Far, therefore, from desiring in the slightest degree to add to the difficulties which have now to be encountered by those who are responsible for the finances of India, no effort should be spared to give every possible assistance to any ministry that is willing at once to frankly recognise the fact that India has hitherto been far too expensively governed, and that consequently it is necessary at all hazards to reduce expenditure by adopting a policy of the strictest economy. The financial proposals embodied in the budget of the present year unfortunately afford scarcely any indication that the extreme gravity of the present financial situation is adequately appreciated either by the Government at Calcutta or by the Secretary of State. With the single exception of a reduction of 1,000,000l. in the outlay on public works, it appears that no serious attempt is to be made to effect retrenchment in any other branch of expenditure. Enormous as have been the military charges during the last few years, there is only too much reason to fear that these charges are more likely to increase than to diminish.

The Afghan war is estimated to cost 2,600,000l, and I believe those military and financial authorities, on whose judgment most reliance is to be placed, unanimously agree that this is far too low an estimate of cost. Moreover, it is to be remembered that when this estimate was made it was assumed that the war was virtually concluded, and that our occupation of territory would be confined within, comparatively speaking, very narrow limits. The Prime Minister, speaking in the House of Lords (13th of February, 1879), said: "Her Majesty's Government have the satisfaction of feeling that the object of their interference in Afghanistan has been completely accomplished.... We have secured the object for which the expedition was undertaken, and we have obtained that frontier which we hope and believe will render our Empire invulnerable." There seems little chance that this confident expectation will be realised. As long as active operations have to be undertaken, a heavy outlay must be incurred, and, far from the war having been concluded, scarcely a day elapses without the news of some movement in the field, and of skirmishes more or less important.

The negotiations with Yakoob Khan do not apparently promise so speedy a termination of the war as was expected; for it is now (May, 1879) stated that the Viceroy and his advisers consider it to be not improbable that, in order to bring Yakoob Khan to terms, it will be necessary, at least temporarily, to occupy Cabul. If such an onward movement is undertaken, it is obvious that all estimates of the cost of the war which were based on the calculation that peace was near at hand, and that our occupation of territory would, as was said by the Prime Minister in his speech already quoted, be confined to retaining possession of the "three highways which connect Afghanistan with India," will have to be entirely modified. An advance on Cabul might lead to a prolongation of the war, and might involve an expenditure so large that, in order to defray it, a very considerable portion of the 15,500,000l,, which the Indian Government propose to take authority to borrow during the present year, would have to be< expended.

It is therefore most important to bear in mind that, whatever may be the reasons which are put forward to justify the exceptionally large borrowing powers the Indian Government seek to obtain, almost the entire proceeds of the loans which they desire to have authority to raise may have to be devoted to meet the expenses of continued military operations in Afghanistan. I desire, however, on the present occasion not to discuss the subject from this point of view, because I think it is very important carefully to consider the reasons which are adduced by the Government in support of their financial proposals.

The reduction of the cotton duties having been already referred to, it will only be necessary to direct attention to the three different ways in which the Indian Government propose to borrow money during the present year. As already stated, a 4½ per cent. loan of 3,500,000l. is to be raised in India. Parliament is asked to give authority to the Indian Government to borrow 10,000,000l. in England, and 2,000,000l. is to be advanced, free of interest, by England to India, as a contribution towards the expenses of the Afghan war. Before the announcement was made that it was the intention of the Government to take authority to borrow the exceptionally large amount of 10,000,000l. in England, it was supposed that the entire borrowing operations of the year would be confined to raising a loan of 3,500,000l. in India. For some years past successive Secretaries of State have agreed that it is most important, both on political and financial grounds, not to increase the obligations of India in England. In a despatch to the Government of India, in which Lord Salisbury reviewed the budget of 1874, he declared it to be indispensable that none but works which were likely to prove remunerative should be constructed from borrowed money, and he insisted, with the utmost emphasis, that the money required for their construction should be obtained by loans raised in India and not in England. No one questioned the soundness of this policy, for the fact was beginning to be recognised that from political considerations it was not prudent to be constantly adding to the obligations incurred by India abroad.

Upon financial grounds it was agreed to be equally important not to increase the Indian debt in England, because each addition to this debt, by increasing the amount which India had to remit to England, tended to produce a more unfavourable rate of exchange. It is obvious that the principles which were thus to regulate the future financial administration of India have been completely set aside, when, in a single year, it is sought to obtain authority to borrow in England more than twice as much as it is proposed to borrow in India. So far as can be ascertained, the only reasons which are alleged in explanation of this departure from the policy which was so distinctly enunciated by Lord Salisbury, are that it may be found difficult to borrow in India the whole amount required; and, secondly, that it is necessary to raise a large loan in England, in order that the Government may have a reserve to fall back upon, and so be enabled to withhold their bills from the market when the exchange is unfavourable. It will at once be seen that it is impossible for the Government to put forward the first of these pleas, without virtually endorsing all the most unfavourable opinions that have been expressed with regard to the state of Indian finance.