In enumerating the causes that have produced the striking change of opinion with regard to Indian finance to which reference has been made, chief prominence must be given to the four following circumstances, which I will proceed separately to consider: -

1. The necessity of providing for famines out of ordinary revenue, and the character of the new taxation which had to be imposed for the establishment of a famine fund.

2. The increasing loss by exchange.

3. The necessity of providing for the cost of the Afghan war by borrowing.

4. The unremunerative character of a large portion of the expenditure on public works.

With regard to the first of these causes, it may be mentioned that at the close of 1877 the Finance Minister, in view of the fact that in twelve years four famines had occurred in different parts of India, most wisely came to the conclusion that famines could not be treated as events of an exceptional character; but that, as they were certain to recur, the money which had to be spent in famine relief ought to be provided out of the ordinary revenue of the year. As the amount which had been expended in the two most recent famines, namely, those in Bengal and in Southern India, had been more than 15,000,000l., he calculated that it would be necessary to provide out of ordinary revenue 1,500,000l. a year for the purposes of famine relief. It is supposed that if this sum is devoted to the reduction of debt in years when there are no famines, the debt might be reduced by an amount equivalent to the addition which has to be made to it in famine years, and thus the relief of famine over a series of years would involve no augumentation of the debt of India. But at the time when it was determined to devote this 1,500,000l. a year to the creation of a famine fund, the ordinary revenue was barely sufficient to meet the ordinary expenditure.

As there was no surplus out of which the money could be provided, and as no material reduction in expenditure was attempted, it became absolutely necessary to obtain the larger portion of the money that was required by additional taxation. Of the 1,500,000l., the sum which had to be provided by new taxation was 1,100,000l. It must, in justice to the Government of India, be assumed that before deciding as to the particular way in which this 1,100,000l. should be obtained, the entire fiscal system of India was most carefully reviewed, with the object of ascertaining what new tax could be imposed, or what existing tax could be increased with the least hardship to the people. It was ultimately decided that about two-thirds of the amount required should be procured by the imposition of a licence tax. Starting with the assumption that the Government came to the deliberate conclusion that the licence tax was the best and most available means of obtaining comparatively so small an addition to the revenue as 750,000l., it will only be necessary to describe the nature and the incidence of this tax, and to refer to the deep discontent which the levying of such a tax is already producing among the people, in order to show with striking distinctness how nearly the limits of practicable taxation in India have been approached, and what incalculable evils may be produced, if, either from laxity or from any other cause, it should become necessary again to impose additional taxation in India. The licence tax as now levied is virtually an income tax of about fivepence in the pound imposed upon all those who derive an income from trade or from skilled labour.

Professional and official incomes are entirely exempted from the tax. The Governor-General with 25,000l. a year, the officers in the army, the well-paid civilians, successful barristers and doctors do not contribute a farthing to the tax, but it is levied from every petty trader and every handicraftsman, although their scanty earnings may amount to no more than As. a week.1

1 By a bill which was brought forward at a meeting of the Legislative Council of the Viceroy (Nov. 14, 1879) several weeks after this known that the cost and annoyance involved in these appeals are so great, that in a vast number of cases people submit to an unjust assessment rather than travel many miles and then incur the outlay and the worry of appearing in court to protest. The indefensible exemption of the official and professional classes from contributing to the licence tax converts it into an income tax in its most obnoxious form; and not only is this the case, but the present licence tax is levied with far more rigour than was the income tax when imposed in India a few years since. Although that tax was of the same nominal amount, it appears that the licence tax, in spite of its exemptions, enforces a much larger contribution from the mass of the people. Thus in the district of Mymensing the licence tax has been assessed at 158,373 rupees, whereas the income tax only produced 39,295 rupees. In Tangail 52,412 rupees are to be obtained from the licence tax, while only 10,752 rupees were produced by the income tax.

When it is borne in mind that the official and professional classes, who are exempted from the licence tax, were assessed to the income tax, and that the net yield of the former tax is estimated to be considerably greater than that of the latter, it seems to be conclusively proved that the licence tax falls with extreme severity upon numerous classes of the very poor who were not reached by the income tax. It must moreover be remembered that through-out a considerable part of India the burden of this new taxation falls upon many who are only just recovering from the effects of a terrible famine.

But the inequality of such taxation and the severity of the burden which it imposes on those who are so poor that their income is only 10l. a year, may be regarded as by no means the most serious objection to such taxation. Although the tax has been in operation for little more than a twelvemonth, no one can deny that it has already produced a feeling of widespread and deep discontent, and facts can be mentioned which show that this discontent is far more due to the abuses inseparably connected with the levying of the tax than to the mere amount of the burden which the tax, if it could be fairly raised, would impose on the people. During many months the Indian papers have contained numerous instances of the tax being assessed at an excessive amount, and of its being levied on classes who were never intended to pay it. These newspaper reports are abundantly confirmed by communications which I have received from persons who hold high official positions in the Civil Service of India. I thus find it stated, on authority which cannot be disputed, that in one district in Bombay, out of 25,000 assessments made by one official nearly one half were appealed against, and in all these appeals the assessments had to be modified by the revising officer.