[TRADE, TARIFFS AND EMPIRE]

BLESSY CHINNU ABRAHAM

Basudev Chatterji's book deals with the politics of economic policy. By focusing on tariffs and excise duties 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 of milestones 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 that managed 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 industrial nations from a position of confident dominance of the international economic system to a new unsure economic environment during the inter War years. In the late 19th and early 20th centuries India was a growing market for Britains most important industry which was cotton. In 1913, 79% of this industrys output was exported, 2/5 th of which went to India and equaled 25% of all British exports. Lancashire influenced Indian tariff policy to such an extent 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 her interests 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 a very low revenue tariffs how far can its decline be attributed to changes in this policy, whether drive n forward 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 the inter-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 best development 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 India since 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 into decline as a result of the reorganization of British politics. They also argued that the influence of the Fiscal Autonomy Convention and the policy of discriminating protection on Indo-British economic relations 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 in 1922, in their view, meant that henceforth tariffs in India were levied as a result of the pressures exerted 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 Fiscal Autonomy 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 reforms of the interwar period led merely to more subtle forms of imperial control. More centrally, he shows that, 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 multilateral trading 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 for goods traded within-would help textile exports to India to revive its floundering economy. And the votes of Lancashire districts were never far from the political calculations of those who shaped imperial policy.

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 of events he shows that behind the technical exercises of governmental decision making such as Tariff Board enquiries laid a complex interplay of a variety of interests. All this is examined in the larger context, 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 free trade pursued in order to promote Indias interests. Until the WW1, India remained a free trade country subject only to the constraints of GOIs revenue requirements. Though this policy was often proclaimed to be in Indias interest, this 19th century commitment to free trade had more to do with the requirements and interests of the British economy. He regards this argument as tenuous and based on 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 British economy 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 resolving Britains 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 in India, 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 19th century 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 until the 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 considered their 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 and interests 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 textile goods 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 BOP in this period, was more than counterbalanced by the external earnings of the financial and services sector. This allowed for an alliance between the London, the financial capital of the world at the time and 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 Lancashire goods 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 came to be resented in the face of growing foreign competition. The new industrialists who were now supporters of the Conservative Party demanded protection of British industries through imperial tariff reform. 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 indigenous industries and the rise of forces of nationalism in India. During this period the British states involvement in the economy gradually increased, increasingly due to problem of unemployment, the depression of 1929-30, the introduction of protectionist tariffs, and many other economic and political factors. Thus the relationship between the industry and the state became further institutionalized. Page 2 of 11

But these changes did not take place overnight. Despite shift to newer industries in Britain, the old industries 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. India still contributed 14-16% of Britains net earning on the invisible account. There were also efforts b y British 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 reflected these conflicting strands. Though the governments attitude towards Indias industrial development was professedly laissezfaire, 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 to surface 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 needed Indias 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 some level of state aided industrialization. Politically and administratively, the time had come to reverse the trends of Victorian centralization and for greater decentralization and provincial autonomy. Thus the Montagu-Chelmsford reforms tackled administrative reorganization intended to relax the home governments control. They devised the system of diarchy whereby this could be done safely in the provinces without parting with any real 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 demand of Indian business and political spokesmen. The temporary protection provided by the war had encouraged 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 substantially different from that enjoyed by the Dominions. Fiscal autonomy for India therefore remained only a convention 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 the Committee of little practical significance. But if the Assembly disagreed, the government was free to ignore 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 London retained full financial control. Basudev argues that despite giving the Viceroy a greater say in fiscal matters, Britain did not take the first step towards abdicating her commercial empire in the east. Both the Viceroy and his government were riveted to its metropolitan base and the commercial interests of British 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. Instead officials tried to find new ways to maintain traditional aims. During the war, the GOIs military expenditures 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 GOI prepared to seek political support in India in order to implement a scheme of Imperial preference, but they found out that no such scheme was possible unless the question of fiscal policy of India was also Page 3 of 11

tackled. The rationale behind the GOI and the India Office towards the fiscal policy for the next few years 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 drained the resources of the empire and left India yet again in an state of crisis, threatening Delhis pious commitment 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 of exchange stable all within the constraints of a balanced budget. But while the demand on expenditure kept rising, the government sources of revenue remained either inelastic or politically sensitive. The easiest sources of additional revenue were customs duties and higher taxes on urban and agricultural incomes. 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 resort temporarily to import duties. Moreover, if the constitutional arrangements of 1919 needed to work, and if its main purpose which was 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 provinces and 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 ignoring interests of British exporters in India. In fact the fundamental purpose of imperial policy had not changed: 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 from areas 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 Autonomy Convention was operated without seriously compromising the interests of the British exporters, the sterling rupee ration had been pegged to Londons satisfacti on despite protests from Indian businessmen. Yet below the surface forces of change were at work in the Indian politics, spurred on partly 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. This gave way to left wing tendencies. Meanwhile the Congress attempted to straddle the diverse political movements so as to assimilate and cultivate nationalist feeling against the alien Raj. These developments, 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 with Indian politics. In the 1920s, the main concern for the British was how to maintain India within the empire by accommodating Indian opinion. In 1929, Irwin even ambiguously declared the attainment of 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 ever before that the GOIs budget be balanced, the value of the rupee be maintained, foreign confidence be restored 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. Large orders for imports ad been placed by Indian merchants when the exchange was high but now with low exchange rate, the merchants faced ruin if they took delivery of the goods they had ordered. This naturally created a serious situation for Lancashire which urged the officials in London to stabilize the rupee at a reasonable rate. Also, the inability of the Indian government to leave cotton duties out of Page 4 of 11

its taxation proposals to balance the budget of 1921-22 enraged the cotton men and mill owners of Lancashire 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 fiscal policy and the powerful resentment of Lancashire made the appointment of a Fiscal Commission necessary. It was appointed by the GOI in 1921 with the aim to examine with reference to all the interests 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 As sembly to grant Britain Imperial Preference. The political difficulties that the Commission was designed to alleviate grew steadily worse. From mid 1921, Gandhi decided to bring the spinning wheel and the boycott of foreign goods to the forefront of his non-cooperation movement. The boycott movement thrived on the Indian traders reluctance to take deliveries owing to the exchange crisis, and pressure in Lancashire grew to take action against Gandhi and the boycott movement. London was satisfied with Commissions recommendations on excise which felt, was better argued than 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 Indian pressure, 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 towards industrial 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 permanent tariff board that was independent and separate from the GOI. To prevent political opposition, they appointed 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 on Imperial Preference. Basudev concludes that the investigations and reports of the Fiscal Commission had 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 and private, 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 might be 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 powerful protests created trouble in domestic politics of Britain, while in India the London dictated financial and 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 interests of Lancashire, the Government of Indias concern for financial stability, British Governments worries over industrial problems at home, and the India Offices desire to relieve political pressure threatening the Raj, would now have to be accommodated within the framework established by the Fiscal 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 preference was 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 the immediate post-war boom, widespread financial speculation unduly inflated the capital value of many of 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 both the government and businessman desired stability. But the rate at which the government sought stabilization agitated Indian business opinion. From October 1924, the government had maintained the rupee at 1s.6d. The Bombay mill owners, as well as most sections of industrialists, complained Page 5 of 11

bitterly against the deflationary policy. It created financial stringency: bank started to call in their loans and many mills ran into problems. Mill owners in Bombay were also more directly affected by growing Japanese competition than mill owners in Ahmadabad, and they faced increasing competition from up-country mills. The mill owners also sought relief for their industry by demanding action against Japan through anti dumping policies and 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 to recommend a general measure of protection, the government might be constrained to reject it in defence of Manchester goods. The Government of India, however, could not accept the mill owners solution. It always shrank from any action which was likely to cut down Indias surplus of exports over imports in any way. Yet, in the context of the ongoing currency agitation, the government was conscious 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 owners around to accepting a Tariff Board enquiry. Their efforts to cut costs were inhibited by the volatility of their labor force, which was not amenable to 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 decision might 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 Chatterji argues that, the picture was far more complex and Lancashires influence was by no means dead. The growing 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 mill owners 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 little to 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 Bombay Mill owners Association agitation for further protection. However, Bombays representatives had assured 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 Antidumping Act. However, L.J. Kershaw of the India Office had made it known to Manchester men that hopes 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 keep Lancashire 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, was present 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 demand really implied the system of specific duties. Faced with the danger of either an all-round increase or specific 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 would find 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 on those types of goods in which the Japanese dominated. The outburst of anti-Conservative propaganda in Lancashire made the Conservative and Unionist Central Office take counter-steps. The Office argued 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 outcome of the Tariff Board Enquiry. The Tariff Boards report January 1927.The Reports main recommendations in the latter category were the increase of import duties on all cotton manufactures, other than yarn, from 11 % to 15% on the grounds of unfair competition from Japan; remission of import duties on certain kinds of mill Page 6 of 11

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 majority recommendations. The Lancashire men reiterated their old claim that Japan, not Lancashire, was Bombays real enemy. They argued that a general increase in the duty would drive the not too affluent 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 power for both. The best solution, both for the consumer and the mill owner, they insisted, would be to confine the duty to non-British goods. Striving to assure themselves that the proposals for a general increase in the import duty lacked foundation, Commerce Department officials premised their objection to the Report on the grounds that 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 the Bombay 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, the Commerce 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 than granting protection Import controls in this context would have provided surplus to firms which had earlier been incurring losses or just breaking even as well as to the inefficient ones and given additional profits to the efficient 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 to induce Bombay to rationalize was satisfied by the existence of competition from the up -country mills. 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 mills were 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 unfair advantage in the production of yarn which was not covered by the existing duty of 5 per cent, the Commerce 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 the governments desire to alleviate the situation in Bombay preferably by giving effect to some of the other recommendations made by the Tariff Board. For, while it could b argued that more than 50 per cent 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 a political storm could not be ignored By early May, the Government of India arrived at their main conclusions there was no case for an increase 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 there were 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 against Japan, 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 rais ed. Naturally the Lancashire mill owners were overjoyed. As expected, the governments decision raised an outcry in Bombay. The Bombay mill owners launched a full-scale propaganda campaign. The nationalist press, the Congress party and Gandhi saw in 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 the Congress and the boycott movement. Page 7 of 11

The mill owners were urged to believe that their real salvation lay in making common cause with Gandhi 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 demands for 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, and they 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 of the market which Lancashire now largely occupied. The Ahmadabad mill owners along with some other industrialists, saw in Gandhis boycott movement a useful, if potentially dangerous, source of strength in their economic battles with the government. Yet the Bombay mill owners found themselves 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 boycott movement 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 the textile 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 the government had refused to raise the duty on grounds of protecting the handloom industry. This refusal 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 the price 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 the mill 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 British yarn exports to India constituted only5 per cent of the export value of piece-goods. But acute depression 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 duties was preferred to an increase in the existing ad valorem rate, since the latter would have given the cheaper Japanese yarn a definite advantage over the more expensive British yarn. Officials were aware 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 Japan The Cotton Duties (Yarn Amendment) Act-was passing by the Legislative Assembly on 3 September 1927. Although it helped Bombay to spin finer, it was welcomed unenthusiastically. Nationalist opinion was disappointed and enraged. Gandhi tried a mixed strategy of admonition and negotiation to 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 I expected, 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 not only 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 other way 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 their share of the Indian market in various classes of goods. While the mill owners tried to arrive at a Page 8 of 11

common policy on the standardization of wages, the millworkers became more united in their opposition. 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 the leading part in these strikes. The mill owners attempts to end the 1929 strike by employing Pathans led 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 reasonable demand for protection against Japan stood a better chance of success. In 1929, the government moved against the communists with the Meerut Conspiracy Trial and smashed the Girni Kamgar Union. While adopting these repressive measures, the government contemplated further protection to the Bombay industry to forestall more wage cuts and outbreaks of trouble. 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 enquire into the possibility of substituting specific for ad valorem duties. The Board of Trade had already, received some indication of Lancashires anxiety over the possibility of 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 the class 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; their imposition would disturb the whole system of manufacture in Lancashire and simultaneously increase the 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 tariff would be fertile field for manufacturing groups to use politics for their own purposes. Manchester men 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 getting additional 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 at conclusions 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 the position of Canada or Australia. Fiscal autonomy and discriminating protection were techniques to reconcile a complex range of Imperial interests and to gather support in India rather than milestones to 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 of the Tariff Board made it more discriminating and less protective, undermining the confidence of the Indian investor. It must also be noted that the governments monetary and financial policies tended 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 to influence 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 of experts and despite the pressures of the political environment and the qualifying forces of procedural and 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 depression and the growth of Indian nationalism. Still, Lancashires interests remained significant, and the question of cotton duties dogged the talks on economic reorganization from the Tariff negotiations of the early 1930s, through the period of the Ottawa Agreement, to the Indo-British Trade Agreement of 1939 Page 9 of 11

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 a wedge between the financial and commercial classes on one hand and the political extremists on the other. 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. The interests 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 two countries, 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 economic cooperation now championed by Britain provided the basis for the establishment of a system of preferential tariffs between eh empire countries in Ottawa in 1932. This strategy seemed to allow opportunities 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 most viable 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 satisfy Indian demands for protections against foreign, that is non-British, competition with preferential rates 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 rates were fixed. This new policy allowed London to appear magnanimously to offer the commerce department 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 best politics for the security of British commerce. The question of control over Indias finances was another important issue. It seemed that some gesture of concession needed to be made in this area to improve the prospect of the reforms winning some 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 remain directly 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 British interests. Consequently the British government continued to maintain its hold over Indias commercial and financial polices till the end of the 1930s. Indian pressure proved ineffective in weakening the GOIs commitment to principles of sound finance. Therefore Basudev concludes that the 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 devolving power 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 of Indian 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 always the 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 this often led to clash of perspectives. Page 10 of 11

. This is not to argue that British interest groups always got their own way in India. Often there were conflicts between them and imperial policy. The imperial system had its own priorities and constraints. Maintaining the stability of the Raj was its primary concern. It had to uphold it legitimacy, 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 and another, most palpably the interests of British businessmen resident in India and home interests, between financial and commercial interests. British industrial interests whether expatriate or metropolitan had to be accommodated within the limits set by the financial responsibilities of a government 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 British commercial interests of Lancashire. All this suggests that any analysis of official policy in India must free itself from a preoccupation with a 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 policy in 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 changes in the Indian, British and international economies, and the relationship of these with the shifting hierarchy 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 a variety 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 of India'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 a concern to check labor militancy. Because of the shifting balance of forces, imperial trade policy did not 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 recognize that they needed to work together to achieve compromise. The Agreement of 1939, although never fully accepted by Indian industrialists, was a product of complex negotiations in which Indian agricultural interests were largely squeezed out of the picture.

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