THE ECONOMIC WEEKLY
M a r c h 18, 1061
India's Balance of Payments, 1921-22 to 1938-39
Estimates of Current and Long-term Capital Accounts
Aran Banerji
An attempt is made in this article to estimate India's balance of payments' daring the inter-war years.
Compared to the few existing estimates, many new items have been assigned magnitudes and others
revalued.
Over the 18 years India imported over Rs 200 crores of long-term capital, but paid four to five times
as much by way of interest charges. During the pre-war years, 1898-1913, too, capital imports fell short of
debt services.
For a complete assessment of the cost of foreign capital, to debt services must be added other remittances including coastal freights, remittances by exchange banking and out of incomes and accumulated savings
of the foreign business and professional community temporarily resident in India.
THE
estimates of India's balance
of payments submitted by the
Government of India to the League
of Nations f r o m 1923-24 omitted
certain items in both the current
and, capital accounts, and covered
other items very inadequately. They
related only to B r i t i s h India, exc l u d i n g the sea-borne foreign trade
of the French and Portuguese possessions in India and the M a r i t i m e
States of K a t h i a w a r and Travancore, as also, d u r i n g 1937-39. of
B u r m a , the international transactions
of w h i c h were then. a part of those
of B r i t i s h I n d i a . The I n d i a n rupee
was their common currency and
u n i t of account, and the same banki n g system as in B r i t i s h I n d i a
managed
their
international
accounts.
These shortcomings of the
estimates, which vitiate the capital
account also, j u s t i f y a fresh estimate of India's balance of payments
for those years.
Every transaction between two
countries involves a receipt by one
party of the payment made by the
other. Thus if no
intermediaries
intervene — or, if they do, we
know their share in the transactions
- t h e totals of the two sides of an
inventory of all receipts and payments must agree, provided double
counting is avoided and cash receipts and
disbursements as well as
the exchange of evidences of i n debtedness are taken account of. I f ,
then, we estimate credits and debits
over a period of time for all items
of a country's international accounts, except the exchange of such
evidences, the net
cumulative credit (or debit} for the first set of
items must equal the net cumulative
This is a rigorous abridgement of a
detailed work on the subject awaiting
publication by Asia Publishing House.
debit ( o r credit) for the exchange
of evidences of indebtedness.
T h i s method perhaps found its
first major use in Hobson's " T h e
Export of C a p i t a l " ( L o n d o n , 1 9 1 1 ) .
V i n e r (''Canada's Balance of International Indebtedness 1900-1913."
H a r v a r d . 1921), defined it more
precisely, d i v i d i n g the current account to indicate separately the
balance on commodity account, service account and on account of noncommercial transactions. The last,
now termed donations, include unrequited
international
transfers,
m a i n l y associated w i t h migrants.
Over a series of years, the ends
relatively free from abnormal movements of short-term funds, the estimated net cumulative position of
a l l the three balances reflects, subject to errors of estimation, the net
movement of long-term capital.
Viner's T h r e e - f o l d Division
If Gr. Sr, Ur and Cr stand for
India's
receipts
f r o m abroad on
goods, services, unrequited remittances and long-term capital accounts respectively, and Gp, Sp. Up
and Cp stand for payments by her
under the same heads, then. Gr +
Sr +Ur + Cr +Cp + Sp + Up
+ Cp. Or, ( G r - G p ) + (SrUp)
Cp — Cr. Over any specified period, the algebraic sum of
the
balances of transactions in
goods,
services
and
unrequited
transfers equals the net balance of
capital transactions, i e. of transactions to acquire or repatriate claims
on assets abroad, and to deliver or
repatriate foreigners'
claims on
assets in I n d i a .
Short-term capital movements are
excluded in this method, as a consistent movement in any one direct i o n tends to set in motion correc475
tive forces.
These offset the first
movement a n d / o r affect the current
a n d / o r long-term capital account(s)
and are thus reflected in one or
more of the above categories.
We adopt Viner's t h r e e f o l d d i v i sion of the current account, but not
his method of estimating i n d i v i d u a l
items. Thus, o w i n g to lack of data
and to allow, even partly, for the
close association of foreign capital
with
productive and distributory
activities w i t h i n our country, we do
not estimate the remittances of recompense received by foreign capital on the usual basis of the size of
foreign capital employed and the
average returns on such capital in
(a) coastal-carrying trade, l b ) life
and general insurance business, (c)
foreign exchange banks, and (d)
the d i s t r i b u t i o n of exposed foreign
films, but instead attempt independent direct estimates.
Our general treatment of returns
on foreign investments marks a basic
departure from V i n e r : he estimated
them indirectly, from the net deficits in the current account for all
other items. This method concentrates on this crucial item and exaggerates the returns if portions of
previous
investments are
repaid
d u r i n g the period under study. We,
therefore, make a direct estimate,
constructing a
suitable dividend
series. Also, one need not estimate
the interest on India's sterling public debt: Government accounts conlain f u l l data (see, however. Pand i t . "India's Balance of Indebtedness. 1897-1914.". Allen and U n w i n ) .
Lastly, while, like Viner. we compare the indirect estimate of the net
import of long-term capital w i t h
direct evidence on the annual flows
of such capital, we compare it also
THE ECONOMIC WEEKLY
M a r c h 18, 1961
w i t h the net accretion to foreign i n vestments in I n d i a between 1921
and 1938 (no data could be collected of the net change in f o r e i g n i n vestment by I n d i a in that p e r i o d
except I n d i a n subscriptions to loans,
etc. floated in L o n d o n ) .
II
Balance of Commodity
Transactions
C o m m o d i t y transactions, goods and
treasure, on p r i v a t e account y i e l d e d
a surplus of Rs 1489 crores d u r i n g
1921-22 to 1938-39
(Government
stores are included in Section IV bel o w ) . These include (a)
the seaborne f o r e i g n trade o f B r i t i s h I n d i a
( i n c l u d i n g B u r m a ) , French and Portuguese possessions, K a t h i a w a r ami
Travancore, ( b )
the land-frontier
trade, and (c) the air-borne trade.
T h i s study makes no allowance for
the alleged under-valuation of i m ports for lack of evidence; tariffs
were relatively low in this period,
and our customs keep no record of
total i m p o r t s , subject to the t w o subsections of Section 30 of the I n d i a n
Sea Customs A c t , 1878, w h i c h lay
d o w n the norms for evaluation of
i m p o r t s by customs.
Even a superficial probe into customs returns is r e w a r d i n g , e g, the
mode of conversion of other currencies into rupees has introduced i n determinate errors. D u r i n g 1921-24
when the rupee-pound rate was fluct u a t i n g , Calcutta customs issued a
p u b l i c notice d i r e c t i n g conversion of
sterling i m p o r t values into rupees at
rates determined by the exchange
banks'
selling rates for demand
drafts. It l a i d d o w n w o r k i n g rates
for rupees for ranges of its market
rates, the w o r k i n g rate intervals bei n g as much as half-rupees! This
system distorted the position, though
it was convenient a d m i n i s t r a t i v e l y .
L a n d - f r o n t i e r trade was recorded
in quantities and values up to 192425. Later, due to defective record-
i n g of values, o n l y the quantities of
the trade in selected articles at cert a i n rail-heads near the more i m portant trade routes were p u b l i s h e d .
F r o m 1927-28 the Government somehow evaluated this trade, and reported to the League of Nations. We
have to accept these figures despite
obvious defects.
Certain gaps in trade returns are
filled by us on the basis of the trend
in the respective sectors in adjacent
years—(a) land-frontier trade duri n g 1925-27, ( b ) trade of K a t h i a w a r
and Travancore d u r i n g 1921-26, and
Travancore's trade d u r i n g 1931-35,
(c) trade of French and Portuguese
Possessions d u r i n g
1921-23
and
1921-26 respectively
when these
seem to be recorded imperfectly.
Other adjustments are made for the
inclusion in the trade returns of i m ports of passenger baggage and samples w h i c h should not enter international accounts, and the a d d i t i o n
of e x p o r t duties realised to total exports. To present the pure commod i t y balance in Table 1, we deduct f r o m i m p o r t values, i n c l u d i n g
treasure, 5 per rent for freights and
1½ per cent for insurance and comm i s s i o n ; these are included in the
service balance below.
Table 1 shows the totals and annual averages on this account for 18
years. T h e treasure account was in
overall deficit, but it had unequalled
credits f r o m 1931-32 when I n d i a
started to export g o l d . The large
overall surplus of Rs 1489 crores
could not meet our payments abroad
for " i n v i s i b l e s " , leaving a deficit of
Rs 200 odd crores.
Ill
Balance of Service Transactions
T h i s includes ( a ) freight, insurance and commission on merchandise, ( b ) expenditure i n I n d i a o f
f o r e i g n ships engaged in her overseas trade, ( c ) pensions disbursed by
the Government of I n d i a in U K,
( d ) profits, etc, remitted by exchange banks, (e) funds remitted by
f o r e i g n insurance companies worki n g i n I n d i a and I n d i a n companies
w o r k i n g abroad, ( f ) coastal freights,
( g ) cinematograph royalties, ( h )
tourist account, and ( i ) interest on
sterling p u b l i c debt a n d other foreign
investments in I n d i a .
Table 2
shows that these items account f o r a
cumulative deficit of Rs 1487 crores
d u r i n g the p e r i o d .
Item (a) was explained above.
I t e m ( b ) is taken at one-third of the
gross freight earning of foreign ships
in c a r r y i n g our i m p o r t s . A direct
estimate of such expenses was sought
to be made but the tonnage of ships
in India's foreign and coastal trade
being i n e x t r i c a b l y m i x e d in Government returns, the attempt was abandoned. F o r pensions, c i v i l
and
others,
averaging Rs 8.3 crores a
year, Government accounts are used.
As already stated, items ( d ) to
( g ) are not estimated on a capital
employed-times-return
basis.
For
exchange banks, the only data are
their consolidated end-of-year I n d i a n
deposits (even these need allowance
for B u r m a for 1921-31), and the
size of i m p o r t e d funds as on 31st
December 1929, as they were furnished to the I n d i a n Central Banki n g E n q u i r y Committee, 1 9 3 1 . W e
made a vain attempt to collect further data f r o m the Common wealth
Relations Office, L o n d o n . T h e present estimate applies to their estimated tolal resources (local and i m p o r t e d ) , the relation between their
resources and profits as disclosed
for certain post-World W a r I I years,
suitably modified to take i n t o account the features of the pre-War
years.
As these
banks handled
almost all of I n d i a ' s exchange business, the estimated annual remittance of Rs 3 crores as p r o f i t , service charges to Head Office, etc, perhaps errs on the low side.
Table 1 : India's Balance of Commodity Transaction*, 1921-22 to 1938-39
(Rs L a k h * )
476
M a r c h 18, 1961
THE ECONOMIC WEEKLY
L i k e exchange banks, l i t t l e is
k n o w n about foreign insurance companies in I n d i a before 1939. The
present estimate of insurance remittances rests on data relating to their
I n d i a n business f r o m 1928-29, especially
p r e m i u m and interest and
other incomes
( f o r m e r adjusted
conservatively for re-insurance). Deductions have been made f r o m this
for expenses, claims and build-up of
assets.
Foreign companies had a
monopoly of i n s u r i n g the lives of
Europeans i n I n d i a o n w h i c h claims
were largely met abroad. T h e resultant estimate yields an average yearly remittance of Rs 2.98 crores duri n g 1929-39. For 1921-22 to 192829, it is estimated at Rs 2 crores
yearly. The small i n w a r d remittance
f r o m I n d i a n companies is p u t at 40
per cent of their p r e m i u m income
abroad.
in inter-War years, our large
coastal trade (annual exports of some
Rs 100 crores) was mostly c a r r i e d
by foreign, largely B r i t i s h , ships.
Freights and passage fares earned by
them, less expenses here, were remitted abroad. We estimate these
remittances w i t h certain data relating to the size, of coastal cargo (coal,
salt and general cargo) freight rates
thereon, and the relative shares of
I n d i a n and f o r e i g n ships in the
1930's as obtained f r o m the premier
I n d i a n company, Scindia Steam N a v i gation (P & O Steam N a v i g a t i o n ,
w h i c h c o n t r o l l e d B r i t i s h I n d i a Steam
Navigation, the biggest B r i t i s h line
on the I n d i a n coast, were approached for some relatively innocuous
data but they regretted their i n a b i l i t y to help in any m a n n e r ) . These
remittances are estimated here at
about Rs 3.5 crores net annually.
Net average annual remittance of
cinematograph royalties is estimated at Rs 2,2 crores on the basis of
the imports of feature films, obtained
from the Boards of Censor, a n d their
average remittable earnings, taken at
Rs 0.5 lakh, based on a memorand u m submitted to the I n d i a n Cinematograph Committee, and on some
data obtained f r o m the I n d i a n M o t i o n Picture Producers' Association.
Foreign distributors were approached, but in vain.
Earnings of Foreign Investments
The interest on sterling public
debt is obtained f r o m Government
accounts.
Of the total interest b i l l ,
91 per cent are taken as due to
foreign holders, on the result of an
enquiry into B r i t i s h overseas investments (Economic Journal, 1929-39)
by L o r d Kindersley, and the Economist ( 1 9 3 0 ) .
C o l u m n ( x i i ) of
Table 2 shows the average interest
as Rs 18 crores. It remains almost
steady, v a r y i n g between Rs 20 crores
in 1931-32 and Rs .15.6 crores in
1921-22, in a period when export
earnings f r o m merchandise fluctuated
sharply.
Other foreign investments i n I n d i a
are estimated below at Rs 336 crores
in 1921 and Rs 439 crores in 1939.
To estimate their earnings the least
tractable part of the enquiry was to
determine a time series of their
average rates of returns. This perhaps explains why both V i n e r and
Pandit relied upon one or more already existing series, often constructed w i t h very different aims. Here
the returns are estimated w i t h reference to two d i v i d e n d series specially
constructed by us for two statistically
v a l i d samples of rupee and sterling
companies, selected f r o m the extensive industry-wise enumeration of
units w i t h likely
foreign capital
w h i c h we had to do to estimate the
volume of these investments. These
series revealed that the earnings of
both rupee and sterling companies
Table 2 : India's Balance of Service Transactions
(Rs Lakhs)
477
M a r c h 18, 1961
THE
478
ECONOMIC
WEEKLY
THE
ECONOMIC
fell
sharply after 1929, the latter
more heavily. But sterling companies
generally fared better than the rupee
ones; their
average total
returns
(i e, on o r d i n a r y shares and preference, and debenture capital) for the
entire 18-year p e r i o d , and d u r i n g
1921-29 and 1930-38 are 10.2, 12.0
and 7.8 respectively; corresponding
rates for the rupee companies are
8.3, 9.9
and 6.8 respectively. As
compared w i t h returns elsewhere, the
relative stability of these rates despite the Great Depression may he
due to the employment of foreign
capital in specially h i g h - y i e l d i n g lines
and the weight of fixed-interest-bear-
ing obligations in these investments.
Thus, in the rupee companies we
selected for the d i v i d e n d series, fixedinterest-bearing obligations, i e, preference
shares
and
debentures,
amounted
to 24
per
cent
in
1921 and 32 per cent in 1938
of their total capital. For similar
sterling companies
the rations are higher— 37 per cent in
1921 and 33 per cent in 1938. For
estimated
investments other than
those for which company-wise details were available, viz. managing
agencies,
other rupee and sterling
Table
2A :
Annual
March 18, 1961
WEEKLY
Returns
on
investments, and U S and other
foreign investments (we deduct an
estimated Rs 25 crores f r o m such
investments for exchange banks and
insurance companies), the returns are
calculated at the average of the d i v i dend series for rupee and sterling
companies. C o l u m n ( x i i i ) o f Table
2 shows that the total returns on investments e x c l u d i n g sterling public
debt averaged Rs 32 crores. 1923-21
to 1929-30 are the most prosperous
years.
The broad divisions of the tourist
account are those w i t h ( i ) the U K
and ( i i ) other countries; ( i i i ) Haj
P i l g r i m s and ( i v ) I n d i a n Students.
These add up to an average annual
debit of Rs 1.85 crores. The IndoU K account" is estimated to have
been an average debit of Rs 1.09
crores, on the basis of the B r i t i s h
Hoard of Trade returns of " B r i t i s h "
passengers and long-term m i g r a n t s '
(the difference between them being
tourists, who were d i v i d e d into tourists i n w a r d and o u t w a r d , and adjusted to include passengers via the
C o n t i n e n t ) , and an estimated expend i t u r e per capita. Item ( i i ) is based
on certain data we discovered in the
old Central Publicity Bureau of the
Foreign
Investments
in
India
I n d i a n State Railways, covering
passenger arrivals at Indian, Ports,
by nationalities
and purpose of
visit, from
1930-31.
For ( i i i )
f a i r l y , and
( i v ) reasonably, reliable data for numbers and average
expenditure are available; for ( i v ) ,
Government scholars are excluded.
We allow another Rs 50 lakhs annually for tourists and business visitors f r o m India to the U S, Europe,
Japan, etc, i n c l u d i n g the large expenditure by the H i d i n g Chiefs, norm a l l y and on occasions like the
Hound Table Conference, Silver
Jubilee of K i n g George V, etc.
IV
Balance of Non-Commercial
Transactions
The balance of non-commercial
transactions, which shows a deficit of
Rs 222 crores (Table 3), is dominated by Government transactions,
which we take from Government
returns. To accord with our method, we exclude, f r o m both receipts
and disbursements of I n d i a Government in the U K, a l l transactions
relating to
( i ) Council
bills and
sterling purchases which o n l y transferred to Government part of the
Other Than
(Rupees lakhs, except columns v - v i i i )
in
Her
Sterling
Public
Debt
M a r c h 18, 1961
THE ECONOMIC WEEKLY
favourable balance of private account, and ( i i ) permanent debt. T h e
residue, after e x c l u d i n g interest on
sterling debt and pensions ( w h i c h
-accounts for surpluses in some years)
has already been considered and is
taken into the current account. Large
year-to-year changes arise m a i n l y
f r o m changes in short and long-term
borrowings, imports of stores, etc.
Other n o n c o m m e r c i a l items are:
missionary donations, expenditure by
foreign consules etc. in India, and
migrants'
remittances
received
t h r o u g h Post Office, savings brought
back by r e t u r n i n g I n d i a n emigrants,
and estimated o u t w a r d remittances by
foreign i m m i g r a n t s to I n d i a . Donations f r o m missionaries are estimated
at about Rs 1 crores a year, w i t h
certain data f r o m authoritative sources and a 13-year series obtained
f r o m the International Missionary
C o u n c i l , L o n d o n . A n n u a l consular
expenditure is put at Rs 5 crores for
the 100-odd foreign consulates etc
in I n d i a as reported to us by Government for 1 9 3 1 . T h i s excludes receipts, if any, by the French and
Portuguese possessions for w h i c h no
data are yet available.
Table
M i g r a t i o n data are seriously i n complete for our p e r i o d . M i g r a n t s '
funds may move ( a )
t h r o u g h the
post office—we have "data on this,
w h i c h we adjust for the estimated
two-way payments t h r o u g h the post
office for the goods to a r r i v e at noncommercial remittances; ( b ) t h r o u g h
banks no data are traceable; (c)
by being physically carried—we
know only of the sums brought by
I n d i a n emigrant labourers r e t u r n i n g
f r o m the colonies—estimated here by
m u l t i p l y i n g their numbers by the
average sums brought by those ret u r n i n g to Calcutta.
But we are
ignorant of the movements of cash
w i t h migrants across the extensive
land frontier. For a large part of
( b ) . i e remittances f r o m I n d i a , we
make a rough estimate. Even that
cannot be done for i n w a r d remittances f r o m I n d i a n traders. We assume, perforce, that the latter more
or less offset the o u t w a r d flow to
countries l i k e China, across the l a n d
frontier and through banks. Excluding these, we estimate remittances by
n o n - I n d i a n . largely B r i t i s h , tempor a r y i m m i g r a n t s to I n d i a under: remittances for their families, and of
3 : Balance
of
Non-commercial
(Rs lakhs)
480
savings o n retirement. T h e I n d i a n
Census, 1921 and 1931, collected the
numbers (recognised as not f u l l y
correct) and occupational d i s t r i b u t i o n o f workers o f European and
allied races in I n d i a . F r o m these
and the abnormal age d i s t r i b u t i o n of
the European B r i t i s h subjects in
India as compared w i t h the distribut i o n for the home p o p u l a t i o n of the
U K, we estimate that money may
have been remitted annually at £250
each (based on fees in some E n g l i s h
schools) to support no less than, perhaps, 6,000 persons, mostly school
children.
For remittances of savings on retirement, we get some i n d i c a t i o n of
the likely number of people i n v o l v e d
f r o m the B r i t i s h Board of Trade records of movements of B r i t i s h m i grants between the U K, and I n d i a
and Ceylon, occupation-wise. These
are processed to a r r i v e at the estimated numbers which could have
sizable savings. On savings, t h r o u g h
courtesy of some companies we
obtained figures for 42 Europeans
who left certain occupations in the
1930's. In these, sums receiver! f r o m
employers or partnership firms on
Transactions, 1921-22 to 1938-39
THE ECONOMIC WEEKLY
M a r c h 18, 1961
retirement ranged f r o m Rs 0.31 l a k h
to Rs 10 lakhs. We put the average
at a modest Rs 0.5 l a k h . M u l t i p l i e d
by the numbers estimated as h a v i n g
some savings, we a r r i v e at the average
minimum
savings
remitted at
Rs 10.56 crores d u r i n g 1921-38.
F i n a l Balance on C u r r e n t
Account
Table 4 brings together the above
three balances.
(The commodity
balance differs f r o m Table 1, being
credited here w i t h Rs 3.24 crores to
a l l o w for the estimated imports of
postal articles for w h i c h I n d i a made
no payments, i e samples, gifts, e t c ) .
Columns ( v ) and ( v i ) show the net
credits and debits, the net cumulative
debit being Rs 217 crores. By definition, this measures the net i m port of the long-term capital in this
period.
Rupee (Table 5 ( 6 ) ) : Foreign
holdings i n ( i ) Rupee joint-stock
companies; ( i i ) Rupee loans of Government, ports, etc; and ( i i i ) p r i vate firms and partnerships, m a i n l y
prominent
managing
agencies.
Foreign holdings in rupee companies
before 1939 have always been an
obscure subject. The present estimate
assumes that such holdings w o u l d be
perhaps largely in companies managed directly by foreign boards or
i n d i r e c t l y by B r i t i s h or other agency
houses. On this basis, data about
c a p i t a l , etc of some 700 companies
have been collected, i n c l u d i n g agency
houses and classified into 10 groups.
As before, untraceable rupee holdings are allowed at 15 per cent in
1921 and 20 per cent in 1938 of the
traceable amounts.
The evidence
recorded by the I n d i a n I n d u s t r i a l
Commission, 1916-18, the I n d i a n
Fiscal Commission, 1921-22, and Pat
Lovett in "The M i r r o r of Investment" leads one to believe, that,
over a very large sector of these
investments, foreign h o l d i n g s predo-
Table 4 ; Final Balance of India's International Transactions on
The present estimate of foreign
investments in India is based on a
currency wise classification.
Sterling (Table 5(a) ) : Sterling
loans of ( i ) the Government, includi n g Railway A n n u i t i e s ; and ( i i )
Corporations, ports, etc; ( i i i ) investments in companies f u n c t i o n i n g in
India
with
sterling
capital, and
sterling debentures of rupee companies. F r o m the L o n d o n Stock exchange Year Rooks, capital and debentures of over 200 companies were
recorded industrywise. The " B r i tish-held" p o r t i o n is taken at 91 per
cent as already stated. The untraced
other portions are assumed to be
15 per cent and 20 per cent of the
traceable portions in 1921 and 1938
respectively.
Table 5a : Sterling Investments (Traceable)
481
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M a r c h 18, 1961
482
THE ECONOMIC WEEKLY
minated in the 'twenties. Conservatively, we assume that, in o u r
p e r i o d , m a n a g i n g agency houses
and i n d i v i d u a l non-Indians held 50
per cent of the capital of these
companies.
Other Foreign
Investments: Based
on certain U S Government data,
U S investments in I n d i a are p u t at
Rs 10 crores in 1921 and Rs 20
crores in 1938. Other f o r e i g n i n vestments are assumed to be 15 per
cent in 1921 and 20 per cent in
1938 of the total rupee and sterling
( e x c l u d i n g p u b l i c debt) investments.
M a r c h 18, 1961
pose arc Rs 149 crores. Of other
repayments, in the data collected by
us, private R a i l w a y capital was prominent.
Table 7 presents estimates of
i m p o r t s and repayments of foreign
capital. The net i m p o r t is placed at
Rs 183 crores.
Table 5b : Rupee investments in 1921 and 1938
(Rs lakhs)
Total f o r e i g n investments i n I n d i a
are thus, Rs 708 crores i n 1 9 2 1 and
Rs 885 crores in 1938.
T h i s shows a net rise of Rs 177
crores d u r i n g 1921-1938. It may be
stated that the h u l k , viz, traceable
parts o f ( A ) and ( B ) , i s i n terms o f
par values of the equities; their market values w o u l d be larger by perhaps a quarter, j u d g i n g f r o m the
values of their d i v i d e n d series. T h i s
w i l l raise the totals and, to a smaller
extent, the net rise over the p e r i o d .
Table 6 : Annua]
Borrowings |on
(£ 000)
Flow of Foreign Capital
Table 6 shows the issue prices and
par values of annual b o r r o w i n g s on
the L o n d o n Stock Exchange by I n d i a
Government, and by other public
bodies ano1 joint-stock companies
w o r k i n g in I n d i a (source : Economist). Government loans predominate, and are concentrated in 1921-24
and 1927-34. A m o n g " O t h e r " borrowings are: Ports and Corporations,
19.98 m n ; O i l Companies, £9.76 mn;
Electricity, T r a m s , Gas, etc, £8.8
m n ; Railway and N a v i g a t i o n , £3.74
m n , etc. As much as 79 per cent of
"Other"'
b o r r o w i n g s are fixed-interest-bearing.
The foreign-held part (91 per
cent) in these b o r r o w i n g s is Rs
278.8 crores. H a v i n g no such data
for other current b o r r o w i n g s , we dist r i b u t e the Rs 75 odd crores increase
between 1921 a n d 1938 of " O t h e r
Sterling Investments", "Rupee I n vestments" and " O t h e r Foreign I n vestments" among different years as
i n c o l u m n ( i i i ) o f T a b l e 7 , based
on the trend of traceable b o r r o w i n g s .
D u r i n g 1921-38, Government repaid Rs 164 crores of sterling debt,
especially f r o m 1931-32 when gold
exports yielded a large favourable
balance and interest rates in L o n d o n
favoured conversions. E x c l u d i n g 9
per cent I n d i a n h o l d i n g s net repayments f o r balance of payments pur483
the
London
Stock Exchange
THE ECONOMIC WEEKLY
March 18, 1961
Comparison of Direct and Indirect
Estimates
We have now three estimates: ( i )
I n d i r e c t : net current account d e f i c i t —
Rs 217 crores; ( i i ) difference between foreign investments in 1921
a n d 1938—Rs 177 crores; a n d ( i i i )
c u m u l a t i v e net annual i n f l o w — R s
183 crores.
A p a r t i c u l a r l y close
agreement a m o n g these is u n l i k e l y
w i t h the wide range of data of varyi n g pedigree used f o r these estimates.
Also, the net i m p o r t of capital being
small as compared w i t h India's tot a l international transactions i n this
p e r i o d , even small errors of estimat i o n in the latter w i l l tend to magn i f y their
i m p a c t on the capital
balance. A f u r t h e r p o i n t may, however, r e m a i n . In estimating debt
services, we assume a one-year lag
between investment and remittance
of r e t u r n s ; it may have been larger
f o r fresh i n d u s t r i a l ventures, t h o u g h
such ventures were rare in I n d i a ' s
fresh b o r r o w i n g s i n L o n d o n i n this
p e r i o d . However, if this is allowed
f o r , the indirect estimate may come
nearer the direct estimates by another
Rs 8-10 crores.
The annual deficits/surpluses i n
the current account may be compared w i t h the net i n - ( o u t - ) flows
of long-term capital. W i t h i n
the
l i m i t s of our estimates, the gap between the two is b r i d g e d by shortt e r m c a p i t a l . Of the 11 years when
the current account had deficits, in
9 years these are associated w i t h
v a r y i n g surpluses in the capital account. Of the 6 years when the
current account had surpluses (exc l u d i n g the m i n o r one in 1933-34) in
4 years these are associated w i t h deficits in the capital account. The
private sector may have financed the
deficits in 1937-39 f r o m its foreign
balances a n d / o r by i n c u r r i n g short
debts to stockpile, a n t i c i p a t i n g the
W a r . For the unmatched current
surplus in 1925-26, there is at least
one explanation — the Secretary of
State used some of it to augment
his reources in the U K w h i c h he
ran d o w n i n 1926-27.
1914, Pandit estimated debt services
at Rs 249 crores—an underestimate,
we feel; his direct and indirect estimates of the capital account are Rs
150 crores and Rs 200 crores respectively. T h e l i m i t a t i o n s o f Pandit's and o u r estimates are not of
an order of magnitude as precludes
the broad conclusion, that, b a r r i n g
It is significant to compare the
long-term capital balance and debt
services on f o r e i g n capital d u r i n g
1921-38. The f o r m e r is a r o u n d Rs
200 crores w h i l e T a b l e 2 places the
latter at Rs 905 crores ( e x c l u d i n g
remittances by exchange banks, i n surance companies and coastal and
foreign shipping).
D u r i n g 1898.
484
the 7 years' gap 1914-21, d u r i n g
1898-1938 debt services on extent
f o r e i g n investments always exceeded the net a n n u a l i m p o r t s of foreign
capital except in 1900-01, 1905-06,
1908-10 and 1922-23. In i n t e r - W a r
years the gap between the two
streams widened more compared to
the pre-1914 years.