basudev final notes

7/30/2019 Basudev Final Notes

1/11

[TRADE, TARIFFS AND EMPIRE]BLESSY CHINNUABRAHAM

Basudev Chatterji's book deals with the politics of economic policy. By focusing on tariffs and exciseduties between the world wars, he develops a detailed analysis of the political processes that led the

empire to revise and revise again its trade regulations. In his study, Chatterji goes through a series ofmilestones in the history of imperial trade policy from the beginnings of the policy of "discriminating

protection" for India's industries in the early 1920s to the Indo-British Trade Agreement of 1939.

Basudev Chatterji describes Lancashire as a poignant and dramatic symbol of British imperialism thatmanaged give impetus to the call of the Swadeshi movement in India which was targeted against the

Lancashire textiles. It also represented the arduous and complex transition of the first industrialnations from a position of confident dominance of the international economic system to a new unsureeconomic environment during the inter War years.In the late 19th and early 20th centuries India was a growing market for Britains most importantindustry which was cotton. In 1913, 79% of this industrys output was exported, 2/5th of which went

to India and equaled 25% of all British exports. Lancashire influenced Indian tariff policy to such anextent that it sometimes seemed as though British interests in India was identical with those of

Lancashire. Because Lancashire played such a central role in Indo-British economic relations herinterests appeared to be the touchstone of British economic policy in India.During the inter war period the decline in Lancashires India trade was quite dramatic. In 1913 she

exported to India 3000 million yards; in 1939 her exports to India had dwindled to 145 million yards.This decline had far reaching consequences for both the metropolitan and the Indian economies. Since

Lancashires trade with India had from the beginning flourished under a policy of free trade with avery low revenue tariffs how far can its decline be attributed to changes in this policy, whether drive nforward by forces in Britain or in India? How far were the Lancashires interests capable of being

reconciled with a whole range of British interests in the larger imperial and Indian contexts of theinter-War years? What was the nature of clashes between the interests of London and of Delhi and

how were they resolved?Many writers have written have assumed that the first WW1 free trade was believed to be the bestdevelopment strategy for India and that free trade happened to help Lancashire which was seen as a

strong lobby in the balance of domestic politics and had a strong influenced in the policy in Indiasince the GOI was dominated by the India Office. However, after the WW1, the belief in free trade

was challenged in India and policy began to change. Meanwhile Lancashire as a lobby went intodecline as a result of the reorganization of British politics. They also argued that the influence of theFiscal Autonomy Convention and thepolicy of discriminating protection on Indo-British economicrelations during the inter-war years gave the GOI an essential element of independence and in the

post wars GOI was freed from the stranglehold of the SOS through whom Lancashire exerted its

control. This supposedly left Delhi free to pursue policies in keeping with Indian interests;Lancashires interests suffered accordingly. The adoption of the policy discriminating protection in1922, in their view, meant that henceforth tariffs in India were levied as a result of the pressuresexerted by Indian businessmen on the GOI.Chatterji takes on these commonly accepted assumptions in about trade policy during this period:

first, that the Government of India acted independently in the formulation of its policy after the FiscalAutonomy Convention of 1919, and, second, that Lancashire no longer possessed significant ability

to affect the formulation of policy in this context. Chatterji demonstrates clearly that financial reformsof the interwar period led merely to more subtle forms of imperial control. More centrally, he showsthat, despite the twenty-fold decline in Lancashire's trade with India, concern for Britain's textile

industry remained critical in the policymaking process. With the decline of the older multilateraltrading system, Britain held out increasing hope that a system of imperial preferences- one that

allowed for protection against goods from outside the empire but that set up special treatment forgoods traded within-would help textile exports to India to revive its floundering economy. And thevotes of Lancashire districts were never far from the political calculations of those who shaped

imperial policy.


2/11

Page 2 of11

Basudev examines the operational significance of the Fiscal Autonomy Convention and

discriminating protection of the 1920s, especially in the case of cotton. Through a narrative ofevents he shows that behind the technical exercises of governmental decision making such as TariffBoard enquiries laid a complex interplay of a variety of interests. All this is examined in the largercontext, by the changing pattern of Imperial relations between the two wars and within which the

particular set of events are located. The first assumption that he disputes is that of the policy of freetrade pursued in order to promote Indias interests. Until the WW1, India remained a free tradecountry subject only to the constraints of GOIs revenue requirements. Though this policy was often

proclaimed to be in Indias interest, this 19 th century commitment to free trade had more to do withthe requirements and interests of the British economy. He regards this argument as tenuous and basedon simplistic economic understanding of free trade. He says that the post mid 19 th century

commitment to free trade in fact, had more to do with the requirements of an expanding Britisheconomy than with its implicit development strategy for Britains colonies. Free trade in India

served not only interests of particular British industries, but also played a central role in resolvingBritains problems of multilateral settlements. The changes in this policy after 1919 came about

through a complex interplay of fiscal imperatives and political calculations, both in Britain and inIndia, and in the context of a changing international economy, rather than out of a general theoretical

disillusionment with the virtues of free trade.Throughout the 19

thcentury the textile industry occupied a place of strategic importance in the British

economy. In the 1830s cotton goods accounted for more than half of the value of total British exports.

Later, although British exports diversified, they accounted for more than a third of the exports untilthe late 1870s and in 1914 for a quarter. Therefore, Lancashires influence on government policy,according to Basudev, has to be understood in terms of its actual weight in the economy and its

electoral and political strengths. Also important is the extent to which the government consideredtheir contributions necessary to the general economy. However, one can also not view the governing

institutions as the direct, unmediated organs of a ruling class. They also possess autonomy andinterests of their own within a general context of the limits set by the hierarchical distribution of

power between different classes in a given society. The connections and points of contacts of such

groups like Lancashire with the official hierarchy are needed to influence policy in operation in the

efforts to safeguard their interests but within a larger interest of the society.Though Britains overall exporting power began to decline from the 1880s as foreign competition

began to challenge Britain, there was still continuous absolute growth in her exports of cotton textilegoods to the expanding and open Indian market. This expansion of cotton exports thus prevented a

further widening of Britains merchandise trade deficit. Moreover, the strain on Britains overall BOPin this period, was more than counterbalanced by the external earnings of the financial and servicessector. This allowed for an alliance between the London, the financial capital of the world at the timeand the political centre of British politics, and Lancashire, the nerve centre of British trade. Led by

prominent producers and merchants, men of money and influence, the Manchester Chamber of

Commerce had become the spokesman of the whole cotton industry on matters affecting Lancashiregoods overseas. Thus, the cotton industry remained a significant constituent of the national interest.

By the end of the 19th

century, the influence in favor of an open economy and fiscal orthodoxy cameto be resented in the face of growing foreign competition. The new industrialists who were nowsupporters of the Conservative Party demanded protection of British industries through imperial tariffreform. Inter war years saw important changes in the structure of the British and international

economies, especially the rise of powerful competitors in staple exports, development of indigenousindustries and the rise of forces of nationalism in India. During this period the British statesinvolvement in the economy gradually increased, increasingly due to problem of unemployment, thedepression of 1929-30, the introduction of protectionist tariffs, and many other economic and politicalfactors. Thus the relationship between the industry and the state became further institutionalized.


3/11

Page 3 of11

But these changes did not take place overnight. Despite shift to newer industries in Britain, the oldindustries like textiles remained still significant. Though exports became less important to British

economy, they still were crucial in context of Britain's growing balance of payments difficulties. Indiastill contributed 14-16% of Britains net earning on the invisible account. There were also efforts byBritish businessmen to adjust to the changed circumstances by entering into partnerships with Indian

businessmen. Policy makers and businessmen tried both to preserve and recreate the old system, and

to come to terms with new circumstances. Throughout this period British policy in Indian reflectedthese conflicting strands.Though the governments attitude towards Indias industrial development was professedly laissez -faire, in practice it was that of discriminating interventionism that was meant to develop India as a

producer of raw materials and to encourage the foreign trade sector up to 1914. The WW1 brought tosurface many of the problems in latent in this imperial policy structure of the British. It revealed the

vulnerable industrial base and the consequent limited military capacity of India. Britain neededIndias military resources for her continental commitments as well as to protect her commercial

interests in the east, where Japan was becoming an economic enemy. This required the need for somelevel of state aided industrialization.

Politically and administratively, the time had come to reverse the trends of Victorian centralizationand for greater decentralization and provincial autonomy. Thus the Montagu-Chelmsford reforms

tackled administrative reorganization intended to relax the home governments control. They devisedthe system of diarchy whereby this could be done safely in the provinces without parting with anyreal power at the centre. Similarly, the Fiscal Autonomy Convention did not concede a financial

independence to India as proposed by certain authors. Fiscal autonomy was a long standing demandof Indian business and political spokesmen. The temporary protection provided by the war hadencouraged significant growth in industrial activity in India. This naturally increased the pressure for

fiscal autonomy, since industrialists would suffer from a return to pre war conditions.In 1919, these considerations led to the Joint Select Committee on the Government of India Bill. In

these discussions, it became clear that the form of fiscal autonomy for India would be substantiallydifferent from that enjoyed by the Dominions. Fiscal autonomy for India therefore remained only aconvention as long as the Indian government remained agents of the British government. Also the

requirement of prior consultation with the agreement of the secretary of state before the proposal

was put before the Legislative Assembly made the principle of non interference as propagated by theCommittee of little practical significance. But if the Assembly disagreed, the government was free toignore its views. The actual powers of the Legislative Assembly were quite limited, even if its

political opposition might frequently have cramped the governments style of functioning. So the

principle of non interference was conceded more as a political pronouncement and in reality Londonretained full financial control. Basudev argues that despite giving the Viceroy a greater say in fiscalmatters, Britain did not take the first step towards abdicating her commercial empire in the east. Boththe Viceroy and his government were riveted to its metropolitan base and the commercial interests ofBritish residents in India, even as the British Raj saw itself as the guardian and spokesman of Indian

subjects.Basudev then argues that the Fiscal Autonomy Convention was then an attempt to deal with Britains

dilemmas after the war. Financial complications made it necessary and the political benefits made it

virtuous. The interests of British exporters, especially Lancashire were also not abandoned. Insteadofficials tried to find new ways to maintain traditional aims. During the war, the GOIs militaryexpenditures rose massively leading to increased import duties on several goods, except cotton 1916.In 1917, financial requirements forced a rise in cotton duties to 7.5%. This led to protests by

Lancashire which the GOI placated by promising a review of fiscal relations once the war was over.Between 1917 and 1920 the Indian government worked out feasible proposals for Imperial

preference that is preference for British goods in the Indian market. Soon after the war, the GOIprepared to seek political support in India in order to implement a scheme of Imperial preference, butthey found out that no such scheme was possible unless the question of fiscal policy of India was also


4/11

Page 4 of11

tackled. The rationale behind the GOI and the India Office towards the fiscal policy for the next fewyears was to achieve a system of Imperial preference, and to attempt to reveal to the government the

various interests involved as well as the limits of such a policy.Indias contribution to the war effort, both in men and money, had been massive, but it had drainedthe resources of the empire and left India ye t again in an state of crisis, threatening Delhis piouscommitment to balanced budget orthodoxy. Britain had a huge financial stake in India. GOI had to

pay for the Indian army and administration, meet their debts to London, and to keep the rates ofexchange stable all within the constraints of a balanced budget. But while the demand on expenditurekept rising, the government sources of revenue remained either inelastic or politically sensitive. Theeasiest sources of additional revenue were customs duties and higher taxes on urban and agriculturalincomes. But the first struck at the heart of Britains commercial stake in India and threatened the

pattern of Britains internal settlements. The second threatened its political security and conciliation

of important social classes through low taxation. In times of crisis, the government had to resorttemporarily to import duties.

Moreover, if the constitutional arrangements of 1919 needed to work, and if its main purpose whichwas to maintain British primacy in India, was to be met, then the provinces had to given a more

certain and larger shares of Indias financial resources. By allocating land revenues to the provincesand placating the commercial and monied classes, the GOI was compelled to turn to the custom duties

to balance its books and conciliate the Indian business classes. This however did not mean ignoringinterests of British exporters in India. In fact the fundamental purpose of imperial policy had notchanged: the aim was still to preserve imperial interests but by using new methods to maintain

traditional aims.With the reforms of 1919, the British hoped to lock away politics in the provinces and away fromareas where Indians could thwart imperial interests. This strategy seemed to have worked well for

much of the 1920s. National agitation seemed to slow down after 1922; the Fiscal AutonomyConvention was operated without seriously compromising the interests of the British exporters, the

sterling rupee ration had been pegged to Londons satisfaction despite protests from Indianbusinessmen. Yet below the surface forces of change were at work in the Indian politics, spurred onpartly by reforms and more importantly by the sharpening of tensions between British and Indian

interests as well as within the Indian society. The complex political and economic trends of these

years were reflected in the growing militancy of urban youth, industrial workers and peasants. Thisgave way to left wing tendencies. Meanwhile the Congress attempted to straddle the diverse politicalmovements so as to assimilate and cultivate nationalist feeling against the alien Raj. Thesedevelopments, unintended by the architects of the 1919 Act, were compounded by the economic crisis

brought on by the world slump. This made it even more difficult to reconcile imperial interests withIndian politics. In the 1920s, the main concern for the British was how to maintain India within theempire by accommodating Indian opinion. In 1929, Irwin even ambiguously declared the attainmentof Dominion Status for India in order to mollify Indian politicians.Meanwhile, the world economic slump hit agrarian incomes hard and drastically reduced the value of

Indian exports; the depressed state of international trade seriously affected British exports to India,cut into the GOIs revenues, and increased political uncertainty leading to flight of capital which

weakened the rupee exchange. All this threatened Delhis ability to meet its financial obligations in

London. And in the early 1930s, the problems of pound sterling made London insist more than everbefore that the GOIs budget be balanced, the value of the rupee be maintained, foreign confidence berestored and the risk of India defaulting on her sterling commitments be averted at all cost.The War itself had depleted the resources of the government and the collapse of the post war boom in

trade undermined the exchange rate which also affected imports, particularly of cotton goods. Largeorders for imports ad been placed by Indian merchants when the exchange was high but now with lowexchange rate, the merchants faced ruin if they took delivery of the goods they had ordered. Thisnaturally created a serious situation for Lancashire which urged the officials in London to stabilize therupee at a reasonable rate. Also, the inability of the Indian government to leave cotton duties out of


5/11

Page 5 of11

its taxation proposals to balance the budget of 1921-22 enraged the cotton men and mill owners ofLancashire who insisted that fiscal autonomy not be taken seriously. If duties were increased, they

insisted that so should be the excise duties. The pressure of Indian opinion for a review of the fiscalpolicy and the powerful resentment of Lancashire made the appointment of a Fiscal Commissionnecessary. It was appointed by the GOI in 1921 with the aim to examine with reference to all theinterests concerned the Tariff policy of the GOI including the question of the desirability of Imperial

preference. The basic aim of this commission was to persuade the Legislative Assembly to grantBritain Imperial Preference. The political difficulties that the Commission was designed to alleviategrew steadily worse. From mid 1921, Gandhi decided to bring the spinning wheel and the boycott offoreign goods to the forefront of his non-cooperation movement. The boycott movement thrived onthe Indian traders reluctance to take deliveries owing to the exchange crisis, and pressure inLancashire grew to take action against Gandhi and the boycott movement.

London was satisfied with Commissions recommendations on excise which felt, was better arguedthan any representative of Lancashire has ever done and the possibility of a new cotton excise duty

was found desirable. However, they were also alarmed by the possible application, under Indianpressure, of intensive protective policy through a permanent Tariff Board. After consultations, the

GOI adopted the proposition that the fiscal policy of India might legitimately be directed towardsindustrial development, though with discrimination and a continuing regard for the GOIs dependence

on customs and excise revenue. However they were worried about the operations of a permanenttariff board that was independent and separate from the GOI. To prevent political opposition, theyappointed the Tariff Board on probationary basis for one year only. At the same time, the GOI

considered the possibility of getting the Legislative Assembly to accept a general resolution onImperial Preference. Basudev concludes that the investigations and reports of the Fiscal Commissionhad been necessary preliminaries to the foundation of a new fiscal policy for India. The process

produced recommendations as well as showcased the different interests involved- government andprivate, Indian and British. It had also given the GOI and the India Office some notion of the extent of

protection that might be accepted by British interest, and the extent of Imperial preferences that mightbe acceptable to Indian interests. The GOI was now ready to take concrete action.These developments forced Delhi to raise the tariffs as well as several deflationary financial and

monetary policies. The new tariff rates, despite a measure of preference, fell heavily on Lancashire

cottons at a time when they were rapidly losing out in the Indian market. Lancashires powerfulprotests created trouble in domestic politics of Britain, while in India the London dictated financialand monetary policies only added to the growing agrarian unrest and to the restlessness of the Indian

businessmen. Fiscal autonomy and discriminating protection did not mean that home interests had

been abandoned. It did, however, mean that where they abutted on Indian fiscal matters the interestsof Lancashire, the Government of Indias concern for financial stability, British Governmentsworries over industrial problems at home, and the India Offices desire to relieve political pressurethreatening the Raj, would now have to be accommodated within the framework established by theFiscal Autonomy Convention, the Tariff Board and discriminating protection. Lancashire would not

overthrow the framework of policy, but its interests could be preserved within it. Imperial preferencewas one vehicle to achieve this, and it remained an important part of the strategy of the government.

But there were to be others: differential duties in the interests of consumers, direct negotiations

between British and Indian businessmen over market sharing within a certain industry.In the years between the wars, Bombay mill owners faced severe problems. During the war and theimmediate post-war boom, widespread financial speculation unduly inflated the capital value of manyof Bombays mills in 1922. The governments deflationary monetary and financial policy made

matters worse. The period 1917 to 1923-24 had witnessed terrible exchange rate fluctuations and boththe government and businessman desired stability. But the rate at which the government soughtstabilization agitated Indian business opinion. From October 1924, the government had maintainedthe rupee at 1s.6d. The Bombay mill owners, as well as most sections of industrialists, complained


6/11

Page 6 of11

bitterly against the deflationary policy. It created financial stringency: bank started to call in theirloans and many mills ran into problems.

Mill owners in Bombay were also more directly affected by growing Japanese competition than millowners in Ahmadabad, and they faced increasing competition from up-country mills. The mill ownersalso sought relief for their industry by demanding action against Japan through anti dumping policiesand tariff protection which would prove more harmful to Japan. Mill owners pleaded for this course

of action, rather than for a Tariff Board enquiry, because they feared that if such an enquiry was torecommend a general measure of protection, the government might be constrained to reject it indefence of Manchester goods. The Government of India, however, could not accept the mill ownerssolution. It always shrank from any action which was likely to cut down Indias surplus of exportsover imports in any way. Yet, in the context of the ongoing currency agitation, the government wasconscious of the need to avoid a situation where the mill owners would find another issue to launch

full-scale, press aided propaganda. Innes (of the Commerce Department) brought the mill ownersaround to accepting a Tariff Board enquiry.

Their efforts to cut costs were inhibited by the volatility of their labor force, which was not amenableto the safer influence of Gandhi, as in Ahmadabad. The acute depression in Bombay after 1923

revitalized the controversy over cotton excise; the excise was finally abolished in 1925. This decisionmight be seen as one of the first attempts of the Indian government to take advantage of the Fiscal

Autonomy Convention and ignore the Imperial factors represented by Lancashire. Yet Chatterjiargues that, the picture was far more complex and Lancashires influence was by no means dead. Thegrowing radicalism in the organization of Labor made the government extremely anxious, and led it

to contemplate the abolition of the excise to break the dangerous general strike of 1925;Lancashires acquiescence to the abolition, after being privately approached by the Bombay millowners with assurances and schemes of market-sharing in India, removed the major reason for their

hesitation. The abolition of the excise, then, had much to do with the scare of the red and very littleto do with the governments alleged commitment to purely Indian interests.

When the excise was abolished, Lancashire was aware that it would soon be followed by a BombayMill owners Association agitation for further protection. However, Bombays representa tives hadassured them that they had no hostility towards Manchester. In fact, they sought Manchesters support

in pressing on His Majestys Government to move against Japan-preferably through an Anti-

dumping Act. However, L.J. Kershaw of the India Office had made it known to Manchester men thathopes of an Anti-dumping Act were futile, and that in all probability it would not be possible to

bypass the Tariff Board. Meanwhile, the Bombay mill owners continued their efforts to keepLancashire neutral, if not on their side-a strategy which they felt had borne fruit on the excise

question in 1925. J.H. Rodier, the Chairman of the India Section of the Manchester Chamber, waspresent at one of the meetings of the Bombay Mill owners Association in February 1926.Lancashire knew that measures avowedly against Japan would not be possible, and thus the demandreally implied the system of specific duties. Faced with the danger of either an all-round increase orspecific duties, the representatives of Lancashire trade organizations turned again to the Tariff Board.

In case the Indian government felt bound to propose an increase of duty, they hoped that they wouldfind some way of avoiding an increase on Lancashire goods. One such way was to grant preference to

British cotton goods, much the simplest way of dealing with the situation -the preference could be

entirely justified in the interests of India alone. The second best way was to impose specific duties onthose types of goods in which the Japanese dominated. The outburst of anti-Conservative propagandain Lancashire made the Conservative and Unionist Central Office take counter-steps. The Officeargued that Japan was the common enemy of Bombay and Lancashire. The Conservative government

knew that a proper solution to the problem would only be gained through influence over the outcomeof the Tariff Board Enquiry.The Tariff Boards report January 1927.The Reports main recommendations in the latter categorywere the increase of import duties on all cotton manufactures, other than yarn, from 11 % to 15% onthe grounds of unfair competition from Japan; remission of import duties on certain kinds of mill


7/11

Page 7 of11

machinery and mill stores; and government assistance for the erection of a combined bleaching,dyeing and printing plant. Meanwhile, the Manchester Chambers Joint Committee informed in

advance by the Board of Trade of the contents of the Report prepared their case against the majorityrecommendations. The Lancashire men reiterated their old claim that Japan, not Lancashire, wasBombays real enemy. They argued that a general increase in the duty would drive the not tooaffluent consumer to cheaper and coarser goods, thereby only helping Japan, while a bonus on finer

counts would defeat its purpose since coarser cloth would cost more, leaving less purchasing powerfor both. The best solution, both for the consumer and the mill owner, they insisted, would be toconfine the duty to non-British goods.Striving to assure themselves that the proposals for a general increase in the import duty lackedfoundation, Commerce Department officials premised their objection to the Report on the groundsthat protection to the industry would perpetuate inefficiency and would result in the loss of consumer

welfare. The Commerce Department highlighted the world factors, the internal weakness of theBombay industry, and the competition from up-country mills as chiefly responsible for the

depression. Protection, they argued, offered no solution. On the internal situation in the industry, theCommerce Department felt that the Tariff Boards findings that the depression had been aggravated

by the default of the mill owners themselves, which was sufficient reason for withholding thangranting protection

Import controls in this context would have provided surplus to firms which had earlier been incurringlosses or just breaking even as well as to the inefficient ones and given additional profits to theefficient firms. They would also have made import taxes available to the government to provide aid to

the industry. In any case, official concern for preserving competitive conditions as the only means toinduce Bombay to rationalize was satisfied by the existence of competition from the up -countrymills. Specific discrimination against Japanese piece-goods and yarn was totally unacceptable. The

Commerce Department refused to concede that Japanese competition was a problem, up-country millswere Bombays real enemy. Secondly, differential duties against Japan could lead to tariff retaliation,

resulting in a loss of Indias export earnings. Moreover, while admitting that Japan enjoyed an unfairadvantage in the production of yarn which was not covered by the existing duty of 5 per cent, theCommerce Department refused to entertain the recommendation because of their concern for the

handloom industry. However, while rejecting recommendations for protection, the Commerce

Department realized that it was necessary to give some tangible proof in other ways of thegovernments desire to alleviate the situation in Bombay preferably by giving effect to some of theother recommendations made by the Tariff Board. For, while it could b argued that more than 50 percent of the industry in India was not in a state of acute depression, Bombay was still the single largest

centre of the industry and the government could not simply watch it decline. The possibility of apolitical storm could not be ignoredBy early May, the Government of India arrived at their main conclusions there was no case for anincrease in duty on cotton goods for protective purposes or for bounty on spinning higher counts;there were to be no differential duties against Japan, but the duty on machinery and certain kinds of

mill stores was to be removed. Blackett admitted that along with the concern for consumers therewere ulterior reasons. The Secretary of State and his officials immediately approved these

conclusions as only expected and right. Lancashires interests had been safeguarded. Diplomatic

complications and the possible loss of Indian export earnings, consequent upon discrimination againstJapan, had been avoided while the abolition of duty on machinery had obvious advantages (i.e.increased exports from the UK).Most significantly, the general rate of duty had not been raised.

Naturally the Lancashire mill owners were overjoyed.

As expected, the governments decision raised an outcry in Bombay. The Bombay mill ownerslaunched a full-scale propaganda campaign. The nationalist press, the Congress party and Gandhi sawin the situation an opportunity to get the mill owners into their fold. So, while they carried out active

propaganda against the governments decision, they also urged the mill owners to join hands with theCongress and the boycott movement.


8/11

Page 8 of11

The mill owners were urged to believe that their real salvation lay in making common cause withGandhi and his Khaddar movement, for although Gandhi was in favor of the spinning wheel, he was

not really against Indian mills. Gandhi personally pointed to the futility of the mil l owners demandsfor protection from a government that will not offend Japan...and it dare not displease Lancashire...for Lancashire is the government in substance. Moreover, their enemy was all foreign imports, andthey could really fight against them only by making common cause with khadi and the masses.

Gandhi envisaged some sort of market-sharing arrangements between khaddar and the Indian mills,with the former concentrating on the supply of coarser goods and the mills taking the finer, end ofthe market which Lancashire now largely occupied. The Ahmadabad mill owners along with someother industrialists, saw in Gandhis boycott movement a useful, if potentially dangerous, source ofstrength in their economic battles with the government. Yet the Bombay mill owners foundthemselves unable to respond to Gandhis appeal. In the face of their labor organizations, they were

unlikely to consider Gandhi as their savior. Besides, despite Gandhis assurance that the boycottmovement was not directed against Indian mills, Bombay mill owners were especially wary of the

conditions laid down for classifying mills as swadeshi.Unmoved by the appeals of the nationalists, the Bombay mill owners stuck to their demands against

unfair Japanese competition. On 20 June 1927, they convened a conference of representatives of thetextile industry in order to seek some modification of the governments decision. Their strongest

argument related to the question of yarn duties. The duty on yarn was only 5 per cent and thegovernment had refused to raise the duty on grounds of protecting the handloom industry. Thisrefusal was inconsistent, the mill owners pointed out: the ruin of Indian spinning mills would in fact

help the Japanese capture the entire market, and thus create the requisite conditions for a rise in theprice of imported yarn and eventually injure the handloom industry.The governments decision, Irwin admitted, had caused widespread dissatisfaction which was by no

means confined to the mill industry. So the government backtracked a little, and discussions with themill owners focused on the question of yarn duties. The Commerce Department now decided to

recommend a small extra duty on yarn for a period of three years. It must be remembered that Britishyarn exports to India constituted only5 per cent of the export value of piece-goods. But acutedepression in Lancashire, especially in the spinning sections, meant that every bit of the trade was

worth preserving. So officials in India and the Board of Trade devised a system calculated to affect

the import of Japanese yarn more than that of England. The imposition of specific minimum dutieswas preferred to an increase in the existing ad valorem rate, since the latter would have given thecheaper Japanese yarn a definite advantage over the more expensive British yarn. Officials wereaware that the incidence of these duties on British yarn though less than Japanese would be quite

high, but they could not avoid this without openly discriminating against JapanThe Cotton Duties (Yarn Amendment) Act-was passing by the Legislative Assembly on 3 September1927. Although it helped Bombay to spin finer, it was welcomed unenthusiastically. Nationalistopinion was disappointed and enraged. Gandhi tried a mixed strategy of admonition and negotiationto win over the mill owners. Simultaneously, Motilal Nehru was sent to Bombay to persuade the

cotton men to cooperate. Negotiations dragged on, but the mill owners proved worse than Iexpected, complained Motilal. Inevitably, the Congress leaders grew embittered. Gandhi, annoyed at

their greed and dishonesty, accused them of taking undue advantage of the boycott movement and

reflected that, it is not necessary for capital to be dishonest for its growth.It was at this juncture in the 1928-9, that the Government of Indias difficulties in balancing the

budget revived the question of cotton duties. Wedded to the orthodoxy that imbalanced budgets notonly result in progressive deterioration of Indias general financial position and the impairing of her

credit abroad, but also react seriously upon the internal situation, the government could find no otherway to balance its budget for 1929-30 except by proposing a moderate rise in the cotton duties to 12.5

per cent. However this idea was discarded by the British Cabinet.Meanwhile, the condition of the Bombay mills continued to deteriorate. They continued to lose theirshare of the Indian market in various classes of goods. While the mill owners tried to arrive at a


9/11

Page 9 of11

common policy on the standardization of wages, the millworkers became more united in theiropposition. Wage cuts by individual mills and the fear of redundancy owing to the economic position

of the industry led to a general strike in 1928, followed by another in 1929. The communists took theleading part in these strikes. The mill owners attempts to end the 1929 strike by employing Pathansled to communal riots and created a serious situation in Bombay. The demands of the mill owners for

protection, however, remained moderate; the extent and nature of labor unrest in their industry

underlined their dependence on the holders of state power. Besides they still hoped that a reasonabledemand for protection against Japan stood a better chance of success.In 1929, the government moved against the communists with the Meerut Conspiracy Trial andsmashed the Girni Kamgar Union. While adopting these repressive measures, the governmentcontemplated further protection to the Bombay industry to forestall more wage cuts and outbreaks oftrouble. Such a measure had the added advantage of providing the much-needed revenue to balance

the budget in the coming year. In July 1929 it appointed a Commission under G.S. Hardy to enquireinto the possibility of substituting specific for ad valorem duties.

The Board of Trade had already, received some indication of Lancashires anxiety over the possibilityof specific duties. On 27 August, a powerful delegation met the Board of Trade officials and

detailed their objections. Specific duties would only make the Japanese transfer production to theclass of goods with lower duties, and thereby increase the competition with Lancashires goods. A

sound scheme of specific duties on such a complex trade as cotton was a technical impossibility; theirimposition would disturb the whole system of manufacture in Lancashire and simultaneously increasethe administrative burden on the Indian Customs Department. The representatives of Lancashire also

expressed the fear that if and when further political autonomy was granted to India a specific tariffwould be fertile field for manufacturing groups to use politics for their own purposes. Manchestermen made it clear that if they were to choose between specific and ad valorem duties-a choice which

they might be forced to make if the Government of India was unable to find any other way of gettingadditional revenue-they would rather have increased ad valorem duties. The unease of Lancashire had

its effect on Hardy. The final report of the Enquiry made no recommendations. It only arrived atconclusions which were against specific duties. The news cheered Lancashire.These feats of policy making indicate significant features of the colonial economic relations of the

1920s. First, the fiscal autonomy (which Britain had conceded to India in 1919) did not indicate that

metropolitan economic control was being substantially weakened or that India was moving into theposition of Canada or Australia. Fiscal autonomy and discriminating protection were techniques toreconcile a complex range of Imperial interests and to gather support in India rather than milestonesto decolonization. This does not mean that Indian industries, especially those that did not directly

clash with metropolitan interests, did not gain from discriminating protection. In general, however,it may be said that the extremely limiting principles underlying the policy and the modus operandi ofthe Tariff Board made it more discriminating and less protective, undermining the confidence ofthe Indian investor. It must also be noted that the governments monetary and financial policiestended to limit the gains from protection as well. Further, despite important structural changes in the

British economy, the Lancashire cotton industry carried substantial weight and retained its capacity toinfluence government policy. Throughout the 1920s, officials strove to find a way to accommodate its

interests within the framework of fiscal autonomy and discriminating protection. Even while

appreciating the necessity of establishing the credentials of the Indian Tariff Board as a body ofexperts and despite the pressures of the political environment and the qualifying forces of proceduraland practical limitations. London and Delhi worked out feasible decisions in favor of Lancashire.In the 1920s, the government and businessmen attempted to reorganize economic relations between

Britain and India to accommodate the changes, wrought by the First World War, world depressionand the growth of Indian nationalism. Still, Lancashires interests remained significant, and thequestion of cotton duties dogged the talks on economic reorganization from the Tariff negotiations ofthe early 1930s, through the period of the Ottawa Agreement, to the Indo-British Trade Agreement of1939


10/11

Page 10 of11

Through the early 1930s, the Conservative government struggled to reconcile imperial aims with

political calculations in India. One of the feasible strategies as suggested by Irwin was to drive awedge between the financial and commercial classes on one hand and the political extremists on theother. The business classes after an initial enthusiasm for Gandhis civil disobedience movement had

become insecure with mass politics as it disrupted economic activity. In fact, initiative was made to

bring some sort of conciliation between the conflicting British and Indian economic interests. Theinterests of both parties was believed to be served through encouraging greater association of

businessmen and some form of agreement over trade and tariffs between the manufacturers of the twocountries, rather than through constant exercise of formal British control over Indias commercial

policy.In 1931, Britain renounced free trade and decided to protect her industry with tariffs and her

commerce and pound sterling within an economic bloc. The principle of imperial economiccooperation now championed by Britain provided the basis for the establ ishment of a system of

preferential tariffs between eh empire countries in Ottawa in 1932. This strategy seemed to allowopportunities for bringing together Indian and British businessmen in private agreements over sharing

the Indian markets. The Ottawa principle and the system of imperial preference provided the mostviable framework for achieving British financial and commercial aims in the 1930s. It allowed the

GOI to use custom tariffs freely in its pursuit for sound finance and at the same time to satisfyIndian demands for protections against foreign, that is non-British, competition with preferentialrates for British goods. Moreover, the incorporation of India within the system of imperial

preference allowed direct negotiations between the British and Indian businessmen before tariff rateswere fixed. This new policy allowed London to appear magnanimously to offer the commercedepartment to an Indian when in fact real control was in the hand of the SOS. However, this new

system which operated on the continued collaboration with the Indian businessmen seemed the bestpolitics for the security of British commerce.

The question of control over Indias finances was another important issue. It seemed that somegesture of concession needed to be made in this area to improve the prospect of the reforms winningsome public support in India, at the same time with stringent safeguards had to be provided that

would not allow India to default on her payments. And so, at the centre an elected finance minister

was appointed to maintain the semblance of financial responsibility while the Viceroy was to remaindirectly in charge of the vital aspects of financial administration that concerned Britain like the army

budget, the sterling debt, salaries and pensions of the ICS, and overall financial stability.The Act of 1935, gave Indians offered a kind of diarchy with elected governments at the provinces,

hedged in with series of clauses that gave independent powers to the Viceroy to protect vital Britishinterests. Consequently the British government continued to maintain its hold over Indiascommercial and financial polices till the end of the 1930s. Indian pressure proved ineffective inweakening the GOIs commitment to principles of sound finance. Therefore Basudev concludes thatthe constitutional measures of the inter-War years, then don not appear as milestones on the road to

decolonization en route which metropolitan interests were sacrificed for the purposes of devolvingpower over economic policy to Indians. Instead the Act of 1935 was actually an act of conciliation

whose chief virtue was calculated to prevent the jewel from falling off the Crown without

jeopardizing vital British interests.Finally the bureaucratic struggle between Delhi and London was not so much about the defence ofIndian interests but rather about disagreements regarding how best British interests in India were to be

preserved. During the inter-War years both the GOI and the Home Government continued to be at one

in their resolve to maintain the imperial order. But the view from London and Delhi was not alwaysthe same. Whereas for London, India was only a part of a larger world system of power and profit,Delhi necessarily was preoccupied to a greater extent with an Indian construct of affairs, and thisoften led to clash of perspectives.


11/11

Page 11 of11

.

This is not to argue that British interest groups always got their own way in India. Often there wereconflicts between them and imperial policy. The imperial system had its own priorities andconstraints. Maintaining the stability of the Raj was its primary concern. It had to uphold itlegitimacy, its security and its systems of support. Thus, in times of crisis, it often found it difficult to

satisfy specific demands. Moreover, there were often contradictions between one British interest andanother, most palpably the interests of British businessmen resident in India and home interests,

between financial and commercial interests. British industrial interests whether expatriate ormetropolitan had to be accommodated within the limits set by the financial responsibilities of agovernment operating narrow resource base and wedded to the principle of fiscal authority.The governments in London and Delhi had thus to strike a balance between the conflicting demands

from different partners in the imperial enterprise such as accommodating the powerful Britishcommercial interests of Lancashire.

All this suggests that any analysis of official policy in India must free itself from a preoccupation witha formal division of power and look into the actual circumstances within which policy was both

formulated and put into practice. More attention needs to paid to policy in operation than to policyin declaration as well as to the ways in which what was declared was sought to be reconciled with

what had to be done. Moreover, the making of policy is betters studied in the context of the changesin the Indian, British and international economies, and the relationship of these with the shiftinghierarchy of imperial interests as well as with the growing political and other constraints on the

governments, whether in London or in Delhi.Chatterji views the colonial state not as a monolithic entity, but as an institution that had to handle avariety of often contradictory pressures from competing groups. Imperial officials were constantly

weighing the concerns of Lancashire with those of Britain's "new" industries; the Government ofIndia's own interest in drawing upon the revenues that tariffs might provide; the empire's need to

secure the support of moderate Indian businessmen at a time of growing nationalist protest; and aconcern to check labor militancy. Because of the shifting balance of forces, imperial trade policy didnot proceed steadily in a single direction; the high tariffs granted to Indian industry in the early 1930s,

for instance, were partially withdrawn by the end of the decade. Chatterji provides clear evidence

that, by the end of the 1930s, business interests in Britain and India were both coming to recognizethat they needed to work together to achieve compromise. The Agreement of 1939, although neverfully accepted by Indian industrialists, was a product of complex negotiations in which Indianagricultural interests were largely squeezed out of the picture.

basudev final notes

Documents