Vol. 6 · pages 436–440

421 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY strongest interest of the Government to reduce, the resort to the London money market, unavoidable as it became, was somewhat restrained,* with the result that the expansion of extraordinary public works did not proceed at a pace demanded by the needs of the country. The effects of this financial derangement, consequent on the fall of the exchange, were not confined to the Government of India. They were immediately felt by the municipalities and other local bodies who were dependent upon the Government for financial aid. So long as the cash balances were overflowing in the treasury of the Government, “one of the most useful ways” to employ them was found in lending a portion of them to these local institutions. As they had just then been inaugurated under the local self-government policy of Lord Ripon’s regime, and were looked upon only as an experiment, their taxing and borrowing powers were rigidly limited. Consequently, this financial aid from the Central Government by way of temporary advances was a resource of inestimable value to them. When, however, the cash balances of the Central Government began to diminish owing to the continued losses by exchange, these facilities were severely curtailed,† so that the very vitality of these institutions was threatened just at the moment when they needed all help to foster their growth and strengthen their foundations. Addressing the Secretary of State, the Government of India, in a despatch of February 2, 1886, observed‡:— “10. We do not hesitate to repeat that the facts set forth in the preceding paragraphs are, from the point of Indian interests, intolerable ; and the evils which we have enumerated do not exhaust the catalogue. Uncertainty regarding the future of silver discourages the investment of capital in India, and we find it impossible to borrow in silver except at an excessive cost. “On the other hand, the Frontier and Famine Railways which we propose to construct, and the Coast and Frontier * During the period of falling exchange the distribution of the debt of India was as follows:— Sterling Debt Rupee Debt End of 1873-74 ... 41,117,617 66,41,72,900 End of 1898-99 ... 124,268,605 1,12,65,04,340 Indian Currency Committee (1898), Appendix II p. 179 † Cf. Financial Statement, 1876-77, p. 94. ‡ See C. 4868 of 1886, p. 8.

422 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES TABLE XIII PRICE MOVEMENTS OF RUPEE AND STERLING SECURITIES OF THE GOVERNMENT OF INDIA * Year. Rates of Exchange. Price of 4 per cent. Rupee Paper. Price of Sterling India Stock. In Calcutta. In London. 4 per cent. 3½ per cent. 3 per cent. Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. Highest. Lowest. d. d. 1873 22 7/8 215/8 105 101 7/8 97 94½ 106 1/3 101¼ 1874 23 1/8 213/4 104½ 99½ 98 94½ 103 3/4 101 1875 22 3/16 21¼ 102 7/8 1013/4 94 91 106¼ 103¼ 1876 22 3/8 18½ 101 7/8 983/4 893/4 78 105 7/8 1017/8 1877 22¼ 20 9/16 987/8 93¼ 88½ 81 104 5/8 102¼ 1878 21 18 3/4 967/8 93½ 82½ 75 3/8 1045/8 99 1879 20 5/8 185/8 947/8 91¼ 80 77¼ 105 3/8 1007/8 1880 20 3/8 193/4 100 92 15/16 813/8 773/4 1055/8 1021/8 1881 20 1/16 19½ 104 5/8 100 86 81¼ 106 3/8 1037/8 1037/8 1003/4 1882 20 6/16 191/16 1021/10 955/8 85 81 105 1/8 1027/8 1017/8 993/4 1883 19 9/16 193/16 1011/8 979/16 82 79 3/4 1045/8 1027/16 1031/8 1013/8 1884 19 3/4 1815/16 1005/8 955/16 813/4 78¼ 104 3/8 1015/8 1071/8 1013/4 96¼ 91 3/4 1885 19 3/16 173/3 ½ 98 7/16 92¼ 77½ 73¼ 103 1/16 983/4 1023/4 97½ 91½ 85 3/4 1886 18 16 1/8 973/4 973/16 73 66¼ 103½ 101¼ 102 3/4 993/4 901/8 865/8 1887 18 3/16 155/8 993/16 955/16 7111/16 677/8 1023/4 100½ 103¼ 100¼ 92 3/4 953/8 1888 17 1/8 16 100 3/16 973/4 693/8 66¼ 102 7/8 100½ 107¼ 104 5/8 98 95 1889 16 15/16 16 100 3/8 971/16 691/8 663/8 109½ 106 7/8 1011/8 99 1890 20 2/3 9/2 167/8 1037/8 9613/16 87¼ 68 3/4 108½ 105¼ 100 3/4 95¼ 1891 18¼ 16 5/8 10713/16 1041/16 803/4 74¼ 109½ 105 99 94½ 1892 16 11/16 145/8 10815/16 10311/16 74½ 62 109½ 106 1/8 98½ 94 7/8 * Appendix II to the Report of the Indian Currency Committee of 1893, p. 272. These prices differ slightly from those given in Appendix IV to the First Report of the Gold and Silver Commission, 1886, and also from those in the Statistics of British India (First I ssue) for 1906-07, Part IV, (a) Finance Tables 7 and 8 of the division called Prices.

423 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY defences which we have planned, are imperatively required and cannot be postponed indefinitely. “We are forced, therefore, either to increase our sterling liabilities, to which course there are so many objections, or to do without the railways required for the commercial development of the country, and its protection against invasion and the effects of famine. ***** “11. Nor can the difficulties which local bodies experience in borrowing in India be overlooked. The Municipalities of Bombay and Calcutta require large sums for sanitary improvements, but the high rate of interest which they must pay for silver loans operates to deter them from undertaking expensive works, and we need hardly remind your Lordship that it has quite recently been found necessary for Government to undertake to lend the money required for the construction of docks at Calcutta and Bombay, and that when the Port Commissioners of Calcutta attempted to raise a loan of 75 lakhs of rupees in September, 1885, guaranteed by the Government of India, the total amount of tenders was only Rs. 40,200, and no portion of this insignificant amount was offered at par.........” The importation of capital on private account was hampered for similar reasons, to the great detriment of the country. It was urged on all hands, and was even recommended by a Royal Commission,* that one avenue of escape from the ravages of recurring famines, to which India so pitifully succumbed at such frequent intervals, was the diversification of her industries. To be of any permanent benefit, such diversified industrial life could be based on a capitalistic basis alone. But that depended upon the flow of capital into the country as freely as the needs of the country required. As matters then stood, the English investor, the largest purveyor of capital, looked upon the investment of capital in India as a risky proposition. It was feared that once the capital was spread out in a silver country every fall in the price of silver would not only make the return uncertain when drawn in gold, but would also reduce the capital value of his investment in terms of gold, which was naturally the unit *Cf. The Report of the Famine Commission of 1880, Part II, C 2735 of 1880, pp. 175-76.

424 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES in which he measured all his returns and his outlays. This check to the free inflow of capital was undoubtedly the most serious evil arising out of the rupture of the par of exchange. Another group of people, who suffered from the fall of exchange because of their obligation to make gold payments, was composed of the European members of the Civil Service in India. Like the Government to which they belonged, they received their salaries in silver, but had to make gold remittances in support of their families, who were often left behind in England. Before 1873, when the price of silver in terms of gold was fixed, this circumstance was of no moment to them. But as the rupee began to fall the face of the situation was completely altered. With every fall in the value of silver they had to pay more rupees out of their fixed salaries to obtain the same amount of gold. Some relief was no doubt given to them in the matter of their remittances. The Civil Servants were permitted, at a sacrifice to the Government, to make their remittances at what was called the Official Rate of Exchange.* It is true the difference between the market rate and the official rate was not very considerable. None the less, it was appreciable enough for the Civil Servants to have gained by 2½ per cent. on the average of the years 1862-90† at the cost of the Government. The Military Servants obtained a similar relief to a greater degree, but in a different way. Their salary was fixed in sterling, though payable in rupees. It is true the Royal Warrant which fixed their salary also fixed the rate of exchange between the sterling and the rupee for that purpose. But as it invariably happened that the rate of exchange fixed by the Warrant was higher than the market rate, the Military Servants were compensated to the extent of the difference at * As was explained by Mr. Waterfield before the Select Committee on East India (Civil Servants), H. C. Return 327 of 1890, Q. 1905-17, it was first instituted in 1824 and was arrived at as follows : In December of each year a calculation was made at the India Office of the cost of sending a rupee to India, based on the market price of silver in London, and of the cost of bringing a rupee from India, based on the price of bills on London in Calcutta. A mean between the two was struck and taken as the adjusting rate for the coming official year between the India Office and the British Treasury in regard to such transactions or payments undertaken by one Government as the agent of the other. It was fixed anew for each and formed a fair average rate, although it was sometimes above and sometimes below the market rate of exchange. † Ibid, Q. 1925-26.

425 THE SILVER STANDARD AND THE EVILS OF ITS INSTABILITY the cost of the Indian Exchequer.* This relief was, comparatively speaking, no relief to them. The official or the warrant rates of exchange, though better than the market rates of exchange, were much lower than the rate at which they were used to make their remittances before 1873. Their burden, like that of the Government, grew with the fall of silver, and as their burden increased their attitude became alarmist. Many were the memorialists who demanded from the Government adequate compensation for their losses on exchange.† The Government was warned‡ that “the ignorant folk who think India would be benefited by lowering present salaries are seemingly unable to comprehend that such a step would render existence on this reduced pay simply impossible, and that recourse would of necessity be had to other methods of raising money.” Such, no doubt, was the case in the earlier days of the East India Company, when the Civil Servants fattened on pickings because their pay was small,§ and it was to put a stop to their extortions that their salaries were raised to what appears an extra-ordinary level. That such former instances of extortions should have been held out as monitions showed too well how discontented the Civil Service was owing to its losses through exchange. Quite a different effect the fall had on the trade and industry of the country. It was in a flourishing state as compared with the affairs of the Government or with the trade and industry of a gold-standard country like England. Throughout the period of falling silver there was said to be a progressive decline relatively to population in the employment afforded by various trades and industries in England. The textile manufactures and the iron and coal trade were depressed as well as the other important trades, * Cf. F. S. 1887-8, pp. 39-40. This cost was as follows :— 1847-75 ... Rs. 6,40,000 1885-86 Rs. 4,00,000 1884-85 ... Rs. 18,43,000 1886-87 Rs. 5,15,000 † Cf. Report of the Indian Currency Committee, 1893, App. I, pp. 185-90 and p. 202, for memorials of the European Civil Servants. ‡ Cf. Col. Hughes-Hallett, M.P., The Depreciation of the Rupee : its Effect on the Anglo-Indian Official —the Wrong and the Remedy, London, 1887, p. 14. § The connection between the rapacious conduct of the early European Civil Servants and the smallness of their salaries was well brought out by Clive in his speech dated March 30, 1772, during the course of the debate in the House of Commons on the East India Judicature Bill, Hansard, Vol. XVII, pp. 334-39.