The Salt Tax

Excerpted from The Great Hedge of India by Roy Moxham, Harper Collins, India 2001

The Salt Tax was born out of British greed: first, out of the individual greed of the servants of the East India Company; later, out of the greed of the Company itself, and its shareholders; finally, out of the greed of the British government, its parliament, and its electors. ...

Salt had been taxed in India from time immemorial. The Maurya king, Chandragupta, who ruled India from much of 324 to 301 BC, imposed taxes on salt. The Arthasastra, a treatise on governance, which is believed to have been largely composed by his chief minister, Kautalya, lists all the duties of the state’s officials. It goes into incredible detail: it specifies the times of the day that state elephants are to be bathed; it advises what type of widows should be recruited as spies. A special officer, the lavananadhyaksa, was responsible for salt. Licenses for manufacture were issued, for a fee, or in exchange for one-sixth of the output. In addition, like on many other products, a tax was levied by the difference between ‘the King’s measure’ and ‘the common measure’. This imposed an extra 5 per cent tax. Taxes were also imposed on imported salt so that there was no loss to the treasury. It seems, therefore, that the tax on salt was about 25 per cent in total. Taxes of this magnitude, or less, seem to have been imposed over most of India until the arrival of the British.

In Bengal there had been a small tax on salt under the Mughals -- 5 per cent for Hindus, 2.5 per cent for Muslims -- levied as it passed up the River Ganges to the interior. In addition, some inland rulers levied a small toll on salt, and other goods, as they entered their territory. All these taxes, however, were only sporadically and inefficiently collected. The overall tax burden on salt was minor, and not a hardship. With the British it was to be different.

In 1756 the Nawab of Bengal had driven the Company out of its trading post at Calcutta. The following year, Robert Clive led the Company’s army to victory over the nawab at Plassey, a hundred miles north of Calcutta. This enabled the Company to re-establish itself in Calcutta. In 1759 the Company acquired land nearby on which there were salt works. As a form of tax, the Company doubled the ground rent, and also imposed a small transit duty. Eventually this was consolidated, with other impositions, to give a total tax of less than one-fifth of a rupee per maund, an ancient measure of about 82 imperial pounds weight. ...

When Clive defeated the nawab, he had then put a puppet, Mir Jaffar, one of nobles, on the throne. In return, Clive had received from the traitor 2,340,000 rupees, rentals of 300,000 rupees a year, and an 880-square-mile private estate. This was all given to Clive personally. Thirty-two years old, he instantly became the richest of all Englishmen. He then took steps to stop the Company from ever appropriating his spoils. In 1760 he went back to England and bought control of the Company. ....

While Clive was consolidating his position in London -- in 1762 he became Lord Clive of Plassey -- the people of India continued to be bled. Mir Jaffar, appalled at what was happening to the country, abdicated. Mir Kasim replaced him. In return for the Company’s support, he agreed to pay the Company 5,000,000 rupees a year in silver. This had to be raised by taxing the people. Meanwhile the Company’s employees looted and pillaged the country with more and more ferocity. By 1762 even Mir Kasim was appalled. He attacked the Company merchants. The other Mughal princes seeing what might happen to them, joined him. The Company’s army raced to defend its own. In 1764 the armies met between Varanasi and Patna, at Baksar. The combined forces of the Mughals were totally defeated. It was the end of Mughals as the dominant power, and the beginning of British rule.

The Company allowed the Mughal emperor in Delhi to continue as nominal ruler, but took away his income. The Company took over the administration -- the Diwani -- and became the feudal lord. It was to receive the land revenue, which was the principal tax, and the other minor taxes. All the revenues of greater Bengal -- which included Bihar and Orissa -- were to go into Company’s coffers. It inherited the rights to an income of tens of millions of rupees. Its own employees, however, were expropriating much of that income.

Clive returned to India in 1765. He found that the country had been rendered almost ungovernable by the depredations in his absence: ‘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.’ Here indeed was the pot calling the kettle black! ...

In 1765 he established the ‘Exclusive Company’. This was a private company whose profits would be shared among the Company’s senior servants -- sixty-one civil administrators, military men, doctors and clergy -- in proportion to their seniority. ... The new company was given a total monopoly to make what profit it could, on tobacco, betel nut, and salt. For the first time salt, an essential item of diet, was to be significantly taxed. The poor as well as the rich, would be affected. All production of salt, and of betel nut and tobacco, other than for the Exclusive Company, was prohibited. Contracts were given to deliver salt to depots. Merchants then had to buy all their requirements from these depots, before selling them on to where they could best make a profit.

This was in defiance of instructions from London: ‘We consider it too disgraceful, and below the dignity of the present situation, to allow of such a monopoly.’ ... Clive tried to buy off opposition by giving the Company 1,200,000 rupees per annum of the profits.

London, however, was implacable. ... On 1 September 1767 the Exclusive Society relinquished its monopoly on tobacco and betel nut. On 7 October 1768 it finally gave up its monopoly on salt. In the years of its operation it made the huge profit of 6,731,170 rupees. ...

Clive left for England in 1767. His riches attracted great adverse comment. ... A commission of inquiry into his conduct in India was set up. It ended with the House of Commons voting that he ‘had rendered great and praiseworthy services to his country’. ...

It was true that Clive was partly brought down by the envy of rich Englishmen, who themselves has bled their own pitifully poor tenants for generations. It must, however, also be remembered that Clive’s wealth had come indirectly from the Indian peasants, who earned a fraction of what was earned by their English counterparts. An agricultural labourer in England earned perhaps the equivalent of 15 rupees a month, whereas the Indian labourer received only 1 rupee. What was more, the money was taken out of the country. ... British individuals, and most of all the East India Company itself, took vast sums out of India and spent it in Britain. Jobs that might have been created in India, had the money been spent there, were given to workmen in Britain. India, which when the British arrived had been relatively well off, became much poorer.

In 1770 famine hit Bengal. The land revenue had only been sporadically collected by the Mughals, especially in times of difficulty. After the Company took over the Diwani it was fully and ruthlessly collected. In 1969 the crop was poor. In 1770, after six months without rain, the crop almost totally failed. There has never been a failure of crops all over India. Local shortages can always be rectified if there is money to buy in grain. However, following the looting of Bengal by the Company and its employees, money was extremely scarce. The Company had no mercy; it took its dues in full. As people began to die, the amount of land revenue due from the survivors increased. It was so fiercely collected that many had to sell their seed corn. Out of the millions they collected, the Company gave back 90,000 rupees in famine relief -- 90,000 rupees for 30,000,000 people.

Meanwhile the Company’s employees and their agents cornered the rice market. They bought up rice in those areas where the crop had not failed, warehoused it under armed guard, and sold to those with the most money. The price of a maund (82 pounds) of rice rose from about 0.4 to 13 rupees. The wealthier Indians exchanged their savings and jewellery for food. The peasants and labourers, who only earned 1 or, at most, 2 rupees a month, perished. Between one-third and one-half of the entire population -- at least ten million people -- died. The Salt Tax was, of course, still collected by the Company in full on the salt that was consumed. However, many could not afford to buy salt. In any case, the supply of salt was severely disrupted by the death of so many salt workers, bullock cart drivers and boatmen. ...

The free, but taxed, manufacture and trade in salt continued until 1772. ... In 1772 Warren Hastings was appointed to control the Company’s affairs in Bengal. The following year, as the head of a new Council, he also took charge of the Company’s interests in the Bombay and Madras Presidencies, and was given the title of Governor-General.

Hastings had joined the Company in 1750. ... His first acts were to cut in half the stipend of the powerless nawab and to stop altogether the annual tribute Clive had promised to the emperor in Delhi. He changed the whole system of revenue collection, so that the land revenue and other taxes were collected directly by the Company. These changes made the Company 5,000,000 rupees a year better off. When Hastings took control, in 1772, salt was still being freely manufactured, and taxed at 0.3 rupees a maund. The revenue was only 450,000 rupees a year. Hastings determined to raise it.

The Company once again took over control of the manufacturing of salt. The salt works, however, were leased out to ‘farmers’, who under various complicated arrangements agreed to deliver salt at a fixed price to the Company. The Company sold the leases to the highest bidders. Corrupt practices of the Company’s staff, and collusion between bidders, ensured the failure of the system. By 1780 salt revenue had fallen to 80,000 rupees. Moreover the salt worker, the malangis, had been cruelly exploited. Sixty thousand men, often coming from families that had been independent salt-makers for generations, had suddenly found their businesses expropriated, and been forced to work for pitiful wages. News of their plight even caused outrage in England.

In 1780 Hastings brought the whole process of salt manufacture and taxation under direct government control. He devised a system that, fundamentally unaltered, was to last until the British left. The salt-producing areas were put under a Comptroller and divided into Agencies. Each Agency was put under the control of an Agent, a government officer. They were salaried, but also received a commission of ten per cent on the profit obtained by the government. The malangis, now self-employed again, delivered the salt to the Agents at an agreed price. The Agents then sold the salt on to wholesalers at a price decided by the government. The price was fixed a 2 rupees a maund. As the malangis received from 0.5 to 0.9 rupees for their salt, the ‘tax’ was 1.1 to 1.5 rupees a maund. From the Company’s point of view, the new method was a complete success. In its first year, 1781-2, the salt revenue was 2,960,130 rupees. By 1784-5 the revenue had risen to a huge amount of 6,257,470 rupees.

The Company became dependent on its income from salt. When Lord Cornwallis took over as Governor-General, he saw another way to increase income. It had become the habit of the wholesalers to take advantage of their sub-monopoly and force up the price of salt. In 1788, instead of fixing the price in advance, the Company took to selling to the wholesalers by auction. This had the effect of hugely increasing the tax to 3.25 rupees a maund. It remained around this extraordinary level until 1879. In thirty years, therefore, the Company had forced up a sporadically collected minor tax into one that was ruthlessly collected at a punitive rate. The wholesale price of salt increased from 1.25 rupees to about 4 rupees a maund. To this wholesale price, of course, the profit of the retailer and the cost of transport had to be added. All this occurred at a time when famine and unemployment swept Bengal; when hugely increased land rents were extorted by the Company; and when an agricultural labourer’s wage were, if he were employed, 1 or 2 rupees a month.

The amount of salt used by an Indian family was the subject of fierce argument. … There was argument as to whether Indian cattle or sheep needed salt. The size of an average family was another point of contention. However, at the lower end of the scale, it is reasonable to assume that a small family, of two adults and three children, needed at least half a maund of salt, 41 pounds a year. Half a maund of salt, in 1788, retailed for 2 rupees or more -- two months’ income for many families. The situation continued for many years and agrees with the evidence given to a Parliamentary Select Committee of 1836 by Dr. John Crawfurd of the Bengal Medical Service: ‘I estimate that the cost of salt to the rural labourer, i.e., to the great mass of the people of Bengal, for a family, as being equal to about two months’ wages, i.e., 1/6th of the whole annual earnings.’ Many other families, following the disasters that had beset the country, were totally without money. In some years the situation was even worse, for until 1836 when the auction system was changed, sub-monopolies caused periodic escalations in price. ‘In 1823, for example,’ Crawfurd records, ‘in many parts of the country the price rose to 12 rupees a maund for adulterated salt.’ At that price, half a maund of salt would have cost half a year’s wages!

The Salt Tax in the Bengal Presidency remained at a punitively high level for ninety years.