Passing on to consider the second of the four chief branches of expenditure - namely, the general cost of administration - the evidence which was given before the Parliamentary Committee on Indian Finance affords almost innumerable examples of the striking manner in which the various items which compose this general cost of administration have increased during the last twenty years. A most valuable table was furnished to the Committee by Mr. Gay, the Deputy Comptroller-General of the Finances, in which a comparison is made between the cost of administration in 1871 and 1856, two years before the abolition of the East India Company. From this table it appears that the cost of the government of India, excluding expenditure on the army and public works, has increased during the period referred to from 14,964,867l. to 23,271,082l.1 There is scarcely a single item in which there has not been a marked augmentation, and this growth has continued up to the present time. Thus, taking a few instances: -

I believe it can be shown that a part at least of the large increase in the general cost of administration is undoubtedly due to a want of adequate economy; but without, for the moment, inquiring what portion of this increase of expenditure could have been prevented if India, since the abolition of the East India Company, had been governed with less extravagance, it is obvious that the greater the extent to which this additional outlay has arisen from causes the operation of which cannot be controlled, the more serious is the prospect for the future. If money has been wasted in the past, the continuance of this waste can be prevented; but a remedy cannot be so easily applied if the cost of a particular department becomes greater in consequence, for instance, of a rise in prices. The very detailed evidence which was given before the Indian Finance Committee by Mr. Harrison, Comptroller-General of India, leaves no room for doubt that a not inconsiderable portion of the increase in the cost of administration between 1856 and 1871 was due to a rise in general prices.

There was during this period, and especially at the time of the American Civil War, a very large influx of silver into India. A portion of this silver was sent to purchase cotton at extremely high prices; and another portion represented capital which was raised in England and sent to India for the construction of railways and other works. At the present time there seem to be indications that the financial position of India may be prejudicially affected by a rise in general prices consequent on a depreciation in the value of silver. Allusion has already been made to the fact that as recently as December, 1878, an official paper was published from which it appears that the military expenditure of the present year will be greater than its estimated amount by 330,000l., which is described as "compensation for high price of food." It is evident that if there is a rise in general prices there is scarcely a single department, the cost of which may not, sooner or later, very materially increase. It is not, however, necessary here to pursue the subject further, because the extent to which general prices in India may be affected by the depreciation of silver can be more appropriately considered when discussing the third of the four branches of expenditure - namely, that which arises from loss by exchange.

1 See Appendix to Report of Committee on East Indian Finance, 1872, p. 518.

In the current financial year the loss by exchange was estimated, when the budget was brought forward, at no less than 3,000,000l.; but, large as this sum is, the Government, in a revised estimate issued within the last few weeks, calculate that it will be exceeded by 500,000l. In 1876-7 the loss by exchange, as appears from the table already given, was 1,676,482l. In 1874-75 the loss by exchange was only about 500,000l. A few years previous to this the loss was so trifling as scarcely to be worth notice; and in 1870 the amount which was gained by exchange exceeded, by a few thousand pounds, the amount lost. These figures show, with striking distinctness, with what remarkable rapidity this item in Indian expenditure has assumed its present serious proportions. Whether it is more likely that this charge on the Indian revenues will in future years diminish or increase, depends upon so many uncertain conditions that it would not be prudent to make a confident prediction on the subject. The loss by exchange, as previously explained, is primarily due to a depreciation in the value of silver, and one of the chief causes of this depreciation is the large additional supply of silver yielded by the Nevada mines in recent years.

In 1875 the aggregate production of silver throughout the world is estimated to have been about 15,000,000l., more than half of this amount, 8,000,000/. being obtained from the American mines. Twenty years previously - namely, between 1852 and 1862 - the average annual production was only from 8,000,000l. to 9,000,000l., and at that time no appreciable quantity came from the United States. Simultaneously with this large increase in the supply of silver many circumstances occurred which greatly diminished the demand for silver. Silver was demonetised in Germany; and Germany consequently not only ceased to require the large amount of silver which she had previously used for coinage, but a great portion of the silver in circulation was withdrawn and sold by the German Government. Another circumstance which has produced a very important effect in diminishing the demand for silver is the great increase in recent years in the Indian home charges. The value of the products exported from India has always been much in excess of the value of those imported.

Until quite lately the balance was liquidated by transmitting silver to India. In some years the silver thus sent amounted to more than 10,000,000l. Such a transmission of silver constituted one of the chief sources of the demand for silver, and was indeed one of the most important factors in maintaining its value. Each addition, however, that is made to the home charges diminishes pro tanto this demand for silver. An English merchant, for instance, who has purchased a hundred thousand pounds' worth of Indian produce, instead of sending silver to India to pay for it, purchases bills from the Indian Government in England, drawn upon the Indian Government in Calcutta, and the amount of bills which the Government has to sell in England increases, of course, with each increase in the home charges. It is, I think, made sufficiently clear from this brief review of the various circumstances which have produced a depreciation in the value of silver, and a consequent loss by exchange to the Indian Government, that the value of silver depends upon various causes, some of which may be regarded as entirely beyond the power of any Government to control. Thus the value of silver will be to a very considerable extent determined by the future yield of the American mines.