With regard to railways, which represent the other great branch of public works expenditure, the financial results which have up to the present time been obtained are no doubt in some respects more satisfactory, but as railways have now been constructed along the most important lines of communication, the returns which are yielded on the money expended on railways in the past ought not to be regarded as affording any evidence that similar returns will be obtained from capital which may be expended in the future. The construction of railways in India was first undertaken in 1846, and between that time and 1867 railways were made through the agency of private companies, who obtained from the Government a guarantee of interest, generally at 5 per cent., on the capital expended. It appears from the last official report on Indian railways, which brings the figures down to a year later than those contained in the report of the Public Works Committee, that the amount expended on the guaranteed railways up to March 1879 was 96,725,679l.

In 1867 it became apparent to the Government that the guarantee system afforded no adequate securities for economy. So long as private companies were insured somewhat more than the current rate of interest on whatever amount of capital they might expend, it is obvious that there could be no sufficient motive to restrain waste. It was accordingly decided to abandon the guarantee system, and from that time all new railways have been constructed by the Government. On these railways, which are known as the State railways, 21,291,076l, had been expended up to March 1879. It is scarcely possible to make any fair comparison between the financial results of the two systems, because, in the first place, the most profitable lines of communication were occupied by the guaranteed railways before the State railways were commenced, and, in the second place, a considerable portion of the capital which has been raised for these State railways has been expended on lines which are still in process of construction. It is shown in the report of the Public "Works Committee that although there has recently been, on the average of years, an improvement in the returns of the guaranteed railways, yet in no single year except 1877-78 has the return on the aggregate expenditure on railways been sufficient to meet the interest on the capital expended.

The entire loss on the guaranteed railways amounted up to 1877-78 to no less a sum than 22,437,307l. The comparatively favourable results which were obtained in that year are proved by the latest official reports to have been entirely exceptional, being favourably affected by the large quantities of grain which had to be taken to the famine districts in Southern India; between 1877-78 and 1878-79 there has been a very serious falling off in the returns from the guaranteed railways. The gross receipts have fallen nearly 12 per cent.; and as this falling off has been accompanied by an increase in the working expenses, there has been a still greater diminution in the net receipts, amounting to no less than 18 per cent. There has at the same time been an improvement in the returns from the State railways, as the net receipts from these have risen from 131,243l. to 195,787l. This increase is no doubt mainly due to the fact that nearly a thousand additional miles of railway were opened during the year.

Assuming that a third or 7,000,000l. of the aggregate capital of 21,000,000l. raised for the State railways is being expended on lines which are not yet completed (and this is probably an excessive estimate), it appears from the figures just quoted that an outlay of 14,000,000l. only yields a return of 195,787l. It therefore follows that if, as is stated in the report of the Public Works Committee, the capital for the State railways has been borrowed at 4½ per cent. the lines which have been now completed do not yield a return sufficient to pay one third of the interest on the capital expended.

In view of such facts as those which have just been mentioned, it became impossible for the Government to resist the conclusion that, however great may be the advantages of extending railways and works of irrigation in India, the financial results of these undertakings were most uncertain, and were proved to be in many instances most disastrous. The continuance of the policy which had been for some time pursued of annually borrowing between 4,000,000l. and 5,000,000l. for public works would inevitably increase the deficit, which, as there was no surplus revenue, would have to be met either by an immediate increase of taxation, or by an increase of debt, which would sooner or later lead to the same result. The consequences produced by the new taxation which it has been found necessary to impose for the creation of a famine fund must have brought home to the Government with irresistible force that no misfortune which could happen to India could be greater than having to make her people bear the burden of increased taxation.

It has therefore been most wisely resolved to lose no time in reducing the public works expenditure, and it has been ordered that in future the amount which shall be borrowed in any year for the construction of public works shall not exceed 2,500,000l. As it is strictly enjoined that the money shall be borrowed in India and not in England, it may be fairly concluded that the Government have at last recognised the political and financial disadvantage of adding to the indebtedness of India in England, and thus rendering it necessary each year to transmit a larger portion of the revenue of India in order to discharge her obligations to England.

This sudden curtailment of the public works expenditure cannot of course be regarded with unmixed satisfaction. Many most useful undertakings will undoubtedly be stopped; and it cannot be denied that many works which are not directly remunerative may produce such beneficial results that, if the financial condition of India were different from what it is, they might most properly be undertaken. But in her present situation the Government had only a choice of evils. No other alternative was open to them than either to continue an expenditure which would lead to increased taxation, or to adopt a policy which will only too certainly cause the stoppage of many useful works. Whilst fully acknowledging that the Government, in the course they have adopted, have chosen the less of these two evils, it is at the same time very important not to lose sight of the disadvantage that will result from this necessary reduction in the public works expenditure Although I have for many years past had frequent occasion to call attention to the impolicy of raising large loans for the construction of public works, it is impossible to insist too strongly upon the fact that, whilst it may be most inexpedient to continue to carry out an extensive system of railways and irrigation schemes by loans, it may be most desirable to undertake them, if such a surplus of revenue can be obtained as will enable the works to be completed without increasing the taxation or adding to the debt of India. If any fresh inducement were required to make those who are responsible for the administration of the finances of India resolutely persist in a course of the most rigorous economy, it would be afforded by the fact that, until a large surplus is regularly obtained, many works will have to be suspended which would greatly promote the proper development of the resources of that country.