The revenue under the head of customs was derived from an ad valorem duty on various articles exported from or imported into India. The rate of this duty varied from time to time. The most important was the import duty on cotton goods, which yielded an income equivalent to nearly two thirds of the total income from imports. But as soon as cotton mills were established in India, this duty adversely affected the import of cotton goods manufactured in England. The English manufacturers brought pressure upon the Home Government, and the Government of India was persuaded to adopt the policy of Free Trade then current in England. Consequently, in 1882 all the import duties were abolished, save on such commodities as wine and salt on which internal taxes were levied. But it proved exceedingly difficult to compensate for the loss of customs duty from other sources. The heavy fall in the price of silver, which formed the standard of currency in India, the military expenditure caused by wars in Burma and the threatening attitude of the Russians in the north-west, and the provisions of the Famine Insurance Fund–all imposed heavy strains upon Indian finances. In order to balance the Budget, the Government of India was forced, in 1894, to reimpose a general import duty at the rate of 5 per cent ad valorem. In order to safeguard the interests of English manufacturers of cotton goods, an equivalent excise duty was levied on the cotton goods manufactured in Indian mills.
The abolition of the import duties on cotton goods, and still more, the levy of duty on cotton goods manufactured in India when the import duty war, reimposed, were so obviously unjust to Indian interests that even the Council of the Viceroy protested against the measures. In both instances the British Cabinet forced their views upon the unwilling Government of India. In the latter case Sir Henry Fowler, the Secretary of State, enunciated the general policy as follows:
“When once a certain line of policy has been adopted under the direction of the (British) Cabinet, it becomes the clear duty of every member of the Government of India to consider not what that policy that to be, but how effect may best be given to the policy that has been decided on.”
In addition to the revenues mentioned above, the income-tax proved to be a valuable source of receipts. It was introduced in 1860 as a temporary measure, to cope with the financial stresses caused by the Revolt. At first it was in the form of a general levy of 4 per cent on all incomes of Rs. 500, or above, and 2 per cent on all incomes between Rs. 200 and Rs. 500. It was abolished in 1865 but revived again two years later, in the modified shape of a licence tax on trades and professions. A general income-tax was reimposed in 1869, but again dropped. Ultimately the financial difficulties again forced the Government in 1886 to impose a tax on all incomes other than those derived from agriculture. The tax has since been continued, though the rates have varied from time to time.
A few words may be said regarding the vexed problem of currency. During the early period of Mughul rule, gold mohurs and silver rupees were both current in Northern India, though gold was the principal currency in Southern India. The rise of numerous independent kingdoms on the break up of the Mughul Empire led to the introduction of a multiplicity of coins, as the issue of coins was regarded as one of the insignia of sovereignty. It has been estimated that as many as 994 different types of coins, of both gold and silver, were current in India.
Its disadvantages for purposes of trade and commerce were obvious, and the East India Company tried to solve the difficulty by issuing both gold and silver coins with a definite legal ratio, weight, and fineness. But owing to fluctuations in the value of the two metals it proved exceedingly difficult to maintain the legal ratio between the two types of coins. Gradually the gold mohur, being undervalued, disappeared. In 1818 the silver rupee of 180 grains (11/12th fine) was substituted for the gold pagoda of Madras, and in 1835 the rupee of the present form and size, but having the same weight and fineness as that of 1818, was made the sole legal tender throughout the British territories in India. The Government mints coined this rupee for the public, the value of the bullion being identical with its legal value.
In 1841 an attempt was made to reintroduce gold coins, and gold mohurs were accepted for public payments at the rate of fifteen rupees to a mohur. But the price of gold fell owing to discoveries of the metal in Australia and California in 1848-1849, and Lord Dalhousie definitely abandoned the experiment of 1841. Gold was thus given up as the medium of exchange. But this led to scarcity of money, and trade suffered. Several proposals were made to introduce a gold currency in India, instead of silver, but no effect was given to them.
From 1874 the problem became acute. The adoption of a gold standard by most European countries, and an increase in the output of silver, depreciated the value of silver in terms of gold. Thus while a rupee was equivalent to two shillings of English money in 1871, its value fell to Is. 2d. in 1892. In view of the extensive trade of India with foreign countries, which had a gold currency, the situation appeared desperate. In 1878 the Government of India recommended to the Secretary of State the introduction of a gold currency in India, but the latter rejected the proposal. In 1893 the Government introduced the following important changes in its currency on the recommendations of the Herschell Committee:
I. Indian mints were closed to the free coinage of gold and silver for the public.
2. Gold was received in mints in exchange for rupees at the ratio of Is. 4d. to the rupee.
3.Sovereigns were received in payment of public dues at the rate of Rs. 15 for a sovereign.
4.Issue of currency notes in exchange for gold coins or bullion at the same rate.
