy as India urgently needs; and, serious as is the loss which she now has to bear in consequence of an unfavourable exchange, I believe it can be shown that it is only too probable that the financial proposals which are now brought forward will, if they are carried out, exercise a very material influence in making the exchange even more unfavourable than it now is. If 10,000,000l. is borrowed in England, the financial position of India may no doubt for a time be made to wear a somewhat improved appearance. But the improvement will be just as unreal as if an embarrassed landowner, in order to meet his pressing obligations, raised another mortgage on his estate. It cannot be too persistently pressed on those who have to administer Indian finance, that each addition which is made to the debt of India in England must increase the amount which has to be transmitted, in the form of interest, from India to England. If, therefore, by devoting the proceeds of a loan to meet the obligations of India in England, the amount of bills on India which the Secretary of State has to sell in London is diminished, the relief can only be temporary; the loss by exchange is diminished this year only to be increased in future years. In defence of such a policy it is said, 'something may happen.' The Government at Calcutta seem to derive the greatest encouragement from the fact, that they have been informed that the Secretary of State and his council are taking the relative value of gold and silver into their consideration; and this is apparently regarded as such a hopeful omen for the future, that revenue is sacrificed at the very time when a great amount of additional indebtedness is being incurred. The relative value of gold and silver is determined by precisely the same laws as those which regulate the value of any other products. If, compared with gold, there is a large increase in the supply of silver, accompanied by a considerable falling off in the demand, a Secretary of State is just as powerless to arrest a depreciation in the value of silver as he is to stop the flow of the tide. It has sometimes been suggested that an Act of Parliament should be passed to fix the relative value of gold and silver, by declaring that so many rupees should be always worth a sovereign. Such a proposal is not less unreasonable than it would be to enact that, whatever the seasons might be, whether the harvest was good or bad, a sack of wheat should always exchange for a ton of coal. Such tampering with values can produce no other result than, by creating confusion, and spreading a feeling of distrust, to aggravate the evils which it is sought to remedy. If silver becomes depreciated, there is only one way of restoring its value, and that is by acting either on the supply or the demand. In consequence of the large amount of silver, variously estimated at from 15,000,000l. to 20,000,000l., that has been accumulated in Germany since silver was demonetised in that country, VOL. V.-No. 27. 3 M