It became apparent, however, that reductions alone would not suffice to produce equilibrium. Lord Mayo had therefore to decide whether he would permit the Budget arrangements of the year to stand, with the knowledge that they would result in deficit, or resort to the unusual, and in India almost unprecedented, { 145} expedient of additional taxation in the middle of the year. He decided, after careful inquiry, that the circumstances demanded the latter course. Had the threatened deficit been preceded by a period of prosperity and financial accuracy, he would not have deemed so severe a policy needful. But the public expenditure had, during three consecutive years, largely exceeded the revenue, and Lord Mayo found that solvency could only be secured, in the first place, by immediate and most stringent measures; in the second place, by a permanent improvement in the finances to the extent of three millions sterling a year. I mean, of course, the aggregate improvement derived from the twofold sources of reduced expenditure and increased taxation.
For these and other cogent reasons, Lord Mayo determined to make it clear by measures of unmistakable vigour that his Government was resolved to place the finances upon a permanently sound basis. He raised the income tax from 1 to 2-1/2 per cent. during the second half of the financial year, and enhanced the salt duty in Madras and Bombay. The former measure was estimated to add 320,000 pounds and the latter 180,000 pounds to the revenue of the year; total, 500,000 pounds.
By means of this half-million of increased taxation, and the 1,150,000 pounds of reduced expenditure, Lord Mayo hoped to cover the estimated deficit of the current year, namely, 1,650,000 pounds. He thus explained his views to the Secretary of State.
'While the accumulated deficits of the three years { 146} ending with 1868-69 have amounted to 5-3/4 millions, the cash balances in our Indian treasuries have fallen from 13,770,000 pounds at the close of 1865-66 to 10,360,000 pounds at the close of 1868-69, and, notwithstanding our recent loan of 2,400,000 pounds, are at this moment lower than they have been at this season for many years. During the same period our debt has been increased by 6-1/2 millions, of which not more than 3 millions have been spent on reproductive works.[4] Your Grace has reminded us that successive Secretaries of State have enjoined us so to frame our estimates as to show a probable surplus of from half a million to a million sterling. We entirely agree with your Grace in acknowledging the soundness of this policy. We have no doubt that, excluding charges for Extraordinary Works provided for by loan, our expenditure in time of peace ought to be so adjusted to our income as to leave an annual surplus of not less than one million. The necessary conclusion to which we are thus led is, that nothing short of a permanent improvement in the balance now subsisting between our annual income and expenditure of at least three millions sterling will suffice to place our finances in a really satisfactory condition. How, by reducing our expenditure and increasing our income, we can best obtain such a result, is the problem that we have now to solve.