File 1262/1915 Pt 2 'Persia: Financial assistance: The Moratorium' [‎328r] (419/424)

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assistance, have been freely offered for many years to investors in India and
taken up with moderate readiness; but the absorption of gold by India has
continued unchecked. Nor is this surprising having regard to the size of
the population, the growing popularity of gold currency in certain districts,
and the liking of the population for gold for personal use and adornment, as
well as to satisfy social and marriage customs which were fully described
in the evidence tendered to the Royal Commission on Indian Finance and
Currency. ,
8 . Mr. Chamberlain is therefore of opinion that there are not in any practical
sense, such hoards of gold or bullion available for the purpose in view as Their
Lordships have been led to suppose. But even if there were, Mr. Chamberlain
is confident—and the whole history of India is there to prove the accuracy of
his opinion—that any display of anxiety on the part of the Government of India
to secure gold from the people would not merely destroy all the hard-won faith
in the currency system of India, but would be the surest method of creating
panic and inducing hoarding on an unprecedented scale. Mr. Chamberlain
does not believe that a single authority conversant with the habits and ways of
thought of India would be found to dispute this statement.
9. In paragraphs 4 to 7 of your letter under reply the Lords Com
missioners are good enough to make certain suggestions, based on the
supposition that the sche’me of a War Loan to be issued in India, will not
be pressed. To these, the Secretary of State in Council has given careful
consideration, and now proceeds to place before the Lords Commissioners
llis own Observations :—•
From the enclosed Memorandum, recently prepared in this Office for
submission to the Chancellor of the Exchequer in pursuance of what was
said by him at his Conference on 19th August with representatives of the
Dominions and India, it will be seen (a) that the most drastic reductions are
proposed in 191C-17 of the normal capital expenditure on Public Works in
India; ( 6 ) that the Government of India propose to issue a loan which,
though of small amount as compared with sums raised in this country, is
unprecedented in India, and according to the best calculations of the
Government of India as much as can be obtained there ; (c) that in conse
quence of these measures it is proposed—provided that very moderate
assistance is given to the Secretary of State in Council on the lines of what
was said by the Chancellor of the Exchequer on 19th August—to avoid the
issue of any loan in this country in 1916-17 by the Secretary of State in
Council direct or by any guaranteed Indian Railway Company. The above
facts answer paragraphs 4 and 7 and the greater part of paragraph 5 of
your letter.
10. With reference to what is said in various paragraphs as to the
desirability of offering such increase of interest on loans to be issued in
India as will enable the resources of the Indian market to be fully utilised,
Mr. Chamberlain is, so far as questions of principle are concerned, in general
agreement with the Lords Commissioners, and, indeed, anticipated their
suggestion when he pressed on the Government of India the suggestion that
the loan issued in 1915 should be at 4 per cent, (as against 3.V per cent., the
denomination of all rupee loans issued for many years). The rate offered,
allowing for the income tax at 64 d. in the £, gives a net yield of 3/. 17s. lid.
per cent., as compared with ol. 16s. the net yield (in the case of persors
not liable to supertax) enjoyed, after the deduction of income tax at 3 s. 6 t/.,
by original purchasers at par of the recent 4i per cent. War Loan issued in
this country. With regard to the terms of issue of a rupee loan in 1916 the
Secretary of State has reason to believe that the Government of India will
probably offer even higher terms than in 1915 and the Secretary of State in
Council would certainly support them in any proposal necessary to secure
the subscription of the proposed loan.
1 1. In conclusion Mr. Chamberlain hopes that (on considering Sir John
Bradbury’s letters of 25th February 1915, 4821, the statement made by