India's Balance of Payments, 1921-22 to 1938-39

THE ECONOMIC WEEKLY March 18, 1061 India's Balance of Payments, 1921-22 to 1938-39 Estimates of Current and Long-term Capital Accounts Aran Banerji An attempt is made in this article to estimate India's balance of payments' daring the inter-war years. Compared to the few existing estimates, many new items have been assigned magnitudes and others revalued. Over the 18 years India imported over Rs 200 crores of long-term capital, but paid four to five times as much by way of interest charges. During the pre-war years, 1898-1913, too, capital imports fell short of debt services. For a complete assessment of the cost of foreign capital, to debt services must be added other remittan ces including coastal freights, remittances by exchange banking and out of incomes and accumulated savings of the foreign business and professional community temporarily resident in India. THE estimates of India's balance debit (or credit) for the exchange tive forces. These offset the first of payments submitted by the of evidences of indebtedness. movement and/or affect the current Government of India to the League and/or long-term capital account(s) This method perhaps found its of Nations from 1923-24 omitted first major use in Hobson's "The and are thus reflected in one or certain items in both the current Export of Capital" (London, 1911). more of the above categories. and, capital accounts, and covered Viner (''Canada's Balance of Inter We adopt Viner's threefold divi other items very inadequately. They national Indebtedness 1900-1913." sion of the current account, but not related only to British India, ex Harvard. 1921), defined it more his method of estimating individual cluding the sea-borne foreign trade precisely, dividing the current ac items. Thus, owing to lack of data of the French and Portuguese pos count to indicate separately the and to allow, even partly, for the sessions in India and the Maritime balance on commodity account, ser close association of foreign capital States of Kathiawar and Travan- vice account and on account of non with productive and distributory core, as also, during 1937-39. of commercial transactions. The last, activities within our country, we do Burma, the international transactions now termed donations, include un- not estimate the remittances of re of which were then. a part of those requited international transfers, compense received by foreign capi of British India. The Indian rupee mainly associated with migrants. tal on the usual basis of the size of was their common currency and Over a series of years, the ends foreign capital employed and the unit of account, and the same bank relatively free from abnormal move average returns on such capital in ing system as in British India ments of short-term funds, the esti managed their international ac (a) coastal-carrying trade, lb) life mated net cumulative position of and general insurance business, (c) counts. These shortcomings of the all the three balances reflects, sub estimates, which vitiate the capital foreign exchange banks, and (d) ject to errors of estimation, the net the distribution of exposed foreign account also, justify a fresh esti movement of long-term capital. mate of India's balance of payments films, but instead attempt indepen for those years. Viner's Three-fold Division dent direct estimates. If Gr. Sr, Ur and Cr stand for Every transaction between two Our general treatment of returns India's receipts from abroad on countries involves a receipt by one on foreign investments marks a basic goods, services, unrequited remit party of the payment made by the departure from Viner: he estimated tances and long-term capital ac other. Thus if no intermediaries them indirectly, from the net defi counts respectively, and Gp, Sp. Up intervene — or, if they do, we cits in the current account for all and Cp stand for payments by her know their share in the transactions other items. This method concen under the same heads, then. Gr + -the totals of the two sides of an trates on this crucial item and exag Sr +Ur + Cr +Cp + Sp + Up inventory of all receipts and pay gerates the returns if portions of + Cp. Or, (Gr -Gp) + (Sr- ments must agree, provided double previous investments are repaid Up) Cp — Cr. Over any speci counting is avoided and cash recei during the period under study. We, fied period, the algebraic sum of pts and disbursements as well as therefore, make a direct estimate, the balances of transactions in the exchange of evidences of in constructing a suitable dividend goods, services and unrequited debtedness are taken account of. If, series. Also, one need not estimate transfers equals the net balance of then, we estimate credits and debits the interest on India's sterling pub capital transactions, i e. of transac- over a period of time for all items lic debt: Government accounts con- tions to acquire or repatriate claims of a country's international ac lain full data (see, however. Pan on assets abroad, and to deliver or counts, except the exchange of such dit. "India's Balance of Indebted repatriate foreigners' claims on evidences, the net cumulative cre ness. 1897-1914.". Allen and Unwin). assets in India. dit (or debit} for the first set of Lastly, while, like Viner. we com items must equal the net cumulative Short-term capital movements are pare the indirect estimate of the net excluded in this method, as a con import of long-term capital with This is a rigorous abridgement of a detailed work on the subject awaiting sistent movement in any one direc direct evidence on the annual flows publication by Asia Publishing House. tion tends to set in motion correc of such capital, we compare it also 475 March 18, 1961 THE ECONOMIC WEEKLY with the net accretion to foreign in ing of values, only the quantities of (d) profits, etc, remitted by ex vestments in India between 1921 the trade in selected articles at cer change banks, (e) funds remitted by and 1938 (no data could be collect tain rail-heads near the more im foreign insurance companies work ed of the net change in foreign in portant trade routes were published. ing in India and Indian companies vestment by India in that period From 1927-28 the Government some working abroad, (f) coastal freights, except Indian subscriptions to loans, how evaluated this trade, and re (g) cinematograph royalties, (h) etc. floated in London). ported to the League of Nations. We tourist account, and (i) interest on II have to accept these figures despite sterling public debt and other foreign Balance of Commodity obvious defects. investments in India. Table 2 Transactions Certain gaps in trade returns are shows that these items account for a filled by us on the basis of the trend cumulative deficit of Rs 1487 crores Commodity transactions, goods and in the respective sectors in adjacent during the period. treasure, on private account yielded years—(a) land-frontier trade dur a surplus of Rs 1489 crores during ing 1925-27, (b) trade of Kathiawar Item (a) was explained above. 1921-22 to 1938-39 (Government and Travancore during 1921-26, and Item (b) is taken at one-third of the stores are included in Section IV be Travancore's trade during 1931-35, gross freight earning of foreign ships low). These include (a) the sea (c) trade of French and Portuguese in carrying our imports. A direct borne foreign trade of British India Possessions during 1921-23 and estimate of such expenses was sought (including Burma), French and Por 1921-26 respectively when these to be made but the tonnage of ships tuguese possessions, Kathiawar ami seem to be recorded imperfectly. in India's foreign and coastal trade Travancore, (b) the land-frontier Other adjustments are made for the being inextricably mixed in Govern trade, and (c) the air-borne trade. inclusion in the trade returns of im ment returns, the attempt was aban This study makes no allowance for ports of passenger baggage and sam doned. For pensions, civil and the alleged under-valuation of im ples which should not enter inter others, averaging Rs 8.3 crores a ports for lack of evidence; tariffs national accounts, and the addition year, Government accounts are used. were relatively low in this period, of export duties realised to total ex As already stated, items (d) to and our customs keep no record of ports. To present the pure commo (g) are not estimated on a capital total imports, subject to the two sub dity balance in Table 1, we de employed-times-return basis. For sections of Section 30 of the Indian duct from import values, including exchange banks, the only data are Sea Customs Act, 1878, which lay treasure, 5 per rent for freights and their consolidated end-of-year Indian down the norms for evaluation of 1½ per cent for insurance and com deposits (even these need allowance imports by customs. mission; these are included in the for Burma for 1921-31), and the Even a superficial probe into cus service balance below. size of imported funds as on 31st toms returns is rewarding, e g, the December 1929, as they were fur Table 1 shows the totals and an mode of conversion of other curren nished to the Indian Central Bank nual averages on this account for 18 cies into rupees has introduced in ing Enquiry Committee, 1931. We years. The treasure account was in determinate errors. During 1921-24 made a vain attempt to collect fur overall deficit, but it had unequalled when the rupee-pound rate was fluc ther data from the Common wealth credits from 1931-32 when India tuating, Calcutta customs issued a Relations Office, London.

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