The idle ramblings of a Jack of some trades, Master of none

Aug 2, 2008

Taxing Salt

Here's a brief litany. 2200 BC in China. 506 BC in Rome. 300 BC in Magadha. 1100s in Timbuktoo. 1259 in Provence. 1341 at the beginning of the Hundred Years' War. 1531 in Perugia. 1694 in Britain. 1759 in Bengal. 1825 in New York. 1866 in El Paso, Texas. And here's another: 1825 in Britain. 1946 in France. 1947 in India. What do they have in common?

The first set of dates are those of the establishment of monopolies or the imposition of taxes on that most innocuous of products - salt. From the earliest periods of history, rulers and merchants have realised that this essential commodity for human welfare is a generous source of income. The Chinese state took salt as tribute as early as 4200 years ago. The Romans were paying their soldiers an allowance to purchase salt (from which term derives 'salary'), and establishing control over the production of the commodity at the mouth of the Tiber. By 300 BC, both Chandragupta Maurya and the Romans had imposed salt taxes, the former because Kautilya thought it a good source of revenue for the empire, and the latter to finance the savage Punic Wars. In the twelfth century, the fabulous city of Timbuctoo was the entrepot to Black Africa to caravans carrying salt across the Sahara, and the merchants that owned the monopoly over this perilous business amassed great fortunes. There had always been little toll taxes on salt as on other products as they wound their way across fiefdoms. But with the Provencal tax of 1259, the gabelle established in 1341, and the later taxes in Perugia and Britain, began the modern and ruinous trend of taxing for war. There was no escape from these impositions.

Across Europe, the brutality of the French tax regime became known as a byword for oppression. Nowhere else had the tax been so prohibitive. Even in Bengal, under the Nawabs, the tax was minimal - 5% on Hindus, 2.5% on Muslims - and so inefficiently applied that the burden on the average person was slight. But the establishment of the East India Company and its conquest of Bengal created a system of levies on salt  that put even the French gabelle to shame.

In 1825, the Erie Canal connecting the Great Lakes to the Hudson River in New York, was inaugurated. It had been paid in large part by a tax on salt, which was one of the products that was transported over this engineering marvel. Meanwhile, in Texas, a bunch of monopolists had created the Salt Ring, which, in 1866, took over the production and distribution of salt. The local Mexicans, for whom the salt had been a common good, resented the monopoly, and rioted.

Interestingly, while the British were running one of the most brutal tax schemes in India, they had enlightened views towards salt in their own homeland. By 1825, they had abolished the tax. Those who suffered under the more severe burdens, such as the French and the Indians, had to wait till 1947 to be succoured.

Now, why is all this relevant? In Indian schools, we are taught that the Salt Tax that Gandhi opposed was a foreign imposition. This is untrue. The British took over existing salt taxes and multiplied them. There is a sense that somehow Indians laboured under a unique form of oppression. That is also clearly untrue. What is true, however, is the scale and ruthlessness of the tax in India, and its terrible consequences on the poor of the land.

In most other regimes, the tax added only a small fraction to the total cost of the salt. In China, for instance, a peasant needed only two days' income to pay for his family's annual salt requirements. In India, first under the East India Company and then under the Raj, a peasant had to shell out two months' wages.

Naturally, the poorest suffered. Salt deprivation severely affects the human body. It also debilitates farm animals. Milk and agricultural yields plummet, and affect exactly those people - the indigent - who are already facing the heaviest health burden. The well-off are not as affected unless the supply of salt itself is cut off. And with the establishment of the Customs Line that ran from Torbela in the Northwest Provinces to Sonapur in Orissa, the British managed to control not only production but also distribution of salt, netting themselves enormous profits from the suffering of millions.

The overwhelming control over salt wasn't accomplished overnight. The first step was to take over the production of marine salt, and this was achieved by the establishment of the sea-fortresses of Bombay, Calcutta and Madras. Soon after the Battle of Plassey, the East India Company acquired land near Calcutta that had salt works. Initially, the Company only doubled the ground rent and applied a small transit tax (eventually consolidated to a total tax of a fifth of a rupee per maund (82 pounds) of salt) - officially payable to the Mughal court because the Company was legally a feudal subordinate to them.  But after Plassey, the Company was able to enforce a treaty on the Mughals exempting themselves and other British merchants from paying any tax. This meant that employees in the company could begin to trade commodities on their own accounts, undercutting the Indian merchants, resulting in enormous profits for themselves and engendering severe internal corruption. Very little of the wealth generated from salt found its way into the Company's books.

That brilliant and conniving Robert Clive defeated Siraj-ud-Daulah and installed Mir Jafar as a puppet on the throne of Bengal. In return, he obtained 2,340,000 rupees as a lump sum, rentals of 3 lakhs annually, and an 880-square-mile private estate, all of which he took in his own name, rather than the Company's. Suddenly, he became one of the wealthiest men in England. Aware that shareholder action might take over some of this lucre, in 1760, he bought control of the Company. Then he purchased the favour of a sufficient number of rotten boroughs in England that neither he nor the Company would ever face parliamentary sanction.

Soon thereafter, the revenues of Bihar and Orissa fell into the Company's control. Again, most of them were appropriated by the employees. When Clive returned to India in 1765, even he was appalled: such a scene of anarchy, confusion, bribery, corruption and extortion was never seen or heard of in any country but Bengal; nor such and so many fortunes acquired in so unjust and rapacious a manner. He banned the taking of bribes and lavish gifts and curtailed the exemption from taxes to those of the Company's European staff with more than 5 years' service. But realising that he had to find the revenues to clean up the administration and keep his colleagues happy, he established a monopolistic Exclusive Company that was granted the right to raise revenue whichever way it wanted, on betel-nut, salt, tobacco. He modestly granted himself fifteen out of the 56 one-third shares issued. Despite the opposition from London, this monopoly lasted three years, during which it amassed a profit of 6.7 million rupees, all by almost doubling the wholesale price of salt from their works.

India, which had been comparatively well-off when the English arrived, was now beginning to sink into long-lasting penury.

The Company became ruthless in its collection of tax, even during the terrible Bengal famine of 1770. If the tax was not paid, the planting of crops was prevented. Along with nearly half of the peasants of the region, almost the entire indigenous supply chain of salt perished - workers, drivers, boatmen. Vast tracts of land were abandoned, and the once law-abiding Bengal fell into brigandage. The first smugglers of salt began to thrive.

Under the first Governor-General, Warren Hastings, the Company once again took over the manufacture of salt. It divided the salt-producing areas into Agencies, each of which was expected to procure salt from the indigenous workers (malangis) at a fixed price of Rs 2 a maund. The malangis only received about half a rupee, so the effective tax on salt, once only about 0.3 rupees a maund, became five times as much.

By 1788, the Company had realised that fixing the price was inefficient. They began to hold auctions for wholesalers. Enthusiastic bidding led to the tripling of the wholesale price. The effective tax jumped to 3.25 rupees a maund. At a time when the average labourer made one or two rupees a month, salt was already pretty much unaffordable. The ramifications on the health of the poor were catastrophic. The terrible state of affairs was to last a century.

While the Bengal Presidency was making its money from the salt tax, the other two - Madras and Bombay - were enriching themselves mainly from ground rents. This meant that there was ample opportunity for tax arbitrage between the various parts of British India. Meanwhile, the other princely states were not punitively taxing salt in their domains. Furthermore,they had large sources of rock-salt and lake-salt, which were outside British control. As was to be expected, smuggling became a rampant problem across Bengal, particularly over its frontiers with the princely states. The Company had to end this once and for all.

First, they conquered the entire eastern seaboard of India, so that the coast and the salt-making facilities there fell into their control. The defeat of the Marathas resulted in the extension of Company rule into almost all of Northern India. Then they installed rowannah chowkies, Customs posts, throughout the occupied territories, across major roads and waterways. But even these could not stem the influx of salt from the neighbouring independent principalities.

Sambhar Lake was the principal source of salt smuggled into Bengal. This was under the suzerainty of the Maharajahs of Jaipur and Jodhpur. With some effective strong-arming, the British were able to terrify the rulers into ceding Sambhar and other smaller salt lakes into their hands. After the bitter famine of 1876, land abandoned in the southern Presidencies meant that ground rent revenues there plummeted. Following a comprehensive review of taxation in the country in 1879, it was decided that the salt tax in Bengal would be dropped slightly, but that in Bombay and Madras would be raised. Smuggling across the Presidencies no long made economic sense. Cheap salt vanished across the subcontinent.

The British domination of salt in India was thereby complete.

[NOTE: All the facts quoted in this post are from Roy Moxham's The Great Hedge of India, published by Constable Press. London. 2001.]


Shefaly said...

In public health terms, Britain leads the European if not global debate on reducing salt consumptions. The country was the first to specify maximum salt limits and to force/ cajole retailers and food manufacturers into reducing salt content of their foods without wielding the regulatory sword.

Just thought it will interest you. :-)

Fëanor said...

Shefaly: Moxham points out in his book that his friends were unimpressed with his pursuit of the salt tax and its ramifications on the health of Indians. Surely the British were doing the desis an indirect favour, they claimed. Because we are faced with salt addition in almost every processed food, we are today exhorted to limit our consumption of this commodity. But in 18th and 19th century India, salt malnourishment was the norm, especially amongst the vegetarian classes, and the salt tax exacerbated the ill-effects on the indigent.

As for British leadership on the reduction of salt today, it is quite clear that they've generally been quite enlightened with respect to their own population (as indicated by the abrogation of their own salt tax in the 19th century), and rather less so with respect to others. :-)

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