widening the social basis of imj^erialism. Still an-
other factor came into play subsequently. That
was the crisis of world capitalism caused by the war.
Towards the close of the world war, the negative
factor — passivity of the masses — upon which Brit-
ish rule in India had mainly relied, almost disap-
24 THE FUTURE OF ]
Peared. In spite of the maturing rapprochement-
geoisie the country was in a state of revolt Thei
necessity of widening and deepening Ihe social
basis of Bntish rule in India by winning over the i
native bourgeoisie became imperative. The Refom I
Act of 1919 was passed by the British Parliame^^
to meet the situation. But the iirst great re^olu i
tionary expression of Indian Nationalifm could not i
be altogether suffocated by an Act of Parliament '
A few years of disturbances were to follow. The '.
revolutionary upheaval of 19x9-21, however, did not i
hinder the process of agreement. 'On the con rary '
he fear of revolution drove the Indian bourgeoisie i
into the arms of capitalism
fori on^^fh'^"'" °^ tremendous revolutionary '
torces on the scene encouraged the petty hour- i
geoisie whose position would be scarcely improved i
by the reforms to oppose the reforms. Even a
Bu 'thet^' '"""^^r"" r'"^^ '"^^t -PpSion ^
But the new imperialist policy of steady economic '
ZTTZf,'''X '°.'"" bo-geoisie, in' course o :
time knocked the bottom out of the opposition I
ilktur r n '' '°™ °' ''''''"' °^ ^^^ refor'm'ed £g" '
rf^r ; "^^ .°°'^^ "^"'■^ be emphasised that the i
by t'wo conT^r "^^ '°^^^^ 'P°" imperialism
by two considerations entirely independent of the '
uTZ f-.'^u ^"^'^° bourgeoisie^ Thev were ^
(1) to enlist the services of the Nationalist bour- i
upr iinrof th"T5' *° ^"PP^^^-^ '^' revolutionary '
uprising of the Indian masses for freedom, and i
(a) to overcome the post-war crisis of capitalism
ofcSTatr "'^^'^^'^ "^' ^^PP-^ ^"^^ - - i
Ind1:„^ntSrial=n%-^5L:mbtr. ^^^^^^^^^^^
I'
INDIAN POLITICS 25
Government moved a resolution in the Legislative
Assembly, appointing a commission to give prac-
tical shape to the recommendations of the Indian
Industrial Commission. The Resolution says :
" The most obvious and direct form of
assistance which the Government can give to
the industries of the country is by the pur-
chase of supplies required for the public ser-
vices so far as possible in the countr\^ itself."
This measure to advance the interests of native
capitalism was taken immediately after the most
powerful section of the Indian bourgeoisie had
iroken away from the Nationalist movement. It
was obviously intended to show that it paid to co-
operate with imperialism even on the basis of very
inadequate political reforms. Besides, British
capital invested or about to be invested in India,
not as previously, but for building manufacturing
industries, was influencing the economic policy of
imperialism.
Referring to the cause and consequences of the
establishment of the Indian Stores Department, the
British Trade Commission in India wrote in 1920 :
" In the first place, both the Indian and
also the non-official European members of the
Legislature are determined that, in future,
all purchases of stores for Government re-
quirements shall be made in India and that
all tenders shall be called for in India and
in rupees. These claims have been met by
the Government of India to some extent.
The revised Store Rules permit the newly
organised Indian Stor-^s Department at Delhi
/Simla to purchase almost unlimited quan-
26 THE FUTURE OF \
tities from stocks held in India or in thei
course of shipment. They also sanction pur! i
chases of machinery and plant from ?Wn '
dian branches of British manufacTurers or"
from their technical agents Tln^r^ ? i
be little doubt thatlf^ew^ndlrsTo'r :i
auTe'anTttt'n ''"'''^ ^"^'^^ « '-S"! !
ence .n f '^^ '^"^'■^ °f purchasing influ- I
ence so far as important stores are concerned i
will be transferred from London to India "' 1
budget of iQ2^-o^ allnfff^r! r r^ years. ihe
INDIAN POLITICS
Chapter IV. India adopts Protection
In its report the Railway Committee cited in-
stances of the failure of Indian manufacturers to
compete successfully with the manufacturers of
other countries. Consequently the opinion of the
Committee was " that industries newly started in
India for the manufacture of railway materials of
a fabricated character cannot, in the initial stage,
compete without assistance against established in-
dustries abroad." As a logical consequence of this
admission, the Legislative Assembly passed a Bill
in June, 1924, granting bounty on the manufacture
of raihvay wagons in India until the year 1929.
All these measures were heading towards Protec-
tionism — the summum honum of Indian Nationalist
demand. To the dissatisfaction of the Indian bour-
geoisie, the Industrial Commission of 1916 had been
precluded from touching the tariff question.
Naturally, British imperialism had been very reluc-
tant to equip the Indian bourgeoisie with a weapon
that could eventually be turned against it. But
events were moving fast. The decision to purchase
railway material, structural steel, etc., manufac-
tured in India when the amount manufactured could
obviousl}^ not supply the demand, was an invitation
for British capital to build industries in India. The
concession to the Indian bourgeoisie was incidental.
The process of accumulation of capital in the in-
dustries in Britain was on the decline ; should Brit-
ish capital not find other sources of investment
which could lead to accumulation setting off the
decline at home, the post-war crisis of British im-
perialism would be decidedly fatal. Further, the
Indian market was rapidly ceasing to be a British
28 THE FUTURE OF
monopoly. It was invaded from all sides — United
States, Japan, Germany and Belgium taking the
lead. The following tables show the situation as
regards the iron and steel trade :
Steel Imports
From 1914 1922
Britain 59-8% 45.7% of total import.
Belgium 17.0% 30.7% ,, ,,
U.S.A. 2.2% 13.7% „ „
Even Germany, which had been totally elimin-
ated from the Indian market up till 1920, recovered
her position by 1922 to the extent of 12.1 per cent,
of the total import.
Imports of Iron Bars and Channels
(In tons.)
1920 1922
Britain ... 77i726 17,616
Germany ... 9,743 38,404
Belgium ... 39,5So ii3,ti6
The textile market, which had absorbed over
30 per cent, of British export to India, was also
seriously cut into by Japan. The following figures
illustrate the situation :
Pounds of Yarn Imported
Britain Japan
1922-23 ... 31,018,372 26,546,905
1923-24 ... 24,789,9-^3 20,430,025
1924-25 ... 20,759,078 32,324,773
In the first quarter of 1925, Japanese import was
16,160,285 pounds as against 4,861,775 pounds from
England. As regards woven goods, particularly of
the finer varieties, Lancashire was still resisting the
INDIAN POLITICS 29
competition. But over 60 per cent, of India's tex-
tile demands consist of cheap rough stuff, owing to
the low standard of living of the people. Ever-
increasing quantities of yarn of the lower counts,
imported from Japan, would b(; woven in the Indian
mills and drive the Lancashire cloth out of the In-
dian market. The consideration of this eventuality
induced the Lancashire millowners, just recently, to
come to an agreement with the Indian manufac-
turers by acquiescing in the abolition of the Excise
Duty on the Indian cotton industry.
The greatest portion of the 1,500,000,000 rupees
allotted (in 1921) for the rehabilitation of railways
was spent in England but in the teeth of persistent
Indian demand that supplies for Indian railways
should be bought in the cheapest market. Eventu-
ally Indian orders would go to other countries by
the sheer law of competition (the basic principle of
capitalist economy) , unless Britain permitted India
herself to supply them.
British manufacturers were being dislodged ap-
proximated' at the corresponding rate from ether
Eastern markets. To manufacture in India was
the only possible way out of the impasse. Cheap
labour and raw materials and great saving on the
cost of transport taken together would enable the
British capitalists not only to hold their own in the
Eastern market ; the enormous profit made might
also enable them to tide over the industrial crisis at
home.
Soon after the conclusion of the war, a number
of iron and steel manufacturing companies were
registered in India, all connected with British firms.
The principal ones were :
I. Indian Iron and Steel Company, Ltd. ;
Capital Rs. 5,000,000. Registered in 191S.
3? THE FUTURE OF
Projected production 180,000 tons of pig iron
a year. Promoted by Burn and Co., a British
engineering and shipbuilding firm in India.
2. The United Steel Corporation of Asia, Ltd.,
capital, Rs. 150,000,000. Registered in 1921.
Projected annual production 300,000 tons of pig
iron and 200,000 tons finished steel to be in-
creased in a few years to 700,000 and 450,000
tons respectively. Promoted by Cammel,
Laird and Co., of Sheffield.
3. The Peninsula Locomotive Co. Capital
Rs. 6,000,000, held partly by Kerr, Stuart
and Co., of Stoke-on-Trent, and partly by In-
dian capitalists. Will be able to produce 299
locomotives a year to begin with.
The lead given by these firms was sure to be
followed by others. (It has been proved to be so
by subsequent events.) Thus, tariff walls raised
by the Indian Government would no longer operate
against British interests. They would protect the
Indian key industry largely promoted and owned
by British capital, with native capital participating.
There was another reason which obliged British
imperialism to accede to the Indian Nationalist de-
mand for protection by a high tariff. This was a
negation of the traditional policy on which British
trade relations with India had always been deter-
mined. In the interest of the home manufacturers
Britain imposed upon India the policj^ of Free
Trade. In the case of India, Free Trade means
free exploitation by British imperialism. The Brit-
ish manufacturers would not tolerate the least ob-
stacle to be placed on the free import of their com-
modities to India.
Financial difficulties in the post-war years had
INDIAN POLITICS 31
obliged the Indian Government to raise import
duties to a height which, for practical purposes,
had protectionist effects. From an average 3 per
cent, ad valorem levied before the war for revenue
purposes, the import duties had been raised from
II to 15 per cent. Judged from this side, what
remained to be done was to call the spade a spade —
come out officially in favour of protection for India
and thus satisfy the traditional demand of the
Nationalist bourgeoisie.
In the beginning of 192 1 the following resolution,
moved by Lallubhai Samaldas (an Indian merchant
and financier) was passed by the Legislative
Assembly :
" This Council recommends to the
Governor-General in Council that His
Majesty's Government be addressed through
the Secretary of State with a prayer that
the Government of India be granted full
fiscal autonomy subject to the provisions of
the Government of India Act."
Immediately after this resolution had been passed
the Secretary of State for India in replying to a
deputation from Lancashire (which had all along
been the sturdy opponent to India's fiscal freedom)
declared the decision :
" To give to the Government of India the
right to consider the interests of India
first, just as we, without any complaint from
any other parts of the Empire, and the other
parts of the Empire without any complaint
from us, have always chosen the tariff ar-
rangements which they think best fitted for
their needs, thinking of their own citizens
first."
32 THE FUTURE OF
This speech was followed by a despatch, dated
30th June, 1 92 1, to the Government of India, an-
nouncini^ the decision of the British Government
to accept the principle of fiscal autonomy.
In October, 1921, was appointed a Fiscal Com-
mission to .examine the question of a tariff, under
the Presidency of Sir Ibrahim Rahimtoolla — a great
Bombay millowner. Out of the eleven members of
the Commission, seven were Indians, all prominent
in industrial, commercial and Nationalist political
fields. One unprecedented feature of the Commis-
sion was that it had only one English official on it.
The divergence between the interests of British and
Indian capital had been so reduced that mutual con-
fidence and joint action was possible.
The Fiscal Commission submitted its report at
the end of the next ^''ear. Basing itself on the con-
clusions " that the industrial development of India
has not been commensurate with the size of the
country, its population and its natural resources,
and that a considerable development of Indian in-
dustries would be very much to the advantage of
the country as a whole," the Commission recom-
mended, among other things :
1. That the Government of India adopt a policy
of Protection with discrimination.
2. That a permanent Tariff Board be set up to
consider the claims of particular industries for
protection.
3. That raw materials and machinery be ad-
mitted free of duty.
4. That the Excise Duty on the Indian cotton
industry be removed.
5. That no obstacle be raised to the free inflow
INDIAN POLITICS 33
of foreign capital, but that Government mono-
polies or concessions be granted only to com^
panies incorporated and registered in India with
rupee capital, and with Indians on their direc-
torates.
Five Indian members of the Commission (the
President himself included among them) did not
consider the verdict of the Commission wide
enough and supplemented the General Report with
a minute of dissent. The essence of their point of
view will be interesting and useful to note, since
it represents the demand of the most radical section
of the Indian bourgeoisie. The dissenting minor-
ity wrote :
1. There should be an unqualified pronouncement
that the fiscal policy best suited to India is
Protection.
2. It is a mere commonplace to say that a rich
India is a tower of strength to the Empire,
while an economically weak India is a source of
weakness. . . India would have been of far
greater help to England during the war if the
policy of protection had been adopted at least
a generation ago. . . This (revision of the
tariff policy) would have been to her great
advantage and would have been beneficial to
the Empire. . . .
India, inhabited by a fifth of the human race,
can be of tremendous value, economic and
political, both to herself and to the Empire, if
development proceeds on lines best suited to
her conditions.
On the question of inflow of foreign capital, the
minority appeared to differ from the view expressed
in the general report. But this is what they said :
" ^^' e are unanimous in thinking that in
34 THE FUTURE OF
the interest not only of the consumer, but
of the economic advancement of the country,
it is essentially^ necessary that industrialisa-
tion should proceed at a rapid pace. . . .
We will, therefore, state at once, that we
would raise no objection to foreign capital
in India obtaining the benefit of protective
policy, provided suitable conditions are laid
down to safeguard the essential interests of
India."
The conditions recommended by the minority,
however, are the same as stated in the general
report, namely : incorporation of companies in In-
dia with rupee capital and proportionate Indian
directors.
In February, 1923, the Government of India
declared the acceptance of the principle of dis-
criminating protection recommended by the Fiscal
Commission as a whole. The Government reso-
lution unanimously adopted by the Legislative
Assembly accepted " in principle the proposition
that the fiscal policy of the Government of India
may legitimately be directed towards fostering the
development of industries in India."
A few months later, acting upon the recommenda-
tions of the Fiscal Commission, the Government
appointed the Tariff Board consisting of three
members, two of whom were Indians. Thus an
agreement was reached between the Indian bour-
geoisie and British imperialism on the vital ques-
tion of economic antagonism. Without vitally in-
juring imperialist monopoly, considerable satisfac-
tion was given to Indian capitalism at the expense
of the masses.
The Tariff Board began, of course, with the Iron
and Steel industry. The Tatas immediately came
INDIAN POLITICS 35
forward with the demand for a 33.5 per cent, duty
on imported steel manufactures. On the recom-
mendation of the Tariff Board, the Government in
May, 1924 brought before the Legislative Assem-
bly the Steel Industry (Protection) Bill which set
up a tariff varying from 20 to 25 per cent, on fabri-
cated iron and steel entering the country, and a
large bounty on the production in India of railway
wagons. The Bill authorised the Government to
raise the duty in case one or more of the dutiable
articles would be found to be imported into India
at such a price as would be likely to render in-
effective the protection intended. The Bill passed
the Legislative Assembly with very little opposi-
tion. The vSwaraj Party broke its vow of obstruc-
tion and voted with the Government.
The effect of protection on the Indian iron and
steel industry can be judged from the following
estimated growth in the production of the Tata
concern behind a tariff' wall. Total production in
1923 was 121,000 tons. It will increase to 250,000
335,000 and 390,000 tons in the three succeeding
years.
Hardly a year after the passage of the Protec-
tion Act, the Tatas declared that the duties did not
give them enough protection and demanded their in-
crease. The Government, with the sanction of the
Assembly, granted the demand not by additional
duty, but by a substantial bounty on production
to guarantee a fixed margin of profit.
The Tariff Board then recommended protection
for the paper and cement industries and is at pre-
sent considering the claims of the coal mining in-
dustry. Since the industries, whose claims are to
be investigated, are suggested by the Government,
the protection for these industries is a foregone
conclusion.
36 THE FUTURE OF
Chapter V. The Cotton Excise and Foreign ,
Trade I
The climax of the policy, which has transformed '
the economic relation between the Indian bourgeoisie j
and British imperialism from antagonism to co- |
operation, was abolition of the 3.5% Excise Duty; ]
there has been a duty of 11% on the cotton j
goods imported, which dut^^ remains in force. One •
of the outstanding Nationalist grievances has al- \
ways been "the strangling of India's premier in- i
dustry in the interest of Lancashire." The pheno- \
menal growth of the Indian cotton industry does not '
justif}' this grievance. The industry, with an 1
aggregate capital of Rs. 300,000,000 (in round I
numbers) made a total clear profit of Rs. 350,000,000 !
in the period of three years, 1919-1921. Even when I
in Sept. 1925, the workers (150,000) employed in :
the Bombay mills were locked out to enforce a
further wage cut of 11. 5 per cent (in addition to;
a 20 per cent, cut in 1924) on the pretext of "ruin- :
ous" trade depression, not less than half the mills '
were paying a fairly high rate of dividends. How- j
ever, the abolition of the Excise Duty removed the 1
last cause of friction between the Indian bourgeoisie .
and Imperialism. The political effect of this step :
has been to split the Nationalist movement along ;
the line dividing the big bourgeoisie and the pett3^ |
bourgeoisie. The life of the Swaraj Party, which j
stood with one foot in the camp of the big bour- !
geoisie and another in the petty bourgeois camp, j
is seriousl}^ threatended.
This concession again was not made in deference \
to the demands of the bourgeois Nationalists. Con- '
INDIAN POLITICS 37
sideration of Britain's own economic interest was
there, beside the subtle policy of politically isolat-
ing the petty bourgeois Nationalists by showing the
Indian capitalists that their economic growth was
not only possible, but even could be promoted with-
in the orbit of Imperialist economy.
In spite of the enormous growth of native pro-
duction, India still imports nearty 50 per cent of
her textile requirements, w^hich until recently used
to be supplied by Lancashire. But in the last years
things have changed greatly. Japan has been break-
ing into the Indian market with alarming rapidity.
Her share in the Indian trade increased from 0.3
in 1914 to 9.1 per cent, in 1924. In 1925 the pro-
portion was expected to be much greater. England
cannot possibly compete with Japanese goods pro-
duced by sweated labour.
Indian mills worked by coolie labour can alone
do that ; and the British bourgeoisie can always
participate in the resulting proht by exporting
capital to India to be invested in those mills. It
is remarkable that before the abolition of the Excise
Duty was declared, the President of the Bombay
Millowners' Association, N. N. Wadia, visited Eng-
land and had conferences with Lancashire mill-
owners. In view of the stormy opposition of Lan-
cashire when the duty on cotton goods imported
into India was raised from j.s per cent, to 11 per
cent, without a simultaneous increase in the Ex-
cise Duty, the gracious acquiescence of Lancashire
in the abolition of the small Excise Duty without
touching the comparatively high import duty is
remarkable. The explanation of this changed at-
titude is provided by the following quotation from
a statement issued by a joint meeting of the Man-
chester Chamber of Commerce and Lancashire mill-
38 THE FUTURE OF
owners convened immediately after the announce-
ment abolishing the Excise Duty.
"If the industrial and general situation in
India improves in the way in which it is so
much desired, it is clear that the Lancashire
industry- may hope for better trade as a result.
That there is a potential purchasing power in
India sufficient to engage the producing power
of both Indian and Lancashire industries, can-
not be doubted. ... It is to be hoped that in
the new situation now created we may find
ourselves moving towards a position where the
needs of the Indian market will be met to an
increasing extent by her own manufacturers in
their class of product, and by Lancashire in the
types upon which she will naturally concen-
trate. Such a state of aflairs would satisfy the
legitimate aspirations of India, whilst not do-
ing injustice to the Lancashire industr3^ If
this situation frankh^ recognised by both par-
ties, could lead to the fostering of a better
spirit of mutual sympathy, support and accom-
modation, we would be prepared to accept any
difficulties which may be imposed on Lancashire
by the present decision in a generous manner."
— (The Economist, Dec. 5th, 1925.)
The situation is obvious : Indian and British
capital made up their age-long quarrel and came to
an agreement against the common foe, Japan. Re-
ferring to the abolition of the Excise Dut3^ the
" Economist" (Dec. 5th, 1925) wrote :
" The fact of the matter is that times have
changed. India has now fiscal autonomy, and
it is useless for Lancashire to make protests
against reductions in Excise Duties or in-
INDIAN POLITICS 39
crease in Import Duties. It must not be for-
gotten that this action of the Indian Govern-
ment will probably be a more serious matter
for Japan than for this country. Lancashire
realises more fully than ever that in the future
she will have to concentrate her machinery
more and more on the finer makes of cloth, and
leave the coarser materials to be made by the
mills in the East. During the last few years
leading authorities have noticed a desire on the
part of Indian consumers of cotton cloth to
purchase higher quality goods. If this is
maintained and extended as there is reason for
thinking that it will be, if the purchasing
power of the natives is increased, then cotton
manufacturers in this country have nothing to
fear. It is primarily desirable that a spirit of
friendship and goodwill should exist between
the people of this country and of India."
(P- 939.)
The abolition of the Excise Duty made a tre-
mendous impression in India. Though reluctant to
say so openly, the Nationalists generally recognised
it as an unmistakable sign of a " change of heart"
on the part of Britain ; and a " change of heart" was
all that the Nationalists wanted as the price for