primarily been designed to furnish an annual surplus available for the construction of protective famine railways. This surplus is known to Indian finance as the Famine Grant. The following figures show, in round numbers, from what sources have been obtained the chief part of the increased revenues which have been required to meet the growth of expenditure since 1884-5:

Proceeds of taxation, other than cotton duties Rx. 3,000,000
Cotton duties.

Rx. 3,200,000

In the course of eleven years, something over ten millions has been obtained directly from the taxpayer. It must, however, be pointed out that the taxation of six millions exhibited under the first two heads is only so far new that, having been since 1883 in abeyance, it was again imposed at various periods commencing from 1886. On the other hand, although reimposed in the course of the last few years, 44 millions of the proceeds of this taxation, roughly, are obtained from sources which have been deliberately condemned by successive administrations both in India and England. Either, as in the case of the increase in the duty on salt, the tax further enhances the cost to the masses of an article of consumption necessary to health, and at all times high in price for their means; or, like the cotton duties, it is obnoxious to received axioms of free trade, lessens the consumption of British piece goods in India, and is the cause of profound dissatisfaction among a powerful section in Great Britain of every political shade of colour. Such taxation may not strictly be open to the objection that it has imposed a new burden. But it has reimposed a burden which, by consent of all parties, is, as in the case of the salt tax, scarcely tolerable, or, as in the case of the cotton duties, is only to be maintained to the prejudice both of British and of Indian industry. To this category many, probably ninety out of every hundred, would add taxation imposed in India in the form of an income tax. Personally, I believe the arguments in favour of such an impost outweigh the objections to it, forcible as these are. But this is far from the view of very many whose opportunities of judging are as good as mine. If to the salt duties and the cotton duties is added the income tax, we have a total of five and a half millions of taxation reimposed since 1884-5, of which the burden, though not actually new, is none the more tolerable from having merely been reimposed. It is taxation of which the character is discredited, and which is doomed eventually to extinction. Such are the sources from which increased expenditure has been met, and surplus obtained. It is obvious that their existence

is, for the most part, a weakness to the Government of India. If it can be urged of these that at least they impose no absolutely new burden, the four millions increase of land revenue, on the other hand, is, in every sense of the word, a fresh addition to the calls on the taxpayer. The appropriation of the Famine Grant, though inevitable in itself with regard to present circumstances, can be defended only so long as receipts remain unequal to expenditure. It remains, meanwhile, the cause of constant recrimination. The Famine Grant included, we have thus six and a half millions on the side of receipts which, if not actually for the first time introduced since 1884-5, bring with them a measure of odium and discredit almost as great as if they had been newly imposed. They furnish-and this is the point to be remembered-the chief source whence there has been arrived at, in the last twelve years, such equilibrium as exists between Indian finance and expenditure. Their retention of itself proves that absence of fiscal resources held in reserve which characterises Indian finance.

Of the three causes to which increase of net expenditure during the last ten years is mainly due, to one only, and to the only one which it is beyond the power of man to control, can we look for any relief. So far as the other two causes of the increase of net expenditure lie within the control of the authorities, whether in India or in England, it is clear now that no reduction can be looked for. Neither in the army charges, nor in the net charges for State guaranteed or aided railways, will any diminution be conceded. We must look to exchange alone for assistance. But so long as the course of exchange remains as unfavourable as we have seen it of late years, the taxation of late reimposed, and the present appropriation of ear-marked revenue, must perforce remain. For the moment, the pressure of exchange is somewhat lightened. It is even possible that, in spite of the cost of the Chitral campaign, there may be little or no deficit at the end of the current year. The causes of the recent favourable turn in the exchange are as yet too obscure to allow of judgment being hazarded as to its permanency. But estimating, in any case, the annual requirements of the Secretary of State in bills at seventeen millions sterling, exchange must rise between three and four pencesay to about 18. 5d. as against its present rate of about 18. 13d.-before such relief can be given to the finances as to allow of the remission of the sources of revenue above enumerated, amounting to six and a half millions. There would doubtless, in the event of such a rise, be a further economy amounting to about a million, by a proportionate amount of diminution in the compensation to civil and military officers, which at present is granted in view of the low rate of exchange. But against this must be set counter considerations, which are apt to be forgotten when the direct loss or gain by exchange is in question. Regarded from the point of view of revenue as well

as of expenditure, the net results of a falling exchange will not be of unmixed advantage to the Indian Government. The gains traceable to exchange on the receipt side are too frequently lost sight of, or ignored, when the loss by exchange is loudly insisted on. A falling exchange will probably diminish the export trade and, indirectly, the railway receipts. So far as it is due to the shrinking of the rupee currency in British India, it must in time be felt in the rupee prices of produce, later in the rent of agricultural land, and finally in the land revenues of the Government. Against a falling exchange, moreover, must be set the steady increase in the Secretary of State's gold requirements. These have risen about a million in the course of the last decade; and in the 'Explanatory Memorandum ' the average annual net sterling expenditure in England of the past five years has amounted to 15,700,000l., as against an average of 14,800,000l. in the five preceding years. There is every reason to believe, from speeches of the present no less than of the late Secretary of State for India, that a revival of railway guarantees by the State, on a gold basis, and in a liberal form, is in immediate contemplation. The net loss on the whole State railway account already exceeds one and a half million sterling. If we wish to form some idea of the probable effect on Indian revenues, and on the expenditure in England, of extending the gold guarantee system, we may find material at page 101 of the last East India Financial Statement' (Blue Book No. 283). We have there a statement showing the true financial results to the revenues of India of the guarantee of interest upon the capital of guaranteed railway companies.' This, in other words, means the net drain on the Government from a gold guarantee. The figures are as follows:

1889-90 1890-1 1891-2 1892-3 1893-4 1894-5 1895-6 Rx. 842,263 233,526 465,188 950,952 912,487 1,611,900 1,168,200

It is not, however, only State guarantees but vigorous State construction, which forms the policy of the India Office. In proportion as State construction is pushed on will be additions to India's gold debt for railway plant and material, and for interest payable in gold. Beyond these items of increased charge lie the usual possibilities of famine, the instability of the Indian opium trade and the consequent risk of failure of revenue.

There must be briefly noticed here, in connection with the question of the administrative and exchange factors in expenditure, a remarkable statement made in the course of the late Indian budget debate. The Secretary of State for India is reported as having said:

The net expenditure for 1884-5 of the Indian Government was Rx. 41,907,813 and in 1894-5 Rx. 52,747,800, showing an increase of Rx. 10,839,987. There is certain expenditure which is under the control of the Indian Government, and

there is a certain charge which is not. That which is not under their control is the increased expenditure relating to the exchange. The increased expenditure during that period was Rx. 11,156,304, and it shows an absolute increase over the whole net expenditure of Rx. 316,317; or, in other words, the Indian Government, although they have had to administer a much larger territory during that period, although 20,000 additional native soldiers have had to be added to the native and 10,000 Europeans to the Indian army, have been able adequately to carry on all these additional duties at a less cost than ten years ago.

The year 1894-95 is not included in the Parliamentary Return No. 319, which shows the net income and expenditure of British India to 1893-94 only. But for present purposes it is not necessary to take the figures of that year. Two points in the above argument challenge attention. In the first place the figures of net expenditure therein quoted exclude the whole net expenditure debitable to the great head 'Collection of Revenue,' which in 1884-85 amounted in round numbers to Rx. 5,100,000, and in 1894-95 exceeded Rx. 6,200,000. The Secretary of State's figures are apparently taken from a statement of net Income and expenditure on the last page of the India Office Explanatory Memorandum.' In this statement expenditure has been deducted from receipts in all departments where there is a net surplus of receipts; and receipts, per contra, have been deducted from expenditure in all departments in which there is a surplus of expenditure. I am not aware what precise purposes this statement is designed to serve; but in the Return No. 319, of which the object is to exhibit the net receipts and expenditure, the Collection of Revenue' charges are, as they should be, duly included under the latter head. In the next place--and this is of greater importance— increase in the gross charge for exchange appears to be contrasted in the above extract with increase in net administrative charges. The effect of this may be illustrated by pointing out that in 1893–94 the gross exchange charge under the head of railways was Rx. 3,732,878; the net charge, after deducting net receipts, was Rx. 1,535,503 only. The results of the year 1894-95 did not materially differ from those of 1893-94, and an illustration drawn from the figures for the latter year will equally serve the purpose of indicating the defective nature of the comparison now in question.

Thus, on these figures the increase in net administration and in

net charge for exchange on railway account has been in ten years pretty well the same. But by adopting the system of comparison which we find in the above extract, we should have arrived at an increased charge on exchange account, in round figures, of no less than eight millions, and an increase in administrative expenditure of three and a third millions only. In adjusting the actual balance of increase between exchange and administration by analysis of the entire heads in which exchange finds place, the result would be to show a ratio of increase still greater on the side of exchange. But the chief item of account is that of railways, and it is not necessary here to work out results in further detail. It may, however, be added that detailed analysis of the growth of administrative charges would soon show, even if this was not à priori evident, that the Indian Government was far indeed from having carried on its business at a less expenditure in 1894-95 than in 1884-85. Gross must be compared with gross, and net with net expenditure. The real growth of net administrative expenditure cannot be arrived at by any other mode of comparison. If, for example, we wish to ascertain the net administrative increase in army charges of late years, we do not test it by comparison between the charges of a year of war and the expenditure of a later year of peace. We eliminate the war charges from the former year of comparison, and so arrive at a true comparison of results.

This brief sketch of the present position and prospect of Indian finance, however imperfect, may, it is hoped, serve the purpose of a compte rendu. It shows the approximate results of the last twelve years of financial administration, and the taxation and other analogous measures by which alone approach to equilibrium has been arrived at. The character and pressure of those measures have been explained. It has been seen that to exchange alone can we look for reduction in expenditure, but that even in that direction no real relief can be hoped for until there has been brought about a degree of rise which at present is not in the least probable. There will be, with the revision of land revenue settlements, progressive increase no doubt in the land revenue for some years to come, as there will be also in minor heads of receipt. But experience shows that the average annual increase in revenue under these heads does not more than counterbalance the normal growth of administrative charges.

The first object of this paper has thus been reached, viz. to set out as clearly as space permits the present position of the Indian finances, and to indicate the degree in which they can bear the political strain which threatens them. I may turn now to its second object, which is, to endeavour to form some estimate of the nature and the probable duration of that strain.

After the last Kábul war, the onward movement which had been revived in 1878 ceased again for a time with the acquisition of Quetta