India's Wartime Finances
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Abstract
THE WAR, DECLARED BY Great Britain on Germany in September 1939, started far from Indian shores. Italy and Japan were still neutral. Yet it was clear, even at that time, that the war would spread and that the British Empire was as ill-prepared for hostilities in the new theaters of war as she was in Europe. It was decided to expand the armed forces, and action along this line was started at once in Great Britain, the Dominions, and the British Empire, including India. The British Government concluded an agreement, known as the Financial Settlement, with the Government of India1 concerning the distribution of expenditures on military needs between Great Britain and India. By this Settlement,2 India was to pay (1) a sum equal to her prewar "normal" military budget of 367.7 million rupees;8 (2) a sum in adjustment of the normal budget for rises in prices (in the 1942-43 fiscal year this sum amounted to 86.1 million rupees); (3) the cost of the "Indian War Measures," which were defined as "such measures as can be regarded as purely Indian liabilities by reason of their having been undertaken by India in her own interests"; (4) a contribution toward the additional costs of her external defense. A sum of ten million rupees was paid on this last account. As the war spread to Africa, and later to Asia, India became an important source of supply for Indian, British, and the Allied armies. This same Financial Settlement regulated payment for the supplies used outside of Indian frontiers. India was to pay for "whatever she takes from Indian production for Indian war measures and for her share of joint war measures, including storage charges; the British Government pays for, and owns, all the remaining stores produced, together with practically