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half of 1909. In the year ending March 31 1909, the deficit exceeded 3,500,000. In 1909-10 equilibrium was only attained by the enforce- ment of severe economies. In 1910, the last year of Lord Minto's administration, additional taxation amounting to over 1,000,000 a year was imposed. The seasons again became favourable and Lord Hardinge succeeded to a full treasury.

The four years 1910-4 were years of financial prosperity. There was a large expansion of ordinary revenues, and also large windfalls under opium, due to the high prices which the Chinese were pre- pared to pay during the last few years of the trade. The accounts showed an " Imperial " surplus of nearly 4,000,000 in 1910-1, of equal amount in 1911-2, of over 3,000,000 in 1912-3 and of 2,330,- ooo in 1913-4. But the surpluses were really larger, as in the revised estimates of each year special grants for education and public health were made to local Governments, aggregating over 6,000,000 in the four years. The wisdom of special grants or " doles " from the surplus revenues of the central Government to the local Govern- ments for expenditure on specific objects has been questioned, as encouraging extravagance and undermining the financial responsi- bility of local Governments. But they were a natural feature of the interlocking of provincial and Imperial revenues which then existed and of the control exercised by the Government of India over the whole field of provincial administration. Under a centralized system they were probably the most effectual instrument for promoting the active policy in public health and education that Lord Hardinge had at heart, and fell in with the ideas of the Indian members of the Imperial Legislative Council.

With the outbreak of the war in 1914 Indian finance entered on a difficult and anxious period. At first direct expenditure on the war was small, being limited to bearing the normal cost of troops be- longing to the Indian establishment who were employed out of India in the different theatres of war.

The pre-war budget for military services was about 20,000,000 a year. This figure slowly rose to 25,000,000 in 1916-7 and 29,000- ooo in 1917-8. In 1917 the financial position was sufficiently strong to justify the Indian Government, with the warm assent of the Legislative Council, in making a contribution of 100,000,000 to the home Government towards the cost of the war. In Sept. 1918, in the belief that the end of the war was distant and the needs of the home Government great, the Legislative Council, by a large majority of the non-official members to whom the decision was left, approved the Indian Government's proposal to make a further contribution. The Indian Government proposed to bear the cost of additional troops raised in India and of certain pensionary charges, the whole estimated at a sum of 45,000,000. Later estimates reduced the amount to 31,700,000. In 1920 the Legislative Council recon- sidered the matter and recommended that the cost of the Afghan war should be deducted. The Government of India acquiesced, and the actual contribution was reduced to a sum of about 14,000,- ooo. During the first two years of the war it was judged politically advisable to maintain the pre-war standard 'of taxation and incur a deficit of 3,000,000. In 1916-7, additional taxation, estimated to yield 3,000,000, was imposed. The income tax and salt duty were raised, duties imposed on exports of jute and tea, and the import tariff, save as regards the important item of cotton piece goods, was revised. By that time public confidence had revived, trade was ac- tive especially in the export of produce required for war purposes and agriculture prosperous. The railway earnings were large, all other sources of revenue yielded well, and a surplus of 7,500,000 resulted. In 1917-8, in order to meet the interest charges and sinking fund of the 100,000,000 contributed to the British Government, further additional taxation estimated to yield 6,000,000 was levied. A super-tax on incomes was imposed, the export tax on jute was increased, and a small surcharge placed on railway goods traffic. The import duty on cotton piece goods was also raised from 3 J % to 7%, the excess duty on local cotton manufactures being maintained at the lower rate. The latter measure evoked strong protests from Lancashire and led to an important debate in the House of Com- mons, resulting in an undertaking that the matter would be re- examined hereafter in connexion with the general fiscal policy of the British Empire. Though the war continued, such was the activity of trade and the general prosperity of the country that a surplus of 8,000,000 was achieved.

The budget of 1918-9 was framed to produce a modest surplus. During the year the expenditure was increased by 13,000,000 credited to the home Government as the first instalment of the additional war contribution. The receipts, however, under most revenue heads were good, and the deficit of the year was under 4,000,000. In order to balance the estimates of revenue and ex- penditure of 1919-20 an excess profits duty, estimated to produce 6,000,000, was imposed for one year only. The budget of 1919-20, however, was completely upset by war with Afghanistan and other unexpected military charges, and the accounts of the year showed a deficit of 15,750,000. The budget estimates of 19201 were made on a basis that has since been found fallacious and were much too sanguine. It was assumed that the " boom " in trade and a high rate of exchange would continue, and that the gain from exchange or, in other words, diminution of the home charges would be large. The balance of trade from being highly favourable to India became adverse and the rupee exchange dropped during the year from 2s.

6d. to is. 4d. The military expenditure was underestimated. Suffi- cient account was not taken of the increased working charges of the railways and the consequent diminution of net receipts. The general rise in the cost of the civil departments on account of re- visions of salaries necessitated by high prices was not foreseen. This was frankly admitted by the finance member in his financial state- ment introductory to the budget of the current year (1921-2).

The budget of 1921-2 marked a new era in Indian finance. It was the first budget under the new constitution submitted to the votes of the Legislative Assembly. It is confined to the revenues and expenditure of the central Government only, as provincial finances have now been entirely separated off and made over to the local Governments. It is expressed in rupees and not in sterling. The sterling pound of Rs.15 has disappeared and the proposed new ratio of 2s. to the rupee has failed to become effective. Crores of rupees take the place of millions of pounds. But whereas the crore was formerly the equivalent of 666,000 it is now assumed to be, but at present is not, the equivalent of 1,000,000. Expressed in the new notation there was in 1920-1 a deficit of II crores instead of an anticipated surplus of 2 crores. The budget of 1921-2 recognized that the expenditure from various causes had definitely outgrown the revenue, and provided 19 crores of additional revenue by enhancement of the customs import duties, a surcharge on railway goods traffic, higher postal rates, and regrading of the income tax and supertax. The revenues and expenditure of the central Govern- ment in 1921-2 are estimated at 130 crores (130,000,000 on the basis of a 2s. rupee). The military charges absorb 66 crores or more than one-half of the total income. They are more than double the pre-war figure. The cost of the British garrison and the pay and pen- sions of the Indian army have greatly increased and the standard of equipment is higher and more expensive. Military expenditure is one of the budget heads which are not submitted to the vote of the Legislative Assembly. But the subject has been raised in other ways in that body and is one about which there is a difference of view between the executive Government and the Legislature. To the Indian nationalist whose thoughts are concentrated on internal progress and who imperfectly appreciates the existence of external dangers, the cost of defence seems excessive. The possibility of ma- terial economies largely depends on the strength and composition of the forces to be maintained. The Government of India, while not pledging themselves to immediate reductions, have undertaken to make a searching inquiry into military expenditure.

Military expenditure apart, the features of the financial situation which gave cause for anxiety were the large amount of floating and short-term debt ; the inflated note circulation and the heavy capital requirements of the railways and irrigation. In comparison with other countries the indebtedness of India due to the war is not op- pressively great. Before the war India was in the happy position of having no " ordinary " debt, as opposed to debt incurred for capital expenditure on railways and canals, the interest on which was borne by those undertakings. During the war and up to the end of 1920-1 some 230 crores of fresh rupee debt (including floating debt) had been incurred, representing an annual charge of over 12 crores on account of interest. Against this burden, considerable as it is, may be set the impulse given by the war to industrial development, the productiveness during the war of all existing industries, and the rapid accumulation of capital.

Currency. At the outbreak of the World War the Indian cur- rency system had, for a " managed " system, reached a position of considerable strength. The legal currency is the rupee, the ratio of which to the sovereign was, until altered in 1920 on the recommenda- tion of the Indian Currency Commission of 1919, fixed at 15 rupees to the sovereign. There is no free coinage of silver. The Indian Govern- ment purchases silver and coins rupees to meet the requirements of the country. The profit, which was considerable when the price of silver ranged from 23 pence to 30 pence the ounce, is placed to the gold standard reserve and invested in sterling securities in London, forming a reserve to be used to maintain the exchange value of the rupee. The gold standard reserve amounted to 23,500,000 in 1914. On March 31 1920, it was represented by securities of the estimated value of 36,300,000. The import of gold in the form of sovereigns or bullion was unrestricted, and sovereigns circulated at the legal ratio. A favourable balance of trade over a series of years encouraged the import of gold, and 70,000,000 had passed into circulation between 1900 and 1914. In 1914 the gold held by the Indian Government in England and India together amounted to 23,000,000. The exchange value of the rupee had become stabilized in close approximation to the legal ratio, any upward movement being checked by imports of gold and any downward movement being met by the Government of India selling drafts on its reserves in London. It may be mentioned that the policy and measures adopted by the Indian Government to maintain the exchange value of the rupee received the approval of the Royal Commission on Indian Finance and Currency which was appointed in 1913.

With the war the Indian currency system entered on a new phase. India was called upon to supply the British Government and the Allies with immense quantities of raw materials, manufactured goods and food-stuffs for war purposes, and also to provide funds in India and in countries where Indian troops were fighting. The Indian Government had therefore to disburse rupee currency to