J. D. (John David) Rees.

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Council bills, and, as the imports of India are
exceeded by her exports, purchasers in Europe have
to remit the difference. With this end in view, they

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INDIA

buy bills on India from the Secretary of State, who
pays the home charges with the proceeds, and the
buyers send the bills to India to be cashed by
the Government. This simple and effective system
was subject to considerable disturbance when the
exchange value of the rupee fell to Is. Id. in 1894-
1895. In that year the sterling value of the bills
paid was 15,770,000, to discharge which the Gov-
ernment of India had to pay 28 crores of rupees,
while at the rate prevailing in 1872 it would have
had to pay only 16 crores, the difference of 12 crores
being more than hah* the amount of the net land
revenue, the greatest asset of the Indian Gov-
ernment. The satisfactory condition of Indian
finances, and the progressive improvement which has
marked the last thirty years, are obscured by the
use of the word famine for those periodical crop
failures which must, and do at longer or shorter
intervals, affect some part or another of the vast
subcontinent of Asia dependent upon a precarious
monsoon. If the use of this word were abandoned,
and famine relief were called by its proper and now
thoroughly justified name of prevention of famine,
less heed would be paid to the foolish charges brought
against the Government of oppression and starva-
tion of their subjects. In fact, there is an increasing
land revenue accompanied by a diminishing inci-
dence on the cultivated area, and a steady rise in
the receipts from salt, excise, customs, and income
tax, all satisfactory proofs of developing resources.
The latest published figures show that the value of

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REVENUES AND TAXATION

exports and imports, including bullion, have risen
from 61 and 37 crores respectively, in 1876-1877,
to 129 and 86 crores. The number of cotton and
jute mills has increased since 1878 from 78 to 237.
In the same period the coal produced has been
multiplied sevenfold, and the supply of petroleum
has leapt in a year or two from 6,000,000 to 56,000,-
000 of gallons. The number of joint-stock com-
panies has more than, and their capital has nearly,
doubled. The black cloud of falling exchange has
disappeared, but a little cloud has appeared in the
possible extinction of the opium revenue. It can
only be hoped that the opinion of those who believe
that when India ceases to supply China with opium,
the supply in China will cease, will be justified, but
the loss of revenue will in any case be a serious
matter, though not such as the Government cannot
surmount without the help of the mother country,
to the receipt of aid from, which would attach,
whether expressed or implied, conditions which must
impair the financial independence of India. The
great expansion hitherto experienced in the land
revenue cannot be maintained; indeed, if the view
expressed in Chapter III of this volume be adopted,
no further development can be expected. The Gov-
ernment always welcomes any increase in the pro-
duction in India of articles at present imported from
Europe, albeit such increase must necessarily be
attended with a decline in the customs revenues.
Indeed, it has itself worked two collieries through
the agency of the North-Western Railway, and

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INDIA

either directly or through the agency of a subsidised
company has produced iron and steel in Bengal.
Svadeshi was really invented by the Government,
which, as Lord Minto has said, welcomes its devel-
opment, provided it be of an economic and not of a
spurious political character.

In connection with the finances of India it is
necessary to refer briefly to the introduction of the
gold standard. Under the Currency Acts of 1835
and 1870, silver was received without limit for coin-
age at the mints of Calcutta and Bombay, and the
gold value of the rupee of 180 grains weight, and of
165 grains of pure silver, depended upon the gold
price of silver bullion. The fall in the value of
silver, which began in 1873, not only caused great
loss to the Government of India, in discharging its
sterling obligations in England, but also, owing to
frequent and violent oscillations in the rate of
exchange, checked the flow of British capital into
India, and disturbed the commercial and economic
relations between the two countries It was decided,
therefore, to introduce a gold standard, and in 1893
the mints were closed to unrestricted coinage, and
bullion and gold coin were received in exchange for
rupees at the rate of Is. 4d. to the rupee. In conse-
quence of these measures the average rate of exchange
for 1898-1899 had been pretty well established at
a figure very closely approximating to Is. 4d. In
1899, therefore, sovereigns and half-sovereigns were
made legal tender at Is. 4sd. to the rupee, which, while
remaining legal tender up to any amount, yet became

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REVENUES AND TAXATION

a token coin representing ^ of a sovereign, though
no sovereigns have actually been coined in India.
Gold does not circulate freely, except in large cen-
tres, but between 1900 and 1904 about 17,000,000
sterling were issued in this form, most of which
has probably been withdrawn from circulation, and
more Indico hoarded by the possessors. Lest the
Indian Government should at any time be unable
to satisfy a demand for gold, by which failure
the rate of exchange would probably be adversely
affected, a special Gold Reserve Fund has been
formed on which Government could draw if the
stock in the paper currency reserves were exhausted.
The present circulation of rupees is estimated at
between 155 and 160 crores, or about 100,000,000.
The banking of the country is carried on by
institutions of the same character as those with
which we are familiar in England, and also by
native money-lenders who charge high, often exorbi-
tant, rates of interest, but run risks and lend money
where no others would, and supply capital in small
doles for agricultural operations. They are the
bankers of the small farmers of India, though the
Government grants loans for improvements and for
the purchase of seed and cattle, and makes advances
in years of scarcity. Co-operative credit societies
are also being introduced and encouraged by legis-
lation, institutions of the same character as the
agricultural banks of the continent of Europe, de-
signed to encourage thrift, promote the accumula-
tion of loanable capital, and reduce the interest on

147



INDIA

borrowed money by a system of mutual credit.
Post office savings banks are also encouraged, the
amount to credit of depositors being not far short
of 9,000,000 sterling. The Presidency banks at
Calcutta, Madras, and Bombay are joint-stock com-
panies regulated by an Indian Act of 1876, at which
Government keeps a portion only of its headquarter
balances. There are also eight exchange and eight
local European banks, and the total capital avail-
able for financing the larger operations of commerce
is about 10,000,000 sterling. The Government,
however, is the great Indian banker, which holds
most of its own cash balances, has sole control of
the paper currency, and through its transactions
with the India Office controls the rate of exchange.
The Presidency banks are, however, debarred from
raising money in the English market, a restriction
the removal of which has been, and even now is,
under consideration. Mercantile opinion favours the
view that existing banking facilities are not suf-
ficient to deal adequately with the requirements of
commerce, and the official opinion is that existing
banks would suffice, if they were so managed that
their resources would be free for the convenience
of merchants in seasons of commercial activity.
Whichever view may be correct it appears desirable
that such further facilities as may be practicable
should be afforded, and access to the London market
might fairly be allowed to the Presidency banks.



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CHAPTER VI

NATIVE STATES

THE census report of 1901 estimates the aggre-
gate area of the native states at 679,392
square miles, or 38 per cent, of the 1,776,597
square miles which make up the Indian Empire, the
population of which is 62,461,549, out of 294,361,056
inhabitants of India, in which are not included the
inhabitants of the Shan States of Burma, the Khasia
and Jaintia Hills, Manipur and Bhutan, while the
area and population of Nepaul have not been prop-
erly ascertained. The native states thus comprise
more than a third of the area and support consid-
erably less than a quarter of the population. In
52, 53, Victoria, cap. 63, it is provided that the
expression India shall mean British India, together
with any territories of any native chief under the
suzerainty of her Majesty, exercised through the
Governor-General, or through any officer subordi-
nate to him. This suzerainty, in the case of 175
states, is exercised directly by the Government of
India, and in the case of 500 through provincial
governments. Sir William Lee Warner explains that
the generally accepted view is that suzerainty is
divisible between the British Government and the

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INDIA

ruling chief, and that, of its attributes, the right to
make war or peace and the right of foreign negotia-
tion lies with the Government, while the right to
make laws and administer justice resides in the
ruling chief. No chief can therefore be properly
described as independent.

By including areas left out of account by the Census
Commissioner, but which for present purposes may
properly be included, the area of India outside direct
British dominion is upwards of 824,000 square miles
and the population of 68,000,000. The size of the
native states varies from that of Hyderabad, which
is rather larger than Great Britain, to petty posses-
sions of twenty square miles. The fact that in
some parts of India, as in Bombay, native states
are extremely numerous, amounting to 354 in num-
ber, whereas in other parts, like Madras, there are
only five, is accounted for by the conditions exist-
ing at the time the British power was consolidated.
In the south the Nizam of Hyderabad, the Nawab
of the Carnatic, the Sultan of Mysore, and the
Maharaja of Travancore had swept away or bound
up into one unit many petty chiefships and small
states before the British power was established.
In Bombay, on the other hand, the power of the
Peshwa had been weakened and territories were
changing rulers up to the time when the Mahrattas
were overthrown by the English, and the latter
power recognised the status quo and confirmed the
holders of the moment in their otherwise precarious
possessions. Most of the native states, however,

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NATIVE STATES

are of modern origin, the most ancient being those
included in Rajputana. Central India, on the
contrary, is chiefly occupied by Mahratta chief-
tains, who were not attracted by the deserts of the
Rajputs. As they moved from the Mahratta coun-
try towards Delhi, Sindhia, Holkar, and others
settled at convenient stations on the way.

The Nizams of Hyderabad were already practically
independent when the Emperor fell into the hands
of the Mahrattas, and Mysore may be regarded as
a revival by the favour of the British of an ancient
Hindoo principality. Travancore and Cochin are
old-world Hindoo states, which existed, as they are
now, before the struggle between the French and
English in the south. The Mogul emperors had not
been satisfied with suzerainty over the numerous
native states which existed in their day. What
they desired was dominion, in the quest of which
they were led to destroy the Mohammedan king-
doms of the Deccan, which, had they been preserved,
might have warded off the fatal onslaught of the
Mahrattas. The latter, in turn, simply desired to
levy as blackmail the fourth part of the revenue of
all weaker powers, and they evolved no real policy
in regard to the native states before the ruin of the
confederacy on the field of Panipat in 1761.

In South India, warfare with the French and
local intrigue led to the like relations with the native
princes, but with the fall of Tippoo Sultan at Mysore,
the Nizam and the British became united in a last-
ing alliance. Bengal had become part of British

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INDIA

India with the grant of the Dewani or fiscal admin-
istration in 1765, and Oudh was for a time the buffer
state between it and the Mahrattas. The establish-
ment, by the Treaty of Bassein in 1802, of British
influence at Poona led to war with Sindhia and
Bhonsla, which was followed by a breach with Hol-
kar, and subsequently with the Peshwa, and by
the suppression of the Pindaris, at the conclusion
of which, in 1818, Rajputana, Gwalior, Indore, and
Nagpur were brought under the British Protectorate.
The war of 1814-1816 left Nepaul independent as
to its internal administration, but under the control
of the Government of India in respect of its foreign
relations. Sind was brought into the Company's
net in 1843, and the year 1849 saw the annexation
of the Punjaub. At first the British policy was
to restore conquered territory, merely . retaining suf-
ficient for their own purposes and for the payment
of expenses, but since the phantom Emperor fell
under the control of the Mahrattas they ceased to
acknowledge his authority and, in the time of Lord
Hastings, adopted the policy of maintaining that
the British held the suzerainty of India. Between
1813 and the Mutiny, most of the existing treaties
were concluded with native states, and in 1891 the
British Government laid it down, in the case of
Manipur, that it is its right and its duty to settle
the succession in protected states. This did not, of
course, imply any reaffirmation of the doctrine of
lapse, the exercise of which is generally allowed to
have been one of the causes of the Mutiny. It is

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NATIVE STATES

now clearly established that the rights of chiefs as
rulers will be respected, but that the British Gov-
ernment alone shall act for them in dealings with
foreign powers and with other native states, that the
inhabitants of such states are subjects of their own
rulers, and that rulers and subjects are alike exempt
from the laws of British India. The internal peace
of the native estates is also secured, and they are
forbidden to employ, without permission, subjects of
other European nations, while their subjects, when
outside their own territory, become practically Brit-
ish subjects. As states which cannot make war
on other states in the same position as themselves,
or on foreign powers, need no army, in most treaties
the military forces which they may maintain are
restricted, and a provision is inserted to the effect
that no factories may be erected for the production
of guns and ammunition. Native states are, on the
contrary, bound to render assistance to the Impe-
rial forces. Since the time of Lord Dufferin several
of the larger units have maintained Imperial ser-
vice troops which number nearly 20,000 men in all.
These are under the inspection of British officers,
and when placed at the disposal of the British Gov-
ernment are available for use in the same manner
as British forces, though they belong to the states
and are recruited from its subjects. They have
already done good service in China and upon the
north-west frontier. In spite of the internal inde-
pendence guaranteed to the states the paramount
authority claims and exercises the right to interfere

153



INDIA

to correct serious abuses, or even to administer for
the time being, when sufficient reason arises. Thus
the late Gaekwar of Baroda was deposed, and other
instances of similar action are not wanting. The
powers of the Governor-General in native states are
exercised through political officers, generally called
Residents, who are the sole channel of communi-
cation, and the political service is recruited from the
Indian Civil Service and from the Indian army.
Residents, however, are usually appointed to native
states in political relations with local governments
from their own local civil service. Officers of the
regular political service, having had experience in
one native state after another, better grasp the fact
that interference in the ordinary administration is
neither desirable nor permissible, than officers ap-
pointed from the local civil service. The latter
almost invariably endeavour to reproduce in the
native states to which they are appointed the con-
ditions of the British districts in which they them-
selves served, and they review the administration
of their state as if it were a Government depart-
ment of which they were the responsible heads.
They are prone to establish a regular system of re-
ceiving petitions against the decisions of the officers
of the state, and, in short, there is much ground for
thinking that with the permission, express or implied,
of the local government, they wittingly or unwit-
tingly defeat the object of Government in preserving
native states, by impairing their individuality, and,
insensibly, their qualified independence. Even where

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NATIVE STATES

the subjects of the state are prosperous and con-
tented, officers of the character described are far too
ready to regard the state as a field for the exhibition
of their own administrative powers and for the in-
troduction of reforms. The case is still worse where
it happens that the right of the chief to choose his
own minister is practically taken from him, in con-
sequence of advice tendered by the Resident or by
the local government. There are always factions
at these courts, one or another of which frequently
gets the ear of the political agent, and able officers
of the state, well fitted to become ministers to their
Maharajas, may not be popular with the little Euro-
pean clique at the capital. The craze for reform
after British patterns, whether or not required, is
such that it ever points towards the expediency of
bringing in outsiders. The officer thus introduced,
almost invariably a capable Brahmin, who has event-
ually to revert to British employ and knows on which
side his bread is buttered, immediately proceeds to
justify his appointment by the introduction of whole-
sale changes in the administration, or of ambitious
schemes which dissipate the cash reserves of the
state and do not necessarily add to the happiness
of its inhabitants. It is of the greatest importance
that the right men should be appointed to political
charges, and probably few people are less suited to
these offices than the ordinary collector and magis-
trate from British India, or the heads of the Police
or Education departments, or the like, under local
governments, who cannot resist the temptation to

155



INDIA

introduce into native states those principles of ad-
ministration which they have always practised, at
any rate to their own complete satisfaction. When
once this spirit is introduced, it is most difficult to
exorcise, and the ruling chief, who probably dreads
its spread, is himself precluded from raising objec-
tions by the approval granted as a matter of course
by the local government to every reform, which sub-
stitutes for native, British Indian methods of man-
agement. Viceroys may, and do, one after another,
lay down the proper limits within which the activi-
ties of the political agent should be confined, but,
however much these homilies may be taken to heart
by those who have to look to the Foreign Office
for promotion, they become pale and ineffectual long
before they have filtered through a local govern-
ment to the political agent who works under its
direct authority and need care nothing for the For-
eign Office at Calcutta. It is a matter of infinite
concern to those who value the precious individ-
uality of particular states, their historic continuity,
their associations, and economic and social charac-
teristics, to see all those distinctive features, which
never can be restored, year by year obliterated, and
everything painted a pale red colour. The educa-
tion of chiefs, moreover, has not been conspicuously
successful because youths have been brought up to
be English rather than Indian, and to hanker after
visits to England rather than residence among their
own people. The chiefs' colleges do good work,
and the establishment of the Imperial Cadet Corps,

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NATIVE STATES

though an extremely limited measure, is yet a step
in the right direction. The visits of Viceroys to
native states are of course most desirable, but
nothing less than the strictest instructions to local
governments to order their political agents to let
the native states alone, and thus get the instruc-
tions of the supreme Government in this behalf
carried into effect, will avail to relieve the chiefs
from interference such as was not contemplated by
treaty, and is not desired by the India Office or the
Viceroy, to judge from the speeches, for instance, of
Mr. Morley and Lords Dufferin, Lansdowne, Elgin,
Curzon, and Minto.

The Government of India has, besides relations
with the native states, foreign relations proper,
which are alike dealt with by its Foreign Office. It
has for instance such relations with Turkish Arabia
at Baghdad, with the fortress of Aden, with Muscat,
the islands of Perim and Socotra, the Persian Gulf,
and parts of Persia, Afghanistan, Tibet, Siam, and
China. The possession of Aden connotes control
over the neighbouring Arab tribes, which is acknowl-
edged by the Turkish Sultan, and with the Sultan
of Muscat engagements have existed since 1798.
Treaties also exist with the Arab chiefs who dwell
upon the shores of the Persian Gulf, wherein the
British put down slavery, and wherein they have
an interest of a character owned by no other power.
The Sheikh of Koweit is under a treaty of obliga-
tion with the Government of India, and the contem-
plated construction of a railway from Asia Minor

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INDIA

to the Gulf, by Baghdad and Busra, renders the
possession of, or suzerainty over, his small territory
of great importance. A political resident is main-
tained at Baghdad in order to look after Indian
interests in and around the Persian Gulf and in
Turkish Arabia. Britain has also preserved the
independence of the Sheikh of Bassein, the centre
of the famous pearl fishery, who has entered into a
perpetual treaty of peace and friendship with us.
Persian affairs are now under the control of the
British Foreign Office, and though the mission to
the Shah's Court was at one time maintained out
of Indian revenues, after various changes, in 1900 the
Royal Commission on Indian Expenditure recom-
mended that the charges for legations and consul-
ates in Persia should be evenly divided between
India and the United Kingdom. The Protectorate
over Beluchistan was established in 1855, and in
1857, after the despatch of an expedition under Sir
James Outram to the Persian Gulf, the Shah of
Persia undertook to resign all claims on Herat or
any part of Afghanistan, and in the event of dif-
ferences arising with the Amir to refer them for
adjustment to the British. Under this agreement
the frontiers between Persia and Beluchistan and
Afghanistan have been delimited. Of all the foreign
relations of the Government of India, those with
Afghanistan are of the greatest importance. The late
Amir enjoyed a personal subsidy of twelve lakhs of
rupees a year, to which six more were added when, in

*A lakh of rupees is 6666.

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NATIVE STATES

1893, the Durand agreement was negotiated, which,
like all others, has been continued with Abdul Rah-
man's son and successor, Habibullah. An Indian
Mohammedan represents the Governor-General at
the Court of the Amir, who, in turn, sends an envoy
to the Government of India.

Tibet is under the suzerainty of the Chinese
Government, to which a nominal poll-tax is paid,
but the government is in the hands of Buddhist
ecclesiastics, who forbid any foreigners to settle in
the country. In 1888 a collision occurred with the
Tibetans, and in 1890 a convention was concluded
with China providing for commercial facilities, sub-
sequent to which, in 1895, delegates were appointed
for the demarcation of the frontier, to which the
Tibetans declined to submit. After much negoti-
ation Colonel Younghusband, the British Commis-
sioner, proceeded to Khamba Jong, but the Tibetans
resisted his progress. In 1904, however, the expe-
dition advanced to Gyantsi, where the Tibetans
attacked it, when the fort was captured, and Sir
F. Younghusband advanced to Lhassa, where a
treaty, to which China assented, was signed in 1906.


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