very large amounts. The home Government repaid its debts by
credits in London, but the Indian Government required money in
India and the difficulty was to remit specie. Gold was unobtainable.
Silver was scarce in the London and American markets. The Indian
Government was therefore compelled to increase the note issue
without a corresponding increase of rupees held against the notes.
The security for such issues was provided by investment in British
Treasury bills on behalf of the paper currency reserve of moneys
lying at credit of the Indian Government in the Bank of England.
The notes were convertible and their encashment drained away
the reserve stock of rupees. The time drew near when either in-
convertibility must be declared or silver obtained in large quantities
for coinage. In April 1918 inconvertibility was all but reached when
help came from the American Government. The circumstances in
which the relief of India was achieved at the last moment through
the sympathy, statesmanship and driving force of President Wilson
were graphically described in a speech made to the English-speaking
Union on Feb. 12 1921 by Lord Reading, who was at Washington at
the time as special ambassador and on whom it fell to put the serious
position of India, and the gravity of the consequences likely to
result from suspension of metallic payments, before the American
Government. Congress was prevailed on to pass the Pittman Act
as an emergency measure. The Act enabled the Government to
borrow from the Treasury the greater part of the dollar reserve
of 375 million oz. held as security for silver certificates. The Ameri-
can Government as soon as it obtained this authority allowed the
Indian Government to purchase 200 million oz. of silver dollars on
very reasonable terms and accelerated the despatch of the metal to
India. The news of the transaction reaching India in advance
sensibly alleviated the situation and gave the Indian Government a
welcome respite. From July 1918 onwards American silver began
to arrive in large quantities and was coined into rupees. For some
months the new money went out of the reserves as fast as it was
coined, but by Dec. 1918 the convertibility of the note issue was
secured. Between March 1915 and March 1919 nearly 120 crores of
rupees (80,000,000, converting the rupee at is. 4d.) were added to
the circulation. The active circulation of notes in the same period
rose from 60 crores to 150 crores. The rupees held against the note
issue in the paper currency reserve in March 1919 amounted to 28
crores, the balance being covered by investments in British and
Indian Government securities and by gold. This great expansion
of metallic and paper currency in India has been accompanied by a
general rise in prices and wages.
The price of silver in the London market rose with the demand for it, and with the gradual decline in the dollar exchange value of the pound sterling, from the pre-war level of 26 pence the oz. to 55 pence in Sept. 1917. From that time onwards it varied from a minimum of 45 pence to a maximum of 89 pence in Feb. 1920. This was followed at intervals by corresponding rises in the sterling exchange value of the rupee from the pre-war standard of is. 4d. to is. 8d. in May 1919 and 2s. 4d. in the following December. So great a departure from the Indian currency system based on the ratio of 15 rupees to the pound sterling gave rise to great difficulties. The Indian Government could no longer buy silver for coinage except at a heavy loss. The withdrawal of rupees for clandestine export by bullion dealers and speculators, or their melting down, became a profitable though illegal operation. The conversion into bullion of the rupee, when valued at one-fifteenth of the pound sterling, was profitable as soon as the price of silver touched 43 pence the ounce. Thus embarrassed, and in the belief that a higher price level for silver had come to stay, the Indian Government recommended and the Secretary of State agreed that the question of Indian exchange and currency should be referred to a strong committee sitting in London. The committee after a prolonged inquiry reported early in 1920. It recommended that the rupee should be correlated to gold, and not to sterling which by that time had depreciated in relation to gold and had no certain value, and that it should be given a new statutory ratio equivalent to one-tenth of the gold contained in a sovereign. This would give the rupee the equivalence of 2s. when the pound sterling returned to parity with the sovereign. The committee were of opinion that the price of silver expressed in pence would remain at a point that would make the retention of a is. 4d. rupee impossible unless the coin itself was diminished in weight or fineness. This alternative they rejected. In fixing the ratio at one-tenth of a gold sovereign they looked to the eventual return of the pound sterling to parity with gold. They thought that, having regard to the higher price levels of the world, India would still be able to maintain a favourable trade balance with a 2s. rupee, and that any consequent readjustment of rupee prices of Indian export staples would be to the advantage of the Indian consumer by acting as a drag on internal prices. The Indian Government accepted the committee's recom- mendations, which tallied with their own views. They announced their intention of legislating to establish the new ratio between the rupee and the sovereign, and for some months they endeavoured to maintain the exchange value of the rupee at that level by selling drafts on their resources in London to the amount of over 50,000,- ooo. But economic forces proved too strong. Persons having money in India hastened to remit it to England now that the rupee com- manded 2s. 6d. or upwards of sterling At the same time the export trade of India fell off. In common with other countries whose ex-
ports consist of raw materials India found the demand for its produce suddenly dry up. The favourable trade balance, on which the stability of the rupee exchange at the old rate of is. 4d. depended, gave place during the second half of 1920 to a large adverse trade balance which had to be liquidated by bills on London. Exchange persistently dropped from 2s. 6d. the rupee, which in the first months of 1920 roughly represented the parity of one-tenth of a gold sov- ereign, to below is. 4d. in the early part of 1921, and the price of silver receded to 32 pence the ounce. In Sept. 1920 the Indian Coinage Act established the new ratio. The Indian Government, while stoutly maintaining that the policy was right, acknowledged that their efforts to support exchange and make the new ratio effec- tive had proved both costly and abortive.
In 1920 the Indian Government took an important step to put its note issue on a better footing. Before the war the amount of notes that the Paper Currency Office might issue on the basis of securities of the British and Indian Governments was restricted to 14 crores. During the war the fiduciary issue was extended by a series of emer- gency Acts to 120 crores. The Indian Paper Currency Amendment Act, 1920, embodies a new and more elastic principle. It allows notes to be issued without limit, provided that at least 50% are covered by metallic holdings. Of the securities for the fiduciary portion 20 crores may be rupee securities. The balance must be securities of the United Kingdom of no longer maturity than 12 months. The metallic holdings may be either in gold or silver, but the gold, with the exception of 5 crores, must be held in India, not in England. This location of the gold reserves gives effect to Indian opinion on the subject. A novel and useful provision is that notes to the amount of 5 crores may be issued against bills of exchange of a durance not exceeding 90 days. The Act contains also transitory provisions in- tended to bridge the interval within which these important changes are to be brought into effect. Taken in conjunction with the amal- gamation of the three Presidency banks into an Imperial Bank of India (see BANKS AND BANKING) this measure should secure a large expansion of the note issue under safe conditions.
AGRICULTURE
As two-thirds of the population of India live on agriculture, the prosperity of the country turns on the annual harvests to an extent unknown in western Europe. Irrigation in many parts of India protects an increasingly large area from the vicissitudes of the sea- sons; but speaking generally Indian agriculture is in the main dependent on the monsoon rains. An intense and widespread drought afflicted the greater part of India in 1896 and taxed all the resources of the administration to cope with the resulting distress. In 1900 and again in 1908 the monsoon failed badly over very con- siderable areas, causing great destruction of crops and cattle. From the latter date until the autumn of 1918 the country as a whole enjoyed a ten-year cycle of good rains and satisfactory harvests.
Until the outbreak of the World War the foreign demand for In- dian produce wheat, cotton, oil-seeds, jute, rice was very active. Under this demand prices rose rapidly in India, to the gain of the agriculturist but to the detriment of the urban and labouring classes, and the result was provocative of much unrest and discontent. Indian politicians are inclined to look suspiciously on the export of grain, and to regard it as a " drain " on the food of the people. But over a series of years the net export of food grains has averaged less than 2 % of the estimated total outturn. The effect therefore of the " drain " in normal years may easily be exaggerated. That the foreign demand has stimulated Indian agriculture and that the Indian peasant has benefited would seem beyond doubt. The irriga- tion colonies of the Punjab, where virgin soil yielded phenomenal crops of wheat during the decade, prospered exceedingly. Agricul- tural land fetched from 30 to 40 the acre and market sites along the railway from 200 to 300 the acre. The colonists absorbed vast quantities of specie, especially sovereigns, built spacious towns and substantial dwellings and indulged in a standard of living that from the Indian standpoint was luxurious.
The war introduced new factors. At first the foreign demand ceased. But soon the Allies turned to India for supplies for war purposes, and by 1916 their needs became so great that the Indian Government was obliged to undertake control of internal prices and restrict the Volume and regulate the direction of export trade. Money poured into India for purchase of wheat, rice, jute and other commodities. In th,e interest alike of the Indian consumer and of the British Government and its Allies, it was essential to see that the country was not denuded of supplies, that prices were not forced up to extravagant heights, and that whatever surplus was available was utilized for war purposes, and did not find its way to the enemy or to neutrals. The need for caution was proved by what occurred in 1918. In 1917 there was a record wheat crop. In 1918 the mon- soon failed and the harvests of all food grains were bad. A moderate estimate placed the deficiency of the year's harvests at 20 million tons or about one-fourth of the average yield. The control exercised by the Indian Government prevented extreme shortage, though it was necessary in 1910. to import 200,000 tons of wheat from Australia, and to divert to India a large part of the surplus rice crop of Burma. Generally speaking the war has enriched the Indian agriculturist and given a stimulus to agricultural improvements.
During the ten years preceding the war the agricultural depart-
