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HISTORY OF TARIFFS
WHILE Indian administrators thus strove to maintain an equilibrium in the Indian finances by new taxes on agriculture, a mandate came from England in 1874 that an old and legitimate revenue, derived from a moderate import duty, should be sacrificed to meet the wishes of the manufacturers of Lancashire. We have, in preceding chapters, given some account of Indian tariffs down to 1871; but a brief connected history of Indian tariffs will help a clearer comprehension of the controversy which arose three years later.
When the Empire of India came under the direct administration of the Queen in 1858, the import duties consisted of 33 per cent. ad valorem upon cotton twist and yarns, and 5 per cent. on other articles of British produce and manufacture, including cotton piece goods. The duties were double on foreign articles.
In 1859, on account of the heavy financial pressure after the Mutiny, all differential tariffs were abolished; duties on all articles of luxury were raised to 20 per cent. ad valorem ; duties on other articles, including cotton piece goods, were raised to 10 per cent.; and those on cotton twist and yarn to 5 per cent.
In 1860, Mr. James Wilson, the first Finance Minister of India, reduced the 20 per cent. duty on luxuries to 10 per cent., and raised the 5 per cent. duty on cotton twist and yarn to 10 per cent.; so that the import tariff consisted of a uniform rate of 10 per cent. ad valorem, with special rates upon beer, wine, spirit, and tobacco.
In 1861, the duty on cotton twist and yarn was reduced to 5 per cent. In 1862, the duty on cotton twist and yarn was further reduced to 3% per cent, and the duty on cotton and other manufactures was reduced to 5 per cent. In 1863, the duty on imported iron was reduced to I per cent. In 1864, the general rate of import duties was reduced from Io to 7% per cent. In 1867, a great number of articles were added to the free list, export duties were abolished from time to time, the only increase being that the duty on grain was raised in 1867. In 1871, a new Tariff Act was passed which we have referred to in chapter viii. of this Book. The valuations were revised. The import duty on cotton twist and yarn remained 3% per cent., and that on cotton goods 5 per cent. They were maintained, like other import duties, merely as a source of revenue, and did not operate as a protection to the infant cotton industry of India. But Lancashire manufacturers were jealous of the new cotton mills of Bombay; and in 1874 they made an attack on the moderate import duties on cotton twist and piece goods, representing them as protective duties. The time was well chosen. The first administration of Mr. Gladstone, which had carried out great reforms in Ireland and had established a system of national education in England, had in its last stages become unpopular in the country. The position of the Ministers became so unbearable that they dissolved Parliament in 1874. A general election therefore was at hand, and the Lancashire vote counts for much at an election. The time was opportune, and on January 31, 1874, the Manchester Chamber of Commerce addressed a memorial to the Secretary of State for India. The Memorialists urged that the duties of 34 per cent. on yarns and 5 per cent. on British cotton manufactures imported into India were assessed on tariff rates fixed many years ago, when values ruled much higher than at present; so that the duties thus levied actually amounted to 4 per cent. on the actual price of yarn in India, and nearly 6 per cent. on cloth.
That the tax was found to be absolutely prohibitory to the trade in yarn and cloth of the coarse and lowpriced sorts.
That the Chamber were informed that it was proposed to import Egyptian and American raw cotton into India (no duty being charged thereon) to manufacture the finer yarns and cloth, and would thus compete with goods received from England on which duty was levied.
That a protected trade in cotton manufacture was thus springing up in British India to the disadvantage both of India and Great Britain.
That the duties increased the cost to the Native population, or at least to the poorest of the people, of their articles of clothing, and thereby interfered with their health, comfort, and general well-being.
And the Memorialists therefore prayed that early consideration might be given to the subject of the duties levied on yarn and cotton piece goods on import into India, with a view to their abolition.
On receipt of a copy of this memorial the Government of India pointed out that the tariff had been carefully revised at the beginning of 1869, when the tariff valuations of cotton yarns and cloths were largely reduced. The Government, however, held out a promise that a committee of revision would again be convened in the following cold season.
This did not satisfy the Manchester Chamber. They reminded the Secretary of State that in their memorial they had only incidentally referred to valuations, and that their main object and prayer was the total and immediate repeal of the duties themselves. And they added :
“The statements as to the baneful operation of these duties on commerce, and on the best interests of her Majesty's subjects, both in India and in England, are abundantly confirmed by the latest advices from Bombay, which show that, under the protection extended by the levying of duties on imports, to the spinning and weaving of cotton yarns and goods in India, a large number of new mills are now being projected.” 1
According to their promise the Government of India formed a Committee in November 1874 with a view to the revision of tariff valuations. Mr. Alonzo Money, C.B., was appointed president, and all the members were English merchants or officials.
The Committee differed in their opinions on some points, but were unanimous in rejecting the Manchester demand for the repeal of import duties on cotton yarn and goods.
Lord Northbrook was then 'the Viceroy of India, and was a free-trader to the backbone. But he was a strong and just ruler; and would not sacrifice a source of revenue which did not operate as protection. After mature consideration of the Committee's Report, the Viceroy in Council passed a new Tariff Act in 1875.
The new Act abolished all export duties except on indigo, rice, and lac.
Retained the import duties on cotton twist and goods, being of opinion “ that a duty of 5 per cent. ad valorem upon cotton goods cannot practically operate as a protection to native manufacture.” 2
Largely reduced valuations.
Imposed a 5 per cent. duty on the import of long staple cotton to prevent Indian mills competing at an advantage in the production of the finer goods.
i Quoted in India Government Resolution No. 2636, dated August 12, 1875, forming an enclosure to Despatch No. 15 of 1875. The italics are our own.
? Ibid., paragraph 34.
Reduced the general rate of import duties to 5 per cent.
And raised the duties on spirits and wines.
The loss to the Indian revenues by the reduction of valuations in respect of cotton goods was £88,000; while the total loss to the Indian revenues effected by the new Tariff Act of 1875 was £308,000, taking 10 rupees as equivalent to a pound sterling. But, by retaining the import duties on cotton yarns and goods, Lord Northbrook saved the Indian revenues from a further loss of £800,000. Meanwhile, the General Election in Great Britain had returned a majority of Conservatives, and the Liberal Government had resigned in 1874.
Mr. Disraeli had formed a Conservative Government; and Lord Salisbury had succeeded the Duke of Argyll as Secretary of State for India. Lord Salisbury was never a vehement free-trader, but he was vehement in his desire to conciliate Lancashire. In July 1875 he wrote to the Viceroy :
“If it were true that this duty is the means of excluding English competition, and thereby raising the price of a necessary of life to the vast mass of Indian consumers, it is unnecessary for me to remark 'that it would be open to economical objections of the gravest kind. I do not attribute to it any such effect; but I cannot be insensible to the political evils which arise from the prevalent belief upon the matter.
“These considerations will, I doubt not, commend to your Excellency's mind the policy of removing, at as early a period as the state of your finances permits, this subject of dangerous contention.”1
On August 5, 1875, Lord Northbrook wired to Lord Salisbury that the new Tariff Act had been passed that day. We quote the first portion of the telegram, detailing the changes which we have already mentioned before.
1 Despatch to the Governor-General in Council, dated July 15, 1875; paragraphs 5 and 8.