India. And instead of suggesting a reduction of the Home Charges, they proposed to artificially raise the value of the rupee, which meant a real and universal increase of taxation in India.

The fall of the rupee during the first eight years after 1870 came to be 3d., as shown in the following figures :

In 1876, the Calcutta Chamber of Commerce strongly urged the Government of India to suspend the coinage of silver in order to stop the fall in the rupee; but the Government of India declared that the circumstances did not justify any action in relation to the Indian currency.1

In November 1878, when Lord Lytton was on the eve of a war with Afghanistan, he addressed the Secretary of State again on the subject, and proposed some steps for raising the value of the rupee by limiting its coinage." He submitted a Draft Bill, and proposed that the Coinage Act should be modified.

The Despatch was forwarded by Lord Cranbrook, Secretary of State for India, to Sir Stafford Northcote, Chancellor of the Exchequer. And it was ultimately referred to a Committee consisting of Sir Louis Mallet, Mr. Stanhope, M.P., Sir Thomas Seccombe, Mr. Farrer, Mr. Welby, Mr. Griffin, and Mr. Arthur Balfour, M.P. These gentlemen reported on April 30, 1879, that, "having examined the proposals contained in the Despatch, they are unanimously of opinion that they

1 Financial Despatch to the Secretary of State for India, dated October 13, 1876.

2 Despatch, dated November 9, 1878.

could not recommend them for the sanction of her Majesty's Government."

Subsequently, on November 24, 1879, the Lords of the Treasury replied in detail to the proposals of Lord Lytton. Some portions of this able and exhaustive reply should be quoted:

"It has not yet been established whether the variation in the relation between gold and silver may not have been caused by appreciation of the former metal as well as by depreciation of the latter, or by a combination of both."

"It appears to my Lords that the Government of India, in making the present proposal, lay themselves open to the same criticisms as are made upon Governments which have depreciated their currencies. In general, the object of such Governments has been to diminish the amount they have to pay their creditors. In the present case the object of the Indian Government appears to be to increase the amount they have to receive from their taxpayers. My Lords fail to see any real difference in the character of the two transactions."

"If, on the other hand, it is the case that the value of the rupee has fallen in India, and that it will be raised in India by the operation of the proposed plan, that plan is open to the objection that it alters every contract and every fixed payment in India."

'If the present state of exchange be due to the depreciation of silver, the Government scheme, if it succeeds, may relieve:

"(1) The Indian Government from the inconvenience of a nominal readjustment of taxation in order to meet the loss by exchange on the home remittances;

"(2) Civil servants and other Englishmen who are serving or working in India, and who desire to remit money to England;

"(3) Englishmen who have money placed or invested in India, which they wish to remit to England."

"But this relief will be given at the expense of the Indian taxpayer, and with the effect of increasing every debt or fixed payment in India, including debts due by Ryots to money-lenders; while its effect will be materially qualified, so far as the Government are concerned, by the enhancement of the public obligations in India, which have been contracted on a silver basis." 1

This letter from the Treasury, in reply to the Indian Government's proposals, settled the question for the time, and it was not raised again for six years. The fall of the rupee during these six years was very slight, and is shown in the following figures:

It will thus be seen that between 1878-79 and 1884-85, covering the last two years of Lord Lytton's and the whole of Lord Ripon's administration, the rupee fell only from 19 to 19. But early in 1886 there was a fall in the price of silver; and Lord Dufferin, then Viceroy of India, sent an alarmning telegram to the Secretary of State. "Our financial arrangements for meeting interest on loans for frontier railways, defences, and increased military expenditure have been based on the assumption that the rupee would not fall below eighteenpence. Recent fall in the price of silver, and the uncertainty regarding policy of United States of .America, cause us grave anxiety. . . . We earnestly commend the question to the early consideration of her Majesty's Government. Experience seems incontestably

1 The italics are our own. The "nominal readjustment of taxation referred to in the last portion of the extracts would not have been needed, as the taxation adjusted itself automatically in reference to Land Revenue and other sources of revenue, as stated before.

to have shown that delay seriously aggravates the difficulties of settlement." 1

This was followed by a letter, in which Lord Dufferin and the members of his Council stated that the fall in the price of the rupee was due to speculation regarding the repeal or modification of the Bland Act in America ; that an attempt should be made to secure a stable relation between the rupee and gold; and that "the present time would appear to be a favourable one for reopening the whole question." The Indian Government did not inquire how far the additional military expenditure referred to in their telegram, and the consequent increase in India's remittances to England, had helped to affect the exchange against India. Nor did they venture to suggest that the plainest remedy for the growing evil was a bold and determined reduction of the Home Charges, which had to be paid in gold.

Lord Randolph Churchill, then Secretary of State for India, forwarded both the telegram and the letter to the Treasury; and, once more, the Lords of the Treasury rejected the proposal of the Indian Government. They referred to the declaration recorded by Mr. Goschen, Mr. Gibbs, and Sir Thomas Seccombe, as the representatives of her Majesty's Government at the International Monetary Conference of 1878, that "the establishment of a fixed ratio between gold and silver was utterly impracticable." And they declared that the proposals of the Indian Government would be a benefit to English officers in India at the cost of the Indian taxpayer, as had been pointed out by Sir Stafford Northcote more than six years before.

9

"The Treasury find no reason stated in the despatch of the Government of India in the present year which induces them to dissent from the conclusions thus sent for on the authority of Sir Stafford Northcote as to the

1 Telegram dated January 12, 1886.

2 Dated February 6, 1886.

results of any attempt artificially to enhance the gold value of silver."

"Whilst it is admitted that some benefit might be derived by the European officers of our Government from the proposed measures, it is shown how injurious would be their effect upon the Indian taxpayer. Since that time the great stimulus which the fall in the value of silver is believed to have given to the export trade of Hindustan, and the great addition which has accrued to the commercial wealth and the industries of the people, reinforce the warning then given against rashly meddling with a condition of things which may well have brought to the people of India more of advantage than of loss. It is impossible to regard this question from the point of view either of the Indian exchequer or of the AngloIndian official without a corresponding regard to the general effect of the fall in the gold price of silver upon the trade and prosperity of the great mass of the population."

1

No further action was taken by the Indian Government for some years after receipt of this reply from the Treasury. But the rupee rapidly fell in value, and it was never inquired how far this fall was caused by the continuous increase in the military expenditure and consequently in the annual drain from India, under the administration of Lord Lansdowne and Lord Elgin. The fall of the rupee during eight years from 1885–86 to 1893-94 is shown in the following figures:

1 Treasury to India Office, dated May 31, 1886. The italics are our

own.

The Treasury accepted the general belief that the fall of the rupee was rather to the advantage of Indian manufactures.