The Revenue Impact on the Indian Masses of Exchange Rate Changes in the Context of the Drain of Wealth, 1871 to 1901

During 1893 to 1923 some half a dozen Commissions to consider problems of Indian finance and currency were constituted and submitted their reports.

This flurry of activity resulted from international economic developments, especially the adoption of the Gold Standard by European countries, hence the increased demand for gold for building reserves against the sale of silver. Given the bimetallism effectively if not technically prevalent then in India (the silver rupee had been tied for over a century to gold-linked sterling at a fixed rate) this transition to gold by a large number of countries which entailed releasing their silver stocks on the global market, led to a prolonged depreciation of the silver rupee relative to sterling from the 1870s up to the mid-1890s, and impinged seriously on the Indian financial and monetary system. It adversely affected in particular the taxation and indebtedness burden placed on Indian producers for maintaining the systematic annual ‘drain’ or unrequited transfers from India to Britain.