Item 1 - Copy of a letter from Edwin Montagu to Austen Chamberlain

24 Queen Anne’s Gate, S.W.— Thanks him for his letter explaining the position. He does not think the differentiation between cotton Customs and Excise Duties in India could ever be prevented, and as it has been done it does not matter. But he does not regard Interest and Sinking Fund of £100 million a year as a sufficient burden for India with her almost insignificant unproductive debt, and does not think India entitled to special consideration when compared with the burdens laid on other parts of the Empire. Points out that the increased pay of the Indian Army has been practically paid for by allowances for services abroad. Those who make cotton goods in India must, as a result of the differentiation, be allowed to increase the price of their goods. If the State protects any industry it ought to share in the profits, but the question with regard to cotton manufacture in India is very difficult. He wishes that it had been possible to make a policy for the whole Empire before dealing with it in India.

(Carbon copy.)