In the last Essay, reference was made to the many gratifying indications afforded by recent events that, with the general recognition of the true financial condition of India, a new spirit would in future be likely to control the administration of the finances of that country. During the few months which have elapsed since this opinion was expressed many circumstances have occurred which afford additional proof that reforms which before seemed to be unattainable will now be readily conceded. Thus, in directing attention to the trades' licence-tax and to the famine fund, I have had frequent occasion to refer to the extremely oppressive character of the tax as it affected the very poor, to the great inequality in its incidence, and to the confusion which was introduced into Indian finance by the nominal maintenance of a famine fund, after the revenue yielded by the taxes from which this fund was created had been devoted to objects in no way connected with the relief of famine. From the first moment that the trades' licence-tax was imposed, public opinion in England and in India condemned with remarkable unanimity the injustice of a tax which, while it was levied from petty traders and handicraftsmen whose incomes were only four shillings a week, left altogether untouched the highly-paid officials, all military officers, and all professional men.

Petitions most numerously and influentially signed by all classes of natives in India were presented in both Houses of Parliament against the continuance of these inequalities in the tax, and on several occasions the prayer of these petitions was supported by those who could speak with most authority and weight on a question of taxation. Striking instances were given of the abuses and difficulties inseparably associated with the assessment and levying of direct taxation imposed upon the very poor in such a country as India; but for a long time the Government, both in England and in India, appeared to be deaf to all remonstrance.

Within the last few weeks, however, a change, as remarkable as it is satisfactory, has taken place in the attitude which had hitherto been officially assumed with regard to the licence-tax. On the 14th of November, the Finance Minister, Sir John Strachey, brought forward, at a meeting of the Legislative Council of the Viceroy, a Bill for the amendment of this tax, which, though it left some inequalities unredressed, introduced many important improvements. It will be at once seen from a brief description of the provisions of the Bill that it fully recognised the justice of the most serious objections which had been urged against the tax. As previously stated, only those traders whose incomes were less than 100 rupees a year were exempted from the tax; by the Bill the limit of exemption was raised from 100 rupees to 250 rupees. It is supposed that the number of persons to whom relief would thus be given would not be less than a million. The Bill effected another not less important change, by subjecting to a uniform tax of 1½ per cent. the incomes derived from professions, and the salaries of all those in Government and other employment. The previous exemption of many who were among the wealthiest people in India had naturally provoked strong and widespread discontent.

It was calculated that the proposed exemption of incomes below 250 rupees a year would cause a loss to the revenue of about 240,000l., and that this would be approximately made good by the additional revenue yielded by the new classes of incomes to be brought within the operation of the tax. Although the tax would thus undoubtedly have been placed on a much fairer basis, yet the Bill created some new anomalies and left many inequalities unredressed. Thus, "it is proposed to exempt from liability to the tax the military servants of Government, not in civil employment, whose pay and allowances do not exceed 500 rupees per mensem, or 6,000 rupees per annum;" and for all other salaried persons "it is proposed to make 100 rupees per mensem, or 1,200 rupees per annum, the lower limit of taxable income." It is difficult to suggest any valid reasons in support of an arrangement which would impose taxation on a petty trader whose income is only 250 rupees, and exempt from taxation persons in receipt of salaries five times as large, and military officers with incomes twenty-four times as large. These exemptions excited much hostile criticism in India when the Bill was introduced, and it was generally felt that too small a sum had been taken in fixing the lower limit of taxation at 250 rupees.

The Indian Government very wisely showed an inclination to yield to these expressions of public opinion, and accordingly, on the 24th of December, Sir John Strachey brought forward the Licence-Tax Bill in an amended form, and proposed at a meeting of the Legislative Council that the Bill should be referred to a Select Committee, with the object of passing it after the introduction of the next Indian Budget. The full details of these amendments have not yet been published.

It appears, however, that one important change is to be effected, for the limit of exemption is to be raised from 250 to 500 rupees. It is also proposed that the maximum amount to be taken from any person who is not an official should be 800 rupees, but that a tax of 1½ per cent. should be imposed on official salaries without limitation. It is not stated, in the accounts which have reached England of the Bill in its new form, whether or not military officers whose pay and allowances are less than 6,000 rupees a year, and persons in receipt of salaries of less than 1,200 rupees a year, are still to be exempted from the tax. Although it seems impossible to defend the continuance of these exemptions, yet enough has been said to show that the tax in its new form will bear a striking contrast to the tax as it was originally, and is still, imposed. Many of the most glaring inequalities in its incidence will be removed, and so much relief will be afforded to the very poor by raising the limit of exemption from incomes of 100 to 500 rupees, that it is estimated that no less than 1,750,000 persons who now pay the tax will in future be freed from all liability to contribute to it.

This important measure of relief will not involve any serious sacrifice of revenue, for it is officially calculated that the tax in its new form will produce only 100,000l. less than it now yields. It may be hoped that the experience which has been derived from the licence-tax since it has been in operation will not be lost on future Indian Governments. It has been shown by what has occurred, that nothing can politically be more unwise and financially more inexpedient than to impose direct taxation in India upon the possessors of very small incomes. The difficulty of equitably assess™ ing and collecting direct taxation when it reaches the very poor in such a country is so great, and the revenue which is yielded is so trifling, that it may be fairly said that the maximum of inconvenience is caused in order to secure a minimum of revenue.

By the Bill for the amendment of the licence-tax it is proposed to carry out another change of much importance. It will be remembered that this tax, with others, was originally imposed with the object of creating a famine fund. In the preamble of the Act by which the licence-tax is now levied, it is stated that these taxes were imposed with the object of effecting "a permanent increase of the revenue, in order to provide means for defraying the public expenditure from time to time incurred, and to be incurred, for the relief and prevention of famine in British India."In the preamble of the new Bill all reference to the relief of famine is omitted. I think there will be general concurrence with the opinion expressed by Sir John Strachey, that the retention of these words would "undoubtedly serve to create misapprehension." I have already adduced reasons which seem to me to show that, at a time when it is necessary for the Indian Government to raise loans both in England and in India, the employment of any language which would encourage the idea that a separate fund had been called into existence for the relief of famine, could produce no other result except to introduce unnecessary confusion into Indian finance.

It is in every respect far better to adopt the course which is now about to be taken by the Indian Government, and to treat the licence-tax as an impost levied in order to obtain the additional revenue which was required, when, in consequence of the frequent occurrence of famine, the decision was arrived at that the relief of famine was an ordinary charge, for which it was just as incumbent to make provision as it is for "proper courts of justice, police, education, and so forth." 1

1 See speech of Sir John Strachey in introducing the amended Licence-tax Bill.

Although the famine fund has, for the reasons just stated, been wisely relinquished, yet it cannot be too carefully borne in mind that the obligation to make provision for the relief of famine, in those years when there are no famines, remains precisely the same as it was before. As the Government have arrived at the conclusion that the amount which ought to be thus appropriated is about 1,500,000l, a year, it is manifest that in years when there are no famines a surplus of at least this amount ought to be regularly secured. There now seems to be every reason to hope that the present financial year, which ends on the 31st of March next, will in many respects afford a gratifying contrast to those which have immediately preceded it. The seasons have been favourable, and the harvests have been good; arrears of land revenue, which the people had before been too poor to pay, are now beginning to come in; and it is expected that the land revenue will yield about 350,000l. more than was estimated. During the time that large districts of India were afflicted with famine the people were obliged to lessen their consumption even of an article so necessary to life as salt.

With the return of better times the consumption of salt is increasing, and the salt revenue is likely to yield 200,000l. more than was estimated. Although little more than eight months have elapsed since the Government, at the time of the discussion of the last Indian Budget in the House of Commons, first announced their determination that greater economy should be introduced into the administration of Indian finance, and that a policy of rigorous retrenchment should be carried out in every branch of expenditure, yet, short as the time has been, it has been long enough to show how important are the results which may be achieved if such a policy is resolutely and persistently pursued. This improvement, however, in the financial condition of India does not render vigilance and caution in the slightest degree less necessary. If there is not constant watchfulness, nothing will be more easy than to glide back into the old ways of carelessness and extravagance, and although the seasons may this year be propitious, the experience of the past should ever be present to remind us that a period of plenty may be succeeded by years of famine, and that it is the first maxim of prudent and wise finance to make provision in prosperous days to meet the difficulties of adverse times.