XII - The Fiscal System

Summary

That fiscal policy is one of the central battlefields of interests, and that in a colony the battle between the interests of the imperial power and its subjects is a very unequal one, are both truisms. In analysing the structure of taxation or the pattern of public expenditure in British India it is certainly more to the point that India was a market for British manufactures, a source of raw materials and a field for profitable investment than that Indian industry and agriculture were backward and its people illiterate and short-lived. But these truisms do not take us very far in understanding the interplay between the complex fiscal system of British India and the intricate and shifting web of interests.

In the first place, it is important not to exaggerate the role of government. British politicians and administrators had conservative views on the proper business of government, and on the prudent management of the public fisc; and moreover they were fearful of endangering the stability of the Raj by raising taxes. India's first viceroy is reported to have said, on a proposal to impose income tax: ‘Danger for danger, I would rather risk governing India with an army of only 40,000 Europeans than I would risk having to impose unpopular taxation.’ Seventy-odd years later in 1930, the Simon Commission found that there were ‘very definite limits to the extent to which an irresponsible Government can force increased taxation on a poor country’.