England’s Debt to India A Historical Narrative of Britain’s Fiscal Policy in India By LALA LAJPAT RAI “The toad beneath the harrow knows Exactly where each tooth-point goes. The butterfly upon the road Preaches Containment to the toad” WWW.HINDUSTANBOOKS.COM 2012 First Published in 1917 AS A MARK OF THE AUTHOR’S DEEP RESPECT AND INDIA’S GRATITUDE, THIS BOOK IS DEDICATED TO THOSE BRAVE, HIGHMINDED, AND HONEST ENG- LISHMEN AND ENGLISHWOMEN WHO HAVE NOT HESITATED TO SPEAK THE TRUTH ABOUT THE EF- FECTS OF THE BRITISH RULE IN INDIA THOUGH BY DOING SO THEY EARNED THE DISLIKE OF THEIR COUNTRYMEN, AND ON WHOSE TESTIMONY, PRINCIPALLY, THIS BOOK IS BASED. LAJPAT RAI “India will not remain, and ought not to remain con- tent to be a hewer of wood and a drawer of water for the rest of the Empire.” — J. AUSTEN CHAMBERLAIN, Secretary of state for India, in the London Times, March 30, 1917. From THE Publisher Recently I got access to scanned copy of the book “England's Debt to India” by Lala Lajpat Rai published in New York in year 1917. I think it is a very vital resource for understanding true picture of economic effects of British rule in India. Therefore I am republishing this book with aim to providing a authentic historical resource available to people who want to know the truth without prejudice of current political interests. This book analyze economic effects of British Rules in India taking an impartial view of the subject. This book contains extensive quotation from contemporary English economists and politicians which can help in understand- ing true picture of Economic effects of British rule in In- dia. This book also analyze growth of Railways and it eco- nomic effects. I believe that this book will help in clearing many misconceptions about British Rule in India. There are some very significant development which I would like to mention here which happened after pub- lishing of this book in 1917. A very few people know that a very big cause of India’s post independence poverty is the interest of the loan of 1800 crores1 for which respon- sibility of repayment was inherited by Government of In- dependent India as per Transfer of Power Agreement.2 To 1 I lost the book in which I read details of this settlement. But this subject was discussed in all economics books of 1960’s which deals with subject of Public Finance. 2 Dr. Rajender Prasad’s “India Divided”, published in 1946, reprinted by Penguin Books in 2010 in India, p. 401-405. This book puts estimate of public debt at Rs. 2000 crore (refer to table XLVII on p. 405) really appreciate value of 1800 crore rupee in 1947 you will have to take into account that exchange rate of Brit- ish Pound was at 13.50 rupee per pound, exchange rate for American dollar was 5.00 rupee per dollar, and Pure Gold was selling at 88.62 rupee per 10 grams. Now since all currencies British pound, American dollar and Indian rupee have devaluated due to inflation we will have to take value Pure Gold as a benchmark. Reader will have to re- member that in last 60 years gold mines all over world are producing gold worldwide at cost much less then prevail- ing gold price and increasing availability of gold world- wide. So in no way true value would have gone up in last 60 years but reduced but we are assuming to remain the same as it was in 1947. In June 2012 pure gold is being traded at Rs. 30,000 per 10 grams. Taking pure gold price as benchmark the value of debt inherited by Government of Independent in India comes at 6,09,274 crore rupee at current rates. Out of Debt of 1800 crore rupee inherited, 650 crore rupee was to be paid to Britain. Out of this 1800 crore rupee loan Pakistan was to pay Rs. 300 crore to India, out of which it have not paid even a single rupee till now. 3 Maintaing people’s expectation of tax cuts, and paying interest on 1800 crore at 3 percent per annum was a re- ally difficult task in hand for Government of Independ- ent India. For this very drastic steps were taken — Gold Import was banned to save foreign exchange, Income tax was increased highest slab being at 60 percent and addi- tionally National Saving Certificates of 10 percent needed 3 Union Budget, 2012-13 to be purchased compulsorily. Employee Provident Fund was introduced with aim of financing governments Debt repayment to Britain. Indian Government kept financing repayment of interest and principal with fresh loans and continuing it still. Interest rate have varied from 3 percent in 1947 to 18-20 percent in 1985-90 to 12 percent in 2012. If we take average rate of interest at 12 percent the loan would have become 28 lakh crore rupee. Total govern- ment loan is 40,70,320.68 crore rupee.4 Drain of wealth is still happening from India to Brit- ain and USA. When a skilled person migrate to Britain or London, along with him goes rare skills which were acquired on indian money ( weather his father’s or tax payer does not matter), Britain take back more than half of remuneration for these skill in term of exorbitant prices of accommodation and heavy taxes. The saving of these people also remains in Britain, this way Britain is able to keep all remuneration of the skills in Britain. This skill help Britain take world's money to Britain by exporting products developed by these skills. India spend money on harboring skills and Britain make money on that. In the end when parents living in India dies these people sell an- cestral properties built by savings of generations and take that money to Britain. Next generation which is born in Britain is surprisingly lacking in education and skill and end up taking petty jobs. It looks like even a good earning person in London can't afford good education for their kids, otherwise it would have not been the case. After one or two generations decedents of these people are in state 4 Annual Financial Statement, p. 6, Union Budget 2012-13 penury. When a rich person emigrate to Britain along with him goes saving of many generations. At least half of the money a person took with him taken over by government in terms of taxes and exorbitant price he pays for ordi- nary accommodation which would have not got any buy- ers if Indian people would not take indian money there. Taxes are very high in Britain and USA, government uses tax income for welfare of native people and Indians don't get benefited by these welfare schemes. After one or two generation when money the family took from India is ex- hausted NRIs have to live in humiliating conditions and take up jobs which Indians are ashamed to associate there name to. Hope this book will bring some positive change in thinking of Indian people. Jasvant Singh 5 July 2012 Delhi PREFACE This book is a kind of companion volume to my oth- er book, “Young India,” I have discussed British rule in India, from the political standpoint. In this volume, I have discussed its economic effects. There is not a single state- ment in this volume which is not supported by the best available British testimony, official and non-official. My own opinions and personal knowledge have been men- tioned only incidentally if at all. Similarly the opinions of other Indian publicists have been kept in the background. It is a sad commentary on the prevailing moral code of the world that those who succeed in imposing their rule upon less powerful nations should also brand the latter as unworthy of credit. Thus every Britisher believes that an Indian critic of British rule is necessarily affected by the “inevitable racial and political bias” of his position, while he in his turn is entirely free from it! In the ordinary course of nature, the man whom the shoe pinches is the best person to know about it but in politics the laws of nature are reversed, In judging of government and rulers, it is they whose word is to be ac- cepted and not that of the governed and ruled. Consequently to avoid that charge I have chosen to speak from the mouths of the English themselves. Looked at from that point of view the volume lays no claim to originality. It is more or less a compilation from British publications, government or private. The case for India has before this been most eloquently put forth by Mr. Digby in his monumental work ironically called “Prosper- PREFACE ous British India.”Particular phase have been dealt with by Messrs. Hyndman, Wilson and others from whom I have profusely quoted. My own countryman, Messrs, R.C. Dutt and Naoroji, have done valuable work in this line. The works of the former,-“Early History of British Rule,” “In- dia in the Victorian Age”, “Famines in India”, and “Eng- land and India” published by Messrs. Kegan Paul, Trench, Trubner and Co. of London, are monuments of his indus- try, research and moderation. Mr. Naoraji’s “Poverty of India” is a collection of the economic writings of that veteran Indian nationalist during half a century of his ac- tive political life. These works of Messrs . Digby, Dutt and Naoraji must for a long time continue to be the classics of Indian economics and no student of the latter can afford to neglect them.