Pranab Mukherjee isn’t known for wearing hats. But come this Budget season the Finance Minister might consider doffing one, even metaphorically, to the shade of James Wilson. Because this February will mark 150 years since Wilson gave what was India’s first Budget Speech, in his capacity as Finance Member of the India Council that advised the Viceroy of India.
And the hat would be an appropriate gesture since hats are what started Wilson on a journey that would take him from being a Free Trade activist, to founder of The Economist, founding director of Standard Chartered Bank, MP, Finance Secretary to the UK Treasury, Vice-President of the Board of Trade and finally, in effect, India’s first Finance Minister – the original idea was to call him the Indian Chancellor of the Exchequer – a post he held from 29 November 1859, when he arrived in Calcutta, to 11 August, 1860, when he died there from dysentery.
It was a tenure of barely nine months yet in that time Wilson did an incredible amount. Paying tribute to him, his understudy and later successor, Sir Richard Temple wrote: ‘he introduced for the first time in India a financial budget framed upon the English model – inspired the public mind with fresh confidence – brought together the threads of finance which had been broken and scattered by a military and political convulsion – stimulated the operations of the Military Finance Commission to review the numerous branches of civil expenditure – reviewed the existing system of audit and account – besides discharging the multifarious duties devolving on a finance minister and a member of the general government.” Less expectedly, but of great long term significance, Wilson also provoked a debate that ultimately fuelled the nationalist movement.
But it started with hats, and he was never allowed to forget it. Wilson was an example of something new in the 19th century – a largely self made and self taught man, whose achievements were based almost entirely on his intellectual ability and enterprise. His father was a well off woollen manufacturer in Scotland, and Wilson went to a good school. He hoped to study law, but his father insisted he learn a trade and apprenticed him to a hat maker. Wilson did well, moving to London and building his hat manufacturing company into a good business. But his modest fortune was wiped out in 1837 by bad investments in indigo – an early Indian involvement – and he had to work hard to build it up again. This gave Wilson practical experience in the ups and downs of trade and industry, and he valued this.
But in a Britain still dominated by landed aristocracy it was also a handicap. Sabyashachi Bhattacharya in Financial Foundations of the British Raj, a fascinating work on which much of this article is based, noted how after becoming Finance Member, cartoons in the Indian (English) press lampooned him as a hat maker, and Lord Elgin wrote to Sir Charles Wood, the powerful Secretary of State for India, disparaging Wilson and his successor, Samuel Laing, as belonging to “the middle-class speculative business hierarchy.”
Even when the Prime Minister, Lord John Russell, wrote to Queen Victoria in 1848, recommending him for a promotion, he mentioned apologetically that “a few years ago he carried on the trade of a hatter, & failed. But his integrity has not been questioned and his talents are considerable...” The Queen declined to promote him then, and would decline again years later, when the government sought to reward his considerable services by making him Governor of the Australian colony of Victoria. The Indian Finance Member position that he was then offered was less a reward, than a further appeal for his services, at a time when India desperately needed someone with his combination of practical and theoretical knowledge.
Because this is the point about Wilson – for all that the British establishment might sneer, they also needed him. Their 19th century Empire, it was clear, rather than just being based on conquest as in the past, would have to be built on the power of trade and industry and men like Wilson were at the fore. All through his work as a hatter, he had maintained a strong interest in the emerging field of economics, and far from being a problem here, this practical experience, balanced with theoretical insights from his readings and the debates he participated in, gave him added authority.
Wilson’s tipping point to political involvement was the Corn Law movement to remove the taxes on imported grain that benefitted the aristocracy with their large farmholdings, but almost no one else. Opposition to the Corn Laws brought together an unlikely coalition from Free Trade supporters like Wilson to worker’s rights activists (one who noticed him was Karl Marx, who described Wilson as an “economical mandarin of high standing”). Wilson founded The Economist to advocate his position for Free Trade combined with liberal social views, and as Ruth Dudley Edward noted in The Pursuit of Reason, her weighty history of that magazine, it is remarkable how consistently it has stuck to Wilson’s essential views over the years.
By 1844 Wilson was ready to give up hats to focus on The Economist. It was influential by then, and Wilson, who had written most of the early issues, was able to start taking on others to help, including Walter Bagehot, who was to become the magazine’s most famous editor and, as it happened, also Wilson’s son in law. Wilson became a MP in 1847 and was quickly co-opted by the government in 1848 to serve on the India Board of Control, which oversaw the activities of the quasi-government East India Company. Edwards writes that at this first involvement with Indian policy he “developed a state guarantee to encourage English involvement in India and had been the driving force behind the development of the Indian railway system: Emilie (his daughter) remembered him planning the railway lines on the dining table at home.”
Involvement in public issues changed Wilson. He had been a hard-core exponent of laissez-faire principles, even defending their most tragic application – the Irish famine, where failure of the potato crop was initially met by refusal of the British government to supply relief, or even stop grain exports from Ireland, resulting in the deaths of thousands. This was, as we will see, to have a possibly profound effect on British policy in India, but Wilson had then supported the ‘leave it to the markets’ line. Now he cautiously recognised that in some core areas like the new high-tech fields of the railways and telegraph, unbridled competition could result in wasteful duplication and there was some case for public investment.
This involvement in Indian policy was also partly why, in 1859, he was offered the Indian job. The job was needed for a brutally simple reason: the Indian Uprising, or Mutiny of 1857, which finally forced the British to accept that they could not govern India indirectly through the fiction of the East India Company. For the Indian Empire to be sustained, direct rule was needed and accordingly the Government of India Act was passed in 1858, making the Governor-General into the Viceroy with vast powers of direct rule. To help him, he was to have a Council, like the modern Cabinet, with specialised Members. The Financial Member, or essentially Minister, was one, and this was what Wilson agreed to be.
On his voyage to India Wilson studied the daunting task of reforming the Indian financial system. “The English Treasury is nothing to it for complexity, diversity and arid remoteness of the points of action,” he moaned in a letter to Bagehot. The system was a patchwork put together to control Company activities that stretched from the Afghan border to Burma and Ceylon, at a time when communications were slow and unsure. Instead of a single Annual Budget, Bhattacharya notes, there was first an Anticipation Estimate “submitted by Local Accountants to the Supreme Government two and a half months prior to the commencement of the finance year they also contained in parallel columns receipts and disbursements of the two previous years for comparison.”
Next came Sketch Estimates, that gave corrected estimates four months into the financial year, and finally there were Regular Estimates that were sent three months later. These allowed actual figures for half the year to be reported, along with projections for the remaining half- year. In addition, writes Bhattacharya: “monthly returns of cash balance were also received from the Local Accountants... The receipts and disbursements, estimated or actual, were compared by the Finance Secretary of the Government of India to find out the extent of requirements for the allotment of funds.” Finally, actual disbursements were checked by the Audit Department.
Attempts to streamline this system had always been stymied by fiercely independent Presidency bureaucrats. But the Mutiny provided the ideal chance to overrule them since it had made clear the need for centralised control. It had also hugely increased military expenditure: from Rs11.49 crores in 1856-57 to Rs29.9 crores in 1859-60. The government was in debt, not least because its sources of revenue were still so limited – mostly land revenue and duties on the opium trade, which the government controlled for historical reasons (and still does – one of the odder parts of the Budget, never mentioned in the FM’s speech, but available from the document, are the reports from the opium factories run by the Finance Ministry).
Two other factors also pushed the case for more control. The looming American troubles, soon to break out as the Civil War in 1861had made British textile mills realise the need to develop India as an alternative source of supply. This meant an immediate need for roads and railways to transport export commodities and a Budget would help with such capital investment. Last, better communications had weakened the case for independent local systems. One example was over the Indian financial year. This was from May 1st, partly because the Indian shipping season ended soon after with the start of the South-West monsoon. But officials argued that this served to distance Parliament from Indian issues, since this was when its session ended, and better communications meant less reason for delay. Accordingly from 1865 the financial year was pushed back to April 1st.
Wilson landed in Calcutta with these arguments in hand, and quickly set to work. His disciple Temple would recall that he did not have only an abstract approach to his task: “He delighted in India and regarded her resources with hopeful interest, her people with sympathy, her scenery with admiration, her antiquities with curiosity. Nothing, he said, could be imagined more intensely interesting than India; with the ancient cities, the relics of decayed dynasties, the thronging population, the bustle of trade at every corner...He would often stop at the wayside booths or shops, discuss the manufacture, prices and styles of the wares. He would note the carts, drawn by bullocks and laden with produce on their way to the capital, also the men and women carrying head-loads of articles to the market. Then he would ever and anon exclaim that the country seemed bursting, as it were, with vitality and industry.”
Wilson’s regard for Indian enterprise was doubtless genuine, but with Finance Ministers one must always watch out! While he might have denied any direct link between the market scenes he admired and what he was planning to do in his first Budget, the fact is that this peaceful commerce was to be used to buttress the one really controversial innovation – the introduction of an income tax. And the reason Wilson needed this support was because, unlike some of our more recent FMs, taxing incomes was not something that came easily to him.
As Bhattacharya notes, Wilson’s approach to Budgets stuck to a relatively conservative public finance approach: to aim for a balanced budget and apply taxation for revenue only: “This meant that revenue should be raised in such a way as to cause minimum interference; taxation must not deflect economic behaviour from what it would have been in the absence of taxation.” Wilson may have drifted from the hard laissez-faire days of his youth, but he had not become an easy taxing left-winger.
Bhattacharya points to two corollaries that would have chimed with Wilson’s beliefs: taxation should not protect indigenous industry and it should not be progressive. Allowing protectionist tariffs would have been anathema to someone with anti-Corn Law roots like Wilson, while progressive taxation was seen as wrong because it punished economic enterprise. “To a group of petitioners who wanted income tax on a ‘graduated scale’ Wilson replied that it was not the object of taxation ‘to equalise the conditions of men.’” Wilson today would be a strict libertarian, arguing that equity is best served by removing restrictions to allow all people to compete equally.
But he still needed the revenue. The greatly expanded military expenditure due to the Mutiny had left the government with big debts. The relatively static land revenue would not meet the shortfall, and a sudden upsurge duties from opium sales (the other main source of revenue) was both unlikely and probably undesirable. So what could Wilson do? The market scenes provided an answer. Commerce like that flourished best in stable social and political conditions, and for that the government was responsible. So if such stability was being provided – and the suppression of the Mutiny could be seen as an example of that – then wasn’t the government entitled to charge a fee for its services in the form of a tax on incomes generated by such commerce?
Some holes could be picked in this argument, not least the fact that Indians were being asked to pay for a ‘stability’ caused by suppressing them. But men like Wilson genuinely saw the Mutineers are lawless bandits, and felt that the sort of trade going on in Calcutta was what most Indians wanted. In any case, he needed the money. In his speech of February 18, 1869, presenting the budget statement, which must count as the first Indian Budget Speech, Wilson went ahead and imposed Income Tax. (Earlier he had already proposed another direct tax in his License Tax Bill of 4th March, 1860, which levied a small license fee on traders, but this attracted less attention).
The reaction was immediate and strong – and not just for monetary reasons. Bhattacharya writes, for example of how “Marwari traders of Calcutta went a deputation to the Secretariat of the Bengal Government to submit that if enquiry by income tax assessors disclosed ‘how much of the money employed by them in trade was their own, and how much belonged to others, the result would be commercial discredit for many Marwari cooties.”
Zamindars were particularly upset because they felt such a tax went against the spirit of the Permanent Settlement instituted by Lord Cornwallis in 1793. This had attempted to create through the zamindars a local landed aristocracy, who could be counted on to serve as a buffer between the British and Indian farmers, and who would collect the land revenue in return for various privileges. The zamindars argued that this included exemption from income tax, but this cut no ice with Wilson who inveighed against the “pretensions of the zamindars”. Yet the zamindar’s lobby was strong enough, in the short term, to get the income tax dropped soon after Wilson’s death.
But the real salvo against Wilson’s Budget came from Madras. Sir Charles Trevelyan, the Governor, was one of the most influential people in the Empire and Wilson had been expecting problems from him. He had worked with him at the UK Treasury, which Trevelyan has essentially run for many years, and had got full experience of Trevelyan’s difficult personality. Trevelyan was extremely intelligent and capable – and he knew it. The one feature throughout his career was his willingness to say what he believed, regardless of its effect on others, and to stick by it, whatever the facts and consequences.
Very early in his life, as a young officer in India, he had caused a scandal when he denounced his superior for taking bribes. But he stood his ground and the superior was dismissed, leading Lord William Bentinck, the then Governor-General to remark that it was just as well that Trevelyan was mostly on the right side of most questions “for he gives a most confounded deal of trouble when he happens to take the wrong one.” So was Trevelyan in the right or wrong in his opposition to Wilson’s Budget?
In some superficial areas he was certainly wrong. Trevelyan was objecting to the principle of centralisation partly on grounds of prestige (Madras had long chafed at taking directions from Calcutta despite being the older settlement), but this misguided since it was bound to happen. In a few years Trevelyan would return as Financial Member himself (much to the unhappiness of Wilson’s family), and he did little to reduce his powers then. Madras could also argue that since the Mutiny had hardly affected the South it was unfair it had to help pick up the tab, but this could not be avoided in the new unified British Raj.
But Trevelyan did raise one important – and dangerous – point of principle: how, he asked, could people be taxed if they did not have political representation. It’s true there were a few Indians on the Legislative Council in Calcutta, but these were only a few super-zamindars and rajahs, who were hardly representative of native interests. This was dynamite because as everyone would have remembered ‘no taxation without representation’ had been the battle cry of the American Revolution. Trevelyan was formulating an argument for Indian nationalism – and all the worse because, in true Trevelyan style, he did not do it quietly behind the scenes, but in public official correspondence.
And Indians responded. For example, in Prarambh, a fictionalised recounting of the career of the merchant Jagannath Shankarshet and the early 19th century in Mumbai, written by the economist Gangadhar Gadgil, he describes a public meeting called by Shankarshet and other Mumbai merchants to felicitate Trevelyan. For their part the British were livid and immediate representations went out to London to recall Trevelyan. For all his ability in India and influence in the UK, he couldn’t prevent it and soon left Madras (though this would only temporary and he would come back to Calcutta).
Why did Trevelyan raise this point? It was not opposition to income tax in principle since Bhattacharya points out that he had already formulated a scheme for direct taxation, and as Financial Member he would follow policies similar to Wilson’s. Trevelyan did have a deep connection to Indians, who he did not confuse with privileged zamindars, and perhaps he worried about the long term consequences of burdening Indians with taxes with no chance of political representation.
One intriguing link is Ireland – unlike Wilson who was just a commentator, Trevelyan’s position at the Treasury during the Famine made him directly responsible for aid, or the lack of it, and some Irish writers have held him responsible for genocide. This is extreme, since he did ultimately, if grudgingly, organise aid, but it is possible that his direct experience of such a disaster did make him realise the long term consequences of bad governance of a subject population.
Last, but not least given such strong personalities, there was Trevelyan’s simple dislike for Wilson the ex-hatter, who he saw as representing self serving merchant interests, rather the supposedly unbiased ones of administrators like himself. He also felt that Wilson just saw the Indian post as a stepping stone to that of Chancellor of Exchequer back home.
In that he was probably unjust since Wilson’s dedication to his Indian job, where he achieved so much in so short a time, could not be doubted. Overwork almost certainly played a role in his death from dysentery on 11th August, 1860. In her history of The Economist Ruth Dudley Edwards writes that two days before, knowing he was probably dying, he still insisted on receiving the Viceroy, Lord Canning, with who he discussed his financial bills: “And taking devotion to duty almost to a level of self-parody, on the day of his death almost his last words were ‘Take care of my Income Tax.’”
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