THE
EVOLUTION OF PROVINCIAL FINANCE IN BRITISH INDIA
________________________________________________________________
PART
III
PROVINCIAL
FINANCE: ITS MECHANISM
Contents
The Limitations Of
Provincial Finance
The Nature Of Provincial
Finance
The Enlargement
Of The Scope Of Provincial Finance
PART
III
PROVINCIAL
FINANCE: ITS MECHANISM
CHAPTER
VII
THE
LIMITATIONS OF PROVINCIAL FINANCE
To
those who might be expected to have a knowledge of the anomaly—unparalleled in the
annals of administration—involving the existence of provincial Government without
there being the necessary complement of Provincial Finance, the study could not but have
been of profound interest as disclosing the manner in which the anomaly created in 1833
was rectified or seemed to be rectified in 1870 (Footnote#).
(Footnote#)There,
however, prevails the idea that Provincial Finance existed tong before 1870, But this is
undoubtedly an error which may as well be corrected in this place by briefly recalling the
history of financial decentralisation prior to 1870. The year 1855 will always stand
pre-eminent in the history of decentralisation of Indian Finance. It is from that year
that local Finance dated its origin. It must not, however, be supposed that prior to 1855
there were no local revenues. On the contrary, there were very small funds such as Ferry
Funds, Toll Funds, Cesses, etc., in existence and were spent on improvements of local
utility, but the important point to note is that the balances from such funds were not
carried to a separate account but as a rule merged in the general balances of the country,
with the exception probably of Bengal and North-Western Provinces, where it seems that
such balances were carried to separate local Fund Accounts (of. Calcutta Review, 1851, Vol. 16, pp. 464 and 466).
It was by the Financial Resolution of May 11,1855, that local Funds were completely
separated from Imperial Funds and were treated as " Deposits "—a
sub-division of the Account Head " Debt "(cf. Accountant's Manual, by Y. Venkatramaiah, Part I,
Madras, 1866, p. 79) and by the Resolution of September, 1863, local Finance was
established on a separate footing by the institution for each of the different provinces
of a distinct local Fund Budget as separate from the Imperial Budget. It so happened that
in the absence of local authorities the Government of India entrusted the task of the
preparation and execution of the local Funds Budget to the respective Provincial
Governments as being more in touch with local wants. It is this accident that has betrayed
many into the supposition that this was essentially Provincial Finance. But nothing can be
a greater blunder. What existed before 1870 was local Finance, pure and simple, although
under the supervision of the Provincial Government, in whose hands the local Funds were
essentially a kind of trust. The mere bringing together by the Provincial Governments of
the receipts and charges pertaining to the local Funds into a local Fund Account for the
whole Province can hardly be interpreted to mean the amount to be at their
disposal—and that is the only sense in which Provincial Finance can be a
reality—any more than the bringing together of the local Rates levied in the United
Kingdom in the budget of the Chancellor of the Exchequer can give an indication of its
financial position. The local Funds were not at the disposal of the Provincial
Governments, for they could not be disposed of on purposes other than those which attached
to them. In this sense they constituted local Finance and not Provincial Finance. Some
people mistake it for Provincial Finance probably because the term " local Government
" is used as a synonym for Provincial Government. But, while local and Provincial
Governments are often used as interchangeable terms, it must be remembered local and
Provincial Finance cannot be so used. As a matter of fact, there was a period in the
history of Financial organisation in India during which there was local Finance without
local Government to be precise, and there was no Provincial Finance, even though there
were Provincial Governments. It is probable that, as tong as the habit of speaking of
Provincial Government as local Government continues, this confusion of ideas will not
entirely vanish. While some have insisted that Provincial Finance had its being tong
before 1870, the Resolution of December 14, 1870, which instituted the scheme of
Provincial Finance, is called * Resolution on local Finance " as though it gave rise
to local and not Provincial Finance. Such absurdities can be avoided only by insisting
upon precision of terminology.
On
a purely a priori consideration of the matter, nothing could have been more natural than
to suppose that the system of Provincial Finance thus established in British India was
independent in its organisation. Indeed it is difficult to imagine how one could emerge
from the study of its origin and development without such a faith having silently grown
upon him. But if Provincial Finance was independent in its organisation, we should find
the Provinces in possession of financial powers which are commonly associated with the
functioning of independent States. For the immediate purpose of finding out whether or not
Provincial Finance was an independent system of finance, we may take the freedom of
budgeting and everything that is involved in it as an evidence of the existence of these
powers. Independent budget powers would involve the power to determine the services which,
according to the needs of the country, a good government should undertake, and to decide
upon the mode of raising either by taxation or loan sufficient money to meet the
expenditure upon those services. Alongside these powers the budget system entails the
obligation of keeping accounts and submitting them to independent audit.
Applying
these tests to the Provincial Budget, the origin and growth of which have been treated in
the foregoing parts of this study, we cannot predicate a tithe of the independence which
characterises the budgets of sovereign States. On the contrary, the budget system
introduced into India with regard to the different Provinces was accompanied by the most
stringent limitations. They were given a budget without
its powers, and they bore the obligations of accounts
and audit just because they were left free within the limits of their budgets. Why these
limitations were imposed will be explained when we come to scrutinise the ways of
enlarging the scope of Provincial Finance, it must,
however, be emphasised that these limitations formed an integral part of the scheme, and
the stringency of the former had grown pan passu with
the scope and proportions of the latter. In fact they defined the law of the Constitution
of Provincial Budgets. A complete comprehension of the operation of Provincial Finance in
British India is therefore not possible without a thorough knowledge of its rules of
government. Such being the importance of these rules it cannot but be to our advantage to
analyse them at this stage.
These
rules were laid down on various occasions during the interval between 1870, when the
scheme of Provincial Finance came into being, and 1912, when the scheme reached through an
evolutionary process its final and permanent stage, in the form of Resolutions of the
Government of India in the Department of Finance. The rules framed in 1870 [f1]
were few and simple. Nor was there any necessity for a complex code to govern the
operation of the very meagre budgets which were then constituted. Many supplementary rules
were issued afterwards to dispose of unforeseen cases of order and procedure; but it was
not till 1877 [f2]that
we come across a most elaborate set of rules and regulations governing the financial
transactions of the provincial Government. The Rules of 1877 were the basis of all those
that were subsequently issued. With very small addenda or corrigenda they remained in
force for a period of fifteen years, when they were superseded by a new series of Rules
promulgated in 1892.[f3]
But only within a short span of a quinquennium this series was replaced by another issued
in 1897, [f4]
and the latter formed the governing body of Rules till the year 1912, when a new series
was brought out to regulate the working of the permanent settlement made in that year. [f5]
The same was reissued in the Financial Department Resolution
No. 361 -E-A. dated July 24, 1916. But as the alterations
therein were not in any sense consequential, the series of 1912 may be taken as laying
down the final regulations of Provincial Finance.
Recognise
as we must the necessity for analysing the rules, we must determine beforehand the point
or points of view from which to conduct the analysis. It must be premised at the outset
that the object of entering upon the examination of the Rules is twofold : (1) to know what limitations there were and (2) why they
were placed. Our immediate interest, it is true, is to state what limitations there were,
but this is only a preliminary, if not a minor, object. The second is really the more
important of the two. It is only as an aid to the proper understanding of the causes of
the necessity for these limitations that knowledge of them is to be sought. While keeping
in our mind the immediate object of stating the
limitations, it will be unimaginative not to foresee that in the following chapter, in
which we shall be presently engaged, we will learn that the necessity for these
limitations arose from the very peculiar nature of Provincial Finance itself. On the other
hand, it is important to anticipate this conclusion, and instead of producing the Rules seriatim as they occur, arrange them in such a way
that they shall be an external register of the internal conception of Provincial Finance
which particularly pervaded the minds of its promoters. For the consummation of this end,
the labours of the officials in charge of Provincial Finance who have laid down these
rules are of no avail. To them these rules were only instruments of financial control, and
it did not therefore matter in what order they were grouped. On the other hand, to get at
the conception behind these rules it is necessary to classify and group them according to
the purposes they were calculated to subserve. But the cardinal point in the matter of
classification lies in defining the likely purposes which the originators of such an
interrelated scheme of Provincial Finance as obtained in India must have had in view.
Without being at all dogmatic, it may be said that for a successful working of such a
scheme rules would have to be laid down for the purposes of defining (1) the
Administrative and (2) Financial Powers of the Provincial Government. Each of the two
categories may be further subdivided for a clearer understanding of the nature of
Provincial Finance. Thus the Rules relating to Administrative Powers may be further
subdivided into those pertaining to (i) Services and (ii) Staff. Similarly the Rules defining the Financial Powers
may be conveniently grouped under the following subsidiary categories : Those (i) of a general nature and those pertaining to (ii)
Provincial revenues; (iii) Provincial Expenditure, (iv) Budget Sanction and (v)
Audit and Account.
Taking
purpose as the fundamental divisions, the above categories may be supposed to exhaust
the possible purposes that the framers of the scheme may be
said to have had in mind. On the basis of these categories we may therefore proceed to
reduce the amorphous mass of Rules into a digest which, it may be hoped, will be
convenient and instructive at the same time.
I.limitations
on administrative powers
(1) Rules of Inter-Provincial Services
For
regulating the inter-provincial or inter-departmental relations affected by the creation of
separate budgets for the different
Provinces,
it was ordained that—
(i)
No
inter-provincial adjustments were to be allowed.
(ii) No
service previously rendered to other Departments at the charge of the Department made over
to the control of the Provincial Governments was to be abolished, and no service
previously rendered to these departments at the charge of other departments was to be
increased.
(iii) No
line of through communication was to be abandoned or allowed to fall out of repair.
(2)
Rules pertaining to Staff
As
to the staff engaged in the execution of the provincialised services the Provincial
Governments were enjoined not to—
(i)
Create a permanent appointment or augment the pay and allowance of any appointment.
Prior
to 1912 this applied to appointments with a pay of Rs. 250
a month and above. [f6]
But after 1912 it applied only to appointments ordinarily held by a Gazetted Officer or by
an officer of the Imperial Service as defined in Article 29-B of the Civil Service
Regulations. [f7]
(ii)
Create a temporary appointments or deputation for an Officer.
Prior
to 1912 this applied to appointments with a pay of Rs. 250 a month and above.[f8]
But after 1912 it applied to such of the appointments the remuneration of which exceeded
Rs. 2,500 a month, or Rs. 800 a month, if the temporary appointment or deputation was
expected to last for more than two years'[f9]
(iii)
Abolish a permanent appointment or reduce the pay and allowances of such an appointment.
This
rule was in the beginning applied to such appointments the remuneration of which exceeded
Rs. 250 a month. [f10]
After 1912 it was confined to such appointments as were held by Gazetted Civil Officers
recruited in England or as were defined by Article 29-B of the Civil Service Regulations.[f11]
(iv) Grant
to a Civil officer in Government employ or in receipt of a service pension.
(a) Land, except
where the grant was made under the ordinary revenue rules of the Province concerned
without involving any special concession in money or its equivalent beyond the fact that
the grantee received the grant in preference to others[f12]
or
(b) An assignment
of Land Revenue when the amount exceeded Rs. 600 a year, or
the assignment, though within that amount was not limited to three lives and reduced by
one-half on each succession. All grants as assignments of Land Revenue made by Provincial
Governments to civil officers were to be confined to cases in which the services were of a
very distinguished and exceptional character.[f13]
(v)
Revise (a)
permanent establishments which involved additional expenditure exceeding Rs. 50,000 a year
; or (b) rates of substantive pay of any one branch
of the service at a cost to that service alone of more than Rs. 25,000 a year, or (c) the average pay
of a service of which the maximum pay exceeded Rs. 500 a month and raise it above the
average rate approved at the last revision of the service by the Secretary of State or the
Government of India, or (d)
the local allowances as compensation for dearness of living or for increase of rents in
any locality.[f14]
II.
limitations on financial powers
(1)
General
Before
actually detailing with the limitations on the financial powers of the Provincial
Governments it is necessary to recall that the financial settlements made with the
Provinces consisted in handing over to them certain heads of revenue and expenditure. From this
accidental feature it is not to be supposed that the settlements were a collection of
separate settlements for each head of revenue and expenditure incorporated into the
Provincial Budget. To obviate such a construction by the Provincial Governments and the
consequences thereof, it was ruled that—
(1)
The
Provincial Governments were to understand that the funds assigned to them formed a
consolidated grant for all the services en masse entrusted to their respective administration and
that no claim could therefore lie against the Imperial treasury
on the ground that the actual cost of any service exceeded the amount at which it was
estimated in the calculations of the consolidated grant.[f15]
(2)
And they were not to make any extra demands on the Imperial treasury, but were bound to
maintain from the funds given to them all the services entrusted to their management in a
state of administrative efficiency.[f16]
With
regard to the powers of the Provincial Governments concerning the custody of their funds
it was ruled :—
(3)
That the funds allotted for their use were to be lodged in the Imperial treasury, and were
not to be removed for investment or deposit elsewhere; nor were the provincial Governments
competent to withdraw such money except for expenditure upon the public services.[f17]
(2)
Revenue
Rules
Turning
from the general limitations to those pertaining to the revenues of the provinces, it
should be noted that they were required to maintain themselves within the funds allotted
to them by the Central Government at each settlement.
The
provinces could not augment their resources
beyond the yield due to their natural growth by any possible means, for it was provided
that Provincial Governments were—
(i)
Not to impose any additional taxation or make any change in the existing system of revenue
management. [f18]
(ii)
Not to alter or augment within its area the
rates of discount upon the retail of Stamps, Court Fee labels, and duties on spirits and
drugs.[f19]
(iii)
Not to raise for its own finances any loans in
the open market.[f20]
Powerless
in the matter of augmenting their resources, the Provincial Governments were not free to
will them away to any other authority subordinate to them. To guard against such
eventualities it was ruled that Provincial Government were—
(iv)
Not to alienate any item credited to the general revenues, Imperial or Provincial, so as
to form an asset of a local or Special Fund.
This
provision as regards the non-alienation of the resources of revenue made over to the
provinces was a little relaxed by the Rules of 1912 so that it was permissible for them to
assign to a local body or special fund, as defined in Article 33 of Civil Service
Regulations, constituted by law, petty items of Wholly Provincial Revenue of a recurring
character, not derived from the proceeds of general taxation and not yielding on an
average more than Rs. 25,000 a year. [f21]
(
v) Not to make grants, subventions or assignments from the
funds at their disposal to local or Municipal bodies so as to create a permanent charge on
the revenues of India.
This
by no means prevented grants, subventions or assignments from being made to local or
municipal bodies by the Provincial Governments from their funds although the Government of
India had sounded to them a note of warning by declining to bind itself to continue the
grants after the expiration of the settlements or to provide for them in the succeeding
settlements[f22]By
the Rules of 1912, however, the power of making such grants was more clearly circumscribed
so that a Provincial Government could not make (1) recurring grants to local bodies from
provincial revenues exceeding Rs. 1,00,000 a year in any one case,
[f23]or
(2) non-recurring grants to local bodies exceeding Rs. 10,00,000 in any one case[f24]
or (3) a grant to a charitable or religious institution other than educational, not being
outside India, in excess of Rs. 10,000 a year if recurring, and Rs. 50,000 if
non-recurring.[f25]
(vi)
Not to make any grants to non-official (1) on political considerations of (a) land, either
free of revenue, or on favourable terms, or (b) of
assignment of land revenue, if the value of the land or land revenue exceeded Rs. 1,000 a year. [f26](2)
on the consideration of injury to himself or to his family in the event of his death
during or in consequence of service rendered to Government, or (3) on the consideration of
exceptional services to the Government of a pension exceeding Rs.
1,000 a year or a gratuity. exceeding Rs. 3,000 in any one case.[f27]
(3)
Rules of Expenditure
The
powers of sanctioning expenditure granted to the Provincial Government were as limited as
their revenue powers. While they were free to spend their funds on the services entrusted
to them, certain limitations were laid down for the purposes of expressly ruling out
certain objects and subjects of expenditure from the provincial domain.
With
regard to the objects of their expenditure
Provincial Governments were required—
(i)
Not
to sanction any expenditure from public money on anything outside the category of objects
of expenditure recognised by the Government of India.[f28]
(ii)
To
confine themselves to the carrying on of the services particularly entrusted to them by
the terms of the settlement.
Prior
to 1912 they could undertake a " new general service
or duty " only if they satisfied the Government of
India that they could provide the necessary funds temporarily if it was temporary, and
permanently if it was permanent.[f29]
This provision was altered in 1912 so that a Provincial Government could undertake a new
general service or duty provided it was not (a)
of an unusual nature, or {b)
devoted to objects outside the ordinary work of administration, or (c) likely to involve at a later date expenditure beyond its
powers of sanction.[f30]
(iii) Not to spend—
(a)On State ceremonies and assemblies, and on the entertainment at the public charge of
distinguished visitors to India more than Rs. 1,00,000. [f31]
(b)
On Railway Carriages especially reserved for the use of high officials otherwise than in
connection with the maintenance of the carriage.[f32]
(c)
On the purchase of a Motor-car or Motor-cycle for the use of an official, or on the
maintenance of it otherwise than from the " Contract
Grant " with the Head of the province. [f33]
(d)
On the increase of the " Contract Grant " to the Head of the province.[f34]
(e)
On the construction or purchase of a vessel required for inland navigation and for use at
ports, the cost of which exceeded Rs. 1,00,000.[f35]
(f) On an Irrigation or other Public Works projects of which the
estimated cost chargeable to the general revenues exceeded Rs. 20,00,000 inclusive of
establishments, tools and plants. It was however competent for a Provincial Government to
spend up to an amount 10 per cent. in excess of the original sanctioned estimate provided
such excess was not more than Rs. 12 1/2
lakhs inclusive of establishment, tools and plants.[f36]
As
to the limitations respecting the subjects of provincial expenditure, it was ruled that in
virtue of the application of the general condition precedent to the delegation of all
authority to disburse public money, that it shall be bona
fide for a public purpose, Provincial Governments could not spend from their funds for
benefiting—
(i)
Any
individual or body of private persons unless in accordance with some declared or
established rule or principle recognised by the Government of India.[f37]
(ii) Native States, directly beyond Rs. 10,000 a year on
any one project or Rs. 50,000 if non-recurring.[f38]
(4)
Budgetary Rules
Besides
being subject to the ordinary rules of the Budget System introduced into India for the
first time by Mr. Wilson in 1860, [f39]
by
which they were required to submit their budget estimates for sanction to the Government
of India, and to observe the rules of appropriation in the
execution of the grants, Provincial Governments were further given to understand that
without the previous consent of the Government of India they—
(i)
Could not exhaust their balances in the Imperial Treasury.
Prior
to 1887 a Provincial Government could propose in its budget estimates to draw upon the
whole of its balance. But by the Rules then framed the Provincial Government was required
to maintain at all time a certain minimum balance in the Imperial treasury, the amount of
which varied with each successive settlement.
(ii)
Could not budget for a deficit, that is for provincial expenditure in excess of the
provincial revenues of the year.
The
stringency of this rule [f40]
was a little softened, so that a Province could after 1912 budget for a deficit, if it
satisfied the Government of India that the cause was exceptional and non-recurring [f41]
but it was at the same time provided that, if this drawing upon the balances to make up
the deficits resulted in reducing the balance below the prescribed minimum, the budget for
a deficit would be sanctioned only if the Government of India was able to allow the
Provincial Government in question an overdraft to the extent necessary to restore the
balance to the required minimum from the general balances to be repaid in such rates of
interest and instalments as may be prescribed.[f42]
(iii) Could not exceed during the currency of the year the
expenditure on any head of account as finally sanctioned for it, for that year, by the
Government of India.
It
could increase the expenditure only if the increase was counterbalanced by
re-appropriation, that is, reduction by the amount of the excess of the sanctioned grant
under some other head of account under its control [f43]
The powers of reappropriation of Provincial Governments were very extensive, for it could
sanction re-appropriation between the grants for provincial expenditure included in its
budget, whether under a Wholly Provincial or a Divided Major or Minor Head provided that
the aggregate grant of provincial expenditure was not
exceeded.[f44]
(5)
Rules of Audit and Account
Though
the Provinces were allowed considerable powers of reappropriation within their budgets
there was imposed upon them the obligation of audit and accounts of the money they spent.
The important point to note in this connection is the fact that this obligation of the
keeping of accounts and submitting them to audit was an obligation which the Provinces did
not owe to their legislatures, but was an obligation which they owed to the Government of India, who had conferred upon them the financial power they
exercised. Moreover, the Government of India did not leave the Provinces to discharge this
obligation according to their own sweet will by employing their own audit and account
staff. On the contrary the responsibility of realising this obligation was entrusted to
the imperial officers of audit and account stationed in the
different Provinces, who acted as the critics and guides of Provincial Governments in the
matter of administration and interpretation of the Rules discussed above. To facilitate
their task Provincial Governments were instructed—
(i)
Not to make any alterations in the form of procedure of public accounts[f45]
or direct the division of a charge between two or more heads of account. In all such
matters they were to abide by the decision of the Comptroller General—an officer of
the Imperial Government.[f46]
(ii)
To transmit the objection of the Imperial audit officer against its appropriation or
sanction with regard to expenditure with the explanation of the Provincial Government
concerned to the Government of India for final disposal.[f47]
Such
were the limitations on the Financial Powers of the Provincial Governments. Apart from
these specific limitations the Provincial Governments were not altogether the free
architects of their own destiny within the sphere allotted to them; for it was provided
that the power of supervision and control in any Department still rested in the
Governor-General in Council, and that the Provincial Governments should keep him fully
informed of their executive and financial proceedings so as to enable the former to
discharge its obligations for peace, order and good government.2
Their general effect on the financial freedom of the Provinces could hardly have been
concealed. It must therefore have been a most impervious mind which in face of these
paralysing limitations had not lost its faith in the independence of the system of
Provincial Finance and had not asked what was after all the nature and advantage of this
illusive institution ?
CHAPTER
VIII
THE
NATURE OF PROVINCIAL FINANCE
The
study of Provincial Finance cannot be said to be complete unless it furnishes a true
answer to the question which is bound to be asked in the end, What was the resulting
financial relationship under the old scheme between the Central and Provincial Governments
in British India? The question is an important one, for the validity of the criticisms and
proposals with regards to Provincial Finance, or any subject for that matter, depends
entirely upon a correct understanding of its nature. Unfortunately it had not received the
attention that its importance demanded, and consequently we find the rather distressing
fact that no subject was so confidently discussed, and yet none was so grossly
misunderstood, as that of the nature of the old system of Provincial Finance in British
India. It therefore becomes necessary to explain what was the exact nature of the system
of Provincial Finance established in British India.
In
an inter-related system of politics, such as is composed of
Central and Provincial Governments in British India, it is always difficult to grasp the
exact nature of their financial relationship; for, what may appear on the surface may be
very different from what it may really be. None the less, the view was commonly held that
the Indian system was based on a separation of sources between the Provincial and the
Central Governments, and contributions from the yield by the former to the latter, much
the same as was found in the federal system of finance which obtained in the German
Empire. Whether such a view was wrong or right there were various incidents of the
relationship between the Central and Provincial Governments in India, which, there can be
no doubt, went a tong way to strengthen that view. Among such incidents must be mentioned
the division of functions between the Central and Provincial Governments. An onlooker could not fail to observe
that in this distribution of functions the former controlled matters pertaining to
Military Affairs, Foreign Affairs, General Taxation, Currency, Debt, Tariffs, Posts and
Telegraph, Railways and Adult and Accounts; while the latter administered matters of
ordinary internal administration, such as Police, Education, Sanitation, Irrigation, Roads
and Buildings, Forests, and the control over local Bodies. If this incident encouraged the
view that there was a separation of services, there was another incident of the
relationship which encouraged the view there was also a separation of revenues between the
Central and Provincial Governments in British India. That incident was the collection of
most of the taxes in India by the agency of Provincial Governments. As observed by the
Royal Commission on Indian Expenditure[f48]
"
in the United Kingdom the Revenue Administration is centralised.....
under the Chancellor of the Exchequer in London. In India the administration of some
branches of revenue is centralised, though not always under the Finance Minister (of the
Government of India). That of other branches is decentralised. The Land Revenue is under
the control of the Central Department at Calcutta, but that department is subject not to
the Finance Minister but to the Minister in charge of the Home and Revenue Departments.
The Telegraph Department is under the Minister of Public Works. The Central Government
controls the collection of part of the Salt duty and of part of the opium revenue, of Post
Office revenue and of other revenues..... The remainder of
the revenue is collected by the Provincial Governments....
As regards..... a large portion of the revenue, the
Provincial Governments are units of administration and are efficiently equipped for their
duties."
As
a third incident supporting the same view, reference must be made to the peculiar mode of
presenting Indian Accounts adopted in official Blue Books. As might have been noticed, to
the General Accounts of the Government of India is attached a supplementary account
professing to show the distribution of the different heads of receipts and expenditure
among the various Provinces into which British India has been divided. This mode of
showing the accounts is beyond doubt misleading. It appears as if the aim was to show the
financial position of the Provinces. But as a matter of fact the figures given in the
columns in which the revenues and charges are shown in their provincial distribution do
not represent the respective claims and responsibilities of the different Provinces. Far
from showing the financial position of the Provinces, the figures in the columns merely
represent the geographical distribution of the different agencies through which the financial
business of the Government of India is conducted, and through which the revenues are
collected and the expenditure is defrayed. The revenue and expenditure, for instance,
shown under " Bombay "
represent the income and outgo which pass through the books of the Accountant General
of the Government of India stationed at Bombay, and the
same is true of entries under the heads of other Provincial Governments. The figures
really represent the transactions of the Government of India distributed geographically,
and there is nothing provincial about them in the least. However, such a system of account
bears the impression that the system of finance in India is primarily Federal.
With
these three incidents before one's mind it was easy to fall into a federal line of thinking in reasoning about the financial relationship
between the Central and Provincial Governments in British India. So deep seated was the
view that the Indian system was one of separation of sources and contributions from the
yield, that many witnesses giving evidence before the Royal Commissions on Indian
Expenditure (1892) and on Decentralisation in British India (1909) sallied forth to assail
the Commissioners with the criticisms on the inequity of the system and proposals for
amending it according to what they considered to be the requirements of justice. Nowhere
have they stated the reasons for their assumptions in explicit terms.[f49]
Yet their proposals are an unmistakable proof that they held that view. Unless they had
taken for granted that the Provinces had separate revenues and separate services, they
could not be expected to have wasted their energies in directing as they did their efforts
to getting redressed what appeared to them as a piece of injustice embodied in the unequal
contributions made by the different Provinces form their revenues to the support of the
Central Government.
If
their view of the financial relationship between the Central and Provincial Governments
was acceptable, then a good deal could not but have been conceded in favour of their
criticisms and their proposals. Contributions, if the Imperial share could have been
conceived of in such a light, as between the different Provinces whether in ratio to their
revenues or population, were certainly unequal if calculated on the somewhat questionable
but generally accepted hypothesis that all the revenues collected within a Province
belonged to the Province.
PROVINCIAL
CONTRIBUTIONS TO THE
IMPERIAL GOVERNMENT
|
Ratio
of Amount Surrendered |
Ratio
of Amount Surrendered |
|||||||||
Province |
to
the Government of India to the Total Revenues raised in the Province. |
to
the Government of India per Head to the Population of the Province. |
|||||||||
|
1871-2 |
1882-3 |
1892-3 |
1904-5 |
1912-13 |
1871-72 |
1882-3 |
1892-3 |
1904-5 |
1912-13 |
|
.655 |
.464 |
.615 |
.297 |
.204 |
.9 |
.69 |
1.3 |
.55 |
.59 |
||
Burma |
.728 |
.575 |
.598 |
.497 |
.38 |
3.4 |
.39 |
.7 |
4.37 |
3.08 |
|
Assam |
|
.438 |
.390 |
.376 |
|
|
.75 |
.75 |
.87 |
|
|
Bengal
N.W.P.and Oudh |
.903
.785 |
.746
.617 |
.761
.435 |
.742 |
.596 |
2.4
1.5 |
1.99
1.24 |
2.9
1.4 |
2.29 |
2.39 |
|
Punjab
Madras |
.768
.828 |
.648
.664 |
.726
.667 |
.512
.638 |
.391
.479 |
1.7
2.3 |
1.5
2.0 |
1.4
2.3 |
1.57
2.34 |
1.64
1.79 |
|
|
U.P. |
.845 |
.648 |
.66 |
.614
.567 |
.58
.381 |
5.0 |
4.1 |
5.4 |
4.75
1.48 |
5.6 93 |
|
|
|
|
|
.220 |
|
|
|
|
.17 |
||
Compiled
from the Finance and Revenue Accounts of the Government of India
and the Decennial Census Reports.
Similarly,
whatever may be said of the relative merits of the proposals[f50]
of changing the system of divided heads of revenue into one of complete separation
supplemented in favour of the Central Government by contributions from the Provinces in
the form of (1 ) a fixed sum revisable
every few years, or (2) a lump percentage on provincial revenues, or (3) a fluctuating
contribution from the provinces on their population, revenues or wealth, there can be no
doubt that they were all aimed at reaching some such intelligible basis of distributing
the burden of the Imperial exchequer as equality of payment or ability to pay. No one who
had cared to scrutinise the true nature of Provincial Finance could have been expected to
take these proposals with the same seriousness with which they were offered by their
authors. However, strange as it may seem, none of the two Commissions questioned their
propriety. The Royal Commission on Decentralisation did make it clear, though not quite
forcibly, that equal contributions were not necessarily equitable contributions, but
neither it nor the Royal Commission on Indian Expenditure challenged the language which
spoke of the Provinces as surrendering their
revenues to make contributions to the Imperial treasury after paying for their services. It therefore becomes all the more necessary to examine at
some length the grounds which supported that view which argued that the system was based
on the principle of separation of sources and contributions from the yield. Indeed the
question of equity of contributions would hardly be worth discussion until it is settled
that the Provinces had revenues which they could call their own and services for the
efficient discharge of which they were primarily liable.
What
is the criterion by which to judge whether the provinces had revenues and services which
they could call their own? There is, of course, the administrative criterion by which it
would be possible to say that anything which a Province administered was provincial. But
that criterion cannot be a final criterion. For, whatever may be the view regarding the
origin of administrative polities or regarding what their position should be in an ideal
organisation, yet all regional rights of an administrative polity are in modern times
exercised in the main, not in virtue of any social compact or the mere discharge of
certain functions, but in virtue of a general law. The question must therefore be decided
with reference to the law which defined the status of the Provincial Governments in
British India.
Did
the Provinces have a legal title to the revenues? Although it is uncertain whether or not
those who spoke of Provincial revenues invested the term provincial with a legal status
there is no doubt that it had acquired such a connotation in ordinary parlance. Even the
Provincial Governments, who ought to have known better, thought and argued that by the provincialisation of revenue what the Government of India
passed on to them was not the mere usufruct but a title to the revenue. But the Government
of India had always been prompt in suppressing such pretences. The facts are patent that
provincial settlements were revisable every five years,
that the usufruct was not perpetual and that the Government of India could resume it at
the end of five years if it wanted. This is made quite clear in answer to the pretensions
advanced by the Government of Bengal in a letter No. 284 of January 14, 1882, from which
the following is extracted :—
"
For the sake of diminution of friction and other well-known objects which need not be
specified, the Imperial Government delegated a share in its administration to local
Governments. It makes a rough calculation that a certain portion of the general income, together with the increment
thereon, will suffice to meet the expenditure which it retains under its own control, and
it hands the rest over to local Governments, with the obligation to meet out of it certain
necessary expenditure.... But it cannot bind itself to this
proportion for ever, because the calculation must necessarily be a rough one, and is
liable to be vitiated by unforeseen failure of resources, or growths of charges, whether
in the share of financial administration which it retains or in that which it delegates.
An examination of the appropriation and a readjustment of it in any particular found
necessary are indispensable. A surrender of the right to this would be analogous in its
nature and effects to the Permanent Settlement of Bengal."
Although
anxiety was expressed for the provinces the revisions were primarily conducted in the
interests of the Imperial Government as the resumption incontrovertibly
proved, and the Permanent Settlement was delayed because the Government of India did not
desire to relinquish its control over its revenues. Under the quinquennial settlement the
usufruct was permitted to be undisturbed for five years only. But how tentative was this
surrender, which, even for five years, was looked upon as highly impolitic by the
Secretary of State,[f51]
was proved by the Government of India, which did not take back to exercise its inherent
right to resume the usufruct of its revenues at any time it liked as is indicated by the
not too uncommon levies or benevolence, as they were called, which it forced upon the
provincial balances. Not even the Permanent Settlement can be interpreted to mean that the
revenues settled upon the different Provinces became their revenues in anything like a
legal sense, for in the eye of the law all revenues including those provincialised still
remained the constitutional possession of the Government of India. Whether the Government
could have effected a legal separation by investing itself of the revenues of India in
favour of the Provinces is doubtful. The Parliamentary enactment which vests the revenues
of India in the Government of India had limited the legislative powers of the Government
of India by a clause which prevented it from
"
making any laws or Regulations which shall in any way repeal, vary, suspend or affect any
of the provisions of this Act (of 1833).... or the
Prerogative of the Crown or the Authority of Parliament."
At least it is significant that it has
required an Act of Parliament to do so. But the Government of India had not made any legal
separation of the title to the revenues, and if it could have done that by its own law it
could have undone it as well. Nor can it be said that the separation of Provincial
revenues involved separate possession. If the Provincial Governments had been allowed to
establish their own treasuries to receive the collections from Provincialised revenues,
then Provincial revenues in the sense of separate possession could have had a meaning. But
by the rules, Provincial Governments were not to deposit their funds elsewhere than in the
treasury of the Imperial Government. Consequently the possession of the revenues remained
in the hands of the Government of India and the disbursement from the provincial revenues
was carried out from the Imperial Treasury by the officers of the Imperial Government.
None the less, the view was hard to die. But such an erroneous view was never more
confidently stated than by the Honourable Mr. Sayani, and
never more forcibly controverted than by Sir James Westland
in a passage-at-arms between the two on the occasion of a
Budget debate in the Council Hall of the Government of India from which the following is
reproduced :—
The
Honourable Mr. Sayani said :—
"The
whole theory underlying the system (of Provincial Finance) is that the revenues of the
country, far from belonging to the Provinces which raise them or being available for their
own requirements.... constitute a common fund to be
absolutely at
the disposal of the Central Government, out of which it is to dole out what amount it
pleases for provincial services."
Catching
the condemnatory tone of these comments, the Finance Minister, Sir James Westland, rose to
say :—
"The
Honourable Mr. Sayani, if I correctly followed him, stated that the arrangements of the
Government of India were made upon the theory that the revenues were not the revenues of
the separate Provinces and were not applicable to the expenditure of the several
Provinces, but were the revenues of a common fund, the local Governments being merely the
agents of the Government of India for their realisation. I think he mentioned the theory
in some words like these, only for the purpose of condemning it. Well, I wish to assert
that theory in the most positive manner I can. The revenues are the revenues of the
Government of India—its Constitutional Possession. The Government of India is a body
created by Act of Parliament, and if reference be made to that Act of Parliament it will
be seen that the revenues of India are the revenues of the Government of India and of that
Government alone. Every action that the local Government takes in respect of them must be
justified by a specific order of the Government of India; the local Governments derive
their powers entirely from the Government of India, and apart from that Government they
exercise no financial powers whatsoever[f52]
Again,
if the financial relationship between the Central and Provincial Governments in India were
based upon the principle of separation of sources and contributions from the yield, what
ought to have been shown was the existence of legal responsibility of the Provinces for
the services they administered. It is true there was a certain division of functions
between the Central and Provincial Governments in India analogous to what existed between
the Central and State Governments in most of the federal countries. But it must, however,
be remembered that this division of functions had no sanction in law and no legal
responsibility attached to the provinces for any of the services, not even for those
Provincialised. The entire responsibility by law rested on the shoulders of the Imperial
Government and it could not absolve itself of that responsibility by transferring it on to
any of the Provinces. That the Provinces accepted the financial responsibility for some of
the Imperial services was their choice. That they could not be compelled to undertake them
was proved in a singular manner by Madras refusing to accept such responsibility in 1877.
By law it was thus the Government of India which was responsible for peace, order and good
government in the country. All services were therefore necessarily Imperial in status
undertaken by the Government of India in discharge of its constitutional obligations.
It
is therefore obvious that the view which posited that the relationship between the Central
and Provincial Governments in British India was one of separation of sources and
contributions from the yield was an untenable view. The Government of almost every country
in these days is carried on by an inter-related group of
polities operating in specific areas and discharging specific public functions ; and it may well be that in any two given countries the
number of polities engaged in carrying on the work of government is the same. But it is
quite erroneous to argue from that fact that the nature of their inter-relationship must have been alike. It is therefore as
well to invite attention to the point that the ordered relationship between such inter-related polities depends upon which of them is the
law-giving polity. It will be granted that in such group of polities there is one that is
supreme in the sense that from a variety of reasons mostly historical it is competent to
give law to the other polities. In federal countries it is the State Governments which are
the law-giving polities. They occupy a pivotal position. They are the depositories of
sovereign powers original as well as residuary. They can claim independent existence, have
their own resources and discharge their own functions. The Federal Government, on the
other hand, is the creature of the State Governments. It
can have no powers and no functions other than those which the States have been pleased to
transfer to it by an act of self-abnegation. It is therefore truthful as well as becoming
to speak of the financial relationship between the State and Federal governments as one of
separation of sources and contributions from the yield. [f53]For
there the States have their separate resources which they lawfully own and can therefore
be spoken of as surrendering their revenues to make contributions to the Central
Government after paying for their own services. But the same was inconsistent with the
position of the Provincial Governments. Far from pivotal, the Provincial Governments
formed the weakest entities in the group of administrative polities functioning in India.
Up to 1833 the Provinces had separate rights to surrender in a foedus and had the government of India been
then organised on a federal basis the position of the Provinces would have been very much
the same as those of the States in federal countries. But with the establishment of the
Imperial system by the Act of 1833 the last chance of creating a federation in India
vanished. By that Act the sovereignty of the Provinces was so entirely crushed that no
trace was left of it to permit of a truly federal element ever to enter into their
relationship with the Central Government. Since that Act the government of the country has
been entrusted to a single authority charged with the sole responsibility for the good
government of the country. As no single administration could support the Atlantean load of governing such a vast country with the help
of central bureaux, great powers were delegated to the Provincial Governments. But this
must not obscure the fact that they were literally the "
agents of the Government of India." Common usage had elevated the term " Provincial " to a
proud position. Along with Provincial Revenues it had been usual to speak of Provincial
Services, Provincial Civil Servants, Provincial Courts, etc., as if all these and other
things constitutionally belonged to the Provincial Governments. But the usage was full of
irony. For, when one recalls the provisions of the constitutional law of the land, so far
from thinking of them as Sovereign authorities one felt inclined to say that
notwithstanding their high-sounding apparatus of Governors and Councils it was not
appropriate to call them Governments. In any case the Provincial Governments had no legal
powers or functions which polities designated as
Governments have been known to possess. The fact is the Indian system of polity was
diametrically opposed to the federal system of polity. It was a centralised system in
which there was nothing Provincial; what appeared to be Provincial was but the regional
aspect of the Imperial. It was therefore untruthful and over becoming to speak of the
financial relationship between the Provincial and Central Governments in India as being
one of separation of sources and contributions from the yield. For here the Provinces had
no separate resources which they lawfully owned, and could not therefore be spoken of as
surrendering their revenues to make contributions to the Central Government after paying
for what may be supposed to have been their own services—a supposition rigorously
excluded by the law of the constitution.
If
the complex code of limitations discussed in the last chapter had the effect, which it was
not unreasonable to expect, of revealing the true nature of Provincial Finance, such a
view as the one herein criticised could never have prevailed. That notwithstanding the
existence of these limitations there should have been men who instead of wondering as to
what remained of Provincial Finance when it was regulated by such limitations, argued with the confidence
of the ignorant that the system was independent in its organisation, is itself a proof
that in their study of Provincial Finance the study of its limitations formed no part.
Otherwise a reference to that code would have shown that if the Provinces had separate
revenues and separate services they would have had powers of alienating whatever revenues
they liked, of spending on any service they desired, of framing their Budget Estimates
with a view to any particular policy they decided to adopt, and of arranging for
supplementary grants in any manner they chose. But such powers they never had. Indeed no
greater proof could be furnished in support of the view that everything had remained
imperial in status after 1870, as it was before 1870, than is afforded by these
limitations on the working of Provincial Finance.
If
separation of sources and contributions from the yield as a theory of the financial
relationship between the Central and Provincial Government in India was incompatible with
the facts of the case, what theory was there which could be said to have been compatible
with the position as defined by law? We may at once proceed to state that the only theory
of financial relationship between the two governments which accorded with facts and agreed
with law was that of aggregation of the sources and
distribution of the yield.
It
may seem fallacious to speak of aggregation of sources when what the Government of India
gave to the Provinces was assignment of revenues and shares of revenues. To this the reply
is not difficult. It has already been made clear that Provincial Finance did not involve a
de jure separation of sources. Nor was there a de facto separation
either. For as has been remarked before, all revenues whether assigned or reserved were
collected into the Imperial treasury and were thence paid out on all approved Government
transactions. Obviously, when all the revenues are thrown into a common pool, it cannot be
said without unduly straining the imagination that what the Provinces were given were
revenues.[f54]
The collections from all sources of revenue being inextricably mixed up, the only proper
view is to say that what was given to the Provinces were funds. The expressions Budget by
Assignments, Budget by Assigned or Shared Revenues are in a certain sense all fictitious
phrases. In all the stages of Provincial Finance what the Provinces were supplied with
were funds. Under the assignment stage the supply granted was a definitely fixed sum and
the only difference made as a consequence of the replacement of Assignments by Assigned or
Shared Revenues was that the supply, instead of being a fixed sum, was a sum which varied
in amount with variations in the yield of the Assigned or Shared Revenues. But all the
same it was a supply of funds and nothing more. It is even incorrect to say that the
Government of India gave funds to the Provincial
Governments for meeting the expenditure on the services the responsibility for which was
undertaken by them. As a matter of fact, the receiving as well as the disbursing of all
public money, including the provincial portion of it, remained in the hands of the
Government of India. The only proper expression, if it is to be true to facts, would be to
say that Provincial Finances simply meant that the Government of India opened a Provincial
Services Account in its Treasury books which varied with the yield of the Assigned or
Shared Revenues and on which and to its extent only the Provincial Governments were
permitted to draw.
Thus
there was a complete aggregation of the sources of revenue in the hands of the Government
of India. From this fact it follows that instead of the Provinces contributing from their
funds it was the Government of India which distributed the yield of its taxes among the Provinces. The situation could not be otherwise. For it should be recalled that in virtue of the
Act of 1833 the financial responsibility for the services undertaken to subserve the ends
of peace, order and good government rested upon the Government of India. While some of the
services were administered directly by the Government of India, owing to the well-nigh
impossibility of managing directly from a central bureau the affairs of a country as vast
as the continent of Europe minus Russia, many of the services attaching to the Imperial
Government were left to be administered under its supervision by the Provincial
Government. The weak point of the situation, as has been remarked, consisted in the fact
that the administrative and financial responsibility did not rest on one and the same
authority as should have been the case. On the other hand at the end of every financial
year all Provincial Governments sent in their estimates of the charges for the services
they administered to the Government of India in the Financial Department, leaving the
obligation of refusing, curtailing or granting the supply asked for to the Government of
India to discharge as best it could. Not having the obligation to find the money, the
Provinces tended to make extravagant demands. And the Government of India, not being in
possession of the details, was unable to judge of the true requirements of each service.
Being afraid of failure of its responsibility as much by too little trust as by too much
trust in the estimates sent to it, it was often obliged to submit to extravagance of the
Provinces, which as we saw brought on the crisis of 1859. To avoid this fatality there was
instituted the system of Provincial Finance under which the Government of India distributed its funds among the Provinces, and the
Provinces in their turn undertook to manage some
of the services which they administered for the Government of India within the sum which came to them severally out of
this distribution.
This
being the nature of the financial relationship, the criticisms of the system of Provincial
Finance on the ground of inequity were quite inapplicable.
Contributions must be according to ability, but distribution must be according to
needs in order to make it equitable. If the system of Provincial Finance was to be
impeached on the ground of inequity, then it was necessary to have shown that the
distribution was unfair. Even here it may perhaps be shown that the different Provinces
got different amounts if measured by their population or their area. But it must be
remembered that the distribution was not primarily among the Provinces, but among the
various departments, whether controlled by the Government of India or by the Provincial
Governments. This could make a considerable difference in the equity of the distribution;
for, the needs of the areas within the jurisdiction of the different administrative
polities must be very different and cannot certainly be held to be coterminous with the needs of the departments maintained under
them. The distribution of funds by the Government of India was not based upon the
principle of each Province according to its needs but upon the principle of each
department according to its needs. It was therefore futile to criticise the equity of the
system on any other principle.
Thus
interpreted, the system of Provincial Finance must strike as of the nature of what may be
called Departmental Finance, something quite different from Decentralised Finance or
Federal Finance. This view cannot be far
wrong from the true view as supported by the facts of the case. As in the case of
Departmental Finance every Department of the State has a certain grant fixed for it in the
Budget and it then draws upon the Treasury to the extent of the grant. In the same manner
Provincial Governments were given a certain consolidated grant for the departments they
managed and for the expense of which they were to draw upon the Imperial Treasury to the
extent of the grant. Notwithstanding Provincial Finance, nothing was provincial in its
status. The revenues, the services, the Civil Service, were as strictly Imperial in status
after 1870, when Provincial Finance came into being, as they were before 1870, when there
was no such thing as Provincial Finance in existence. It is therefore no exaggeration to
say that Provincial Finance, instead of being an independent system of Finance involving
freedom to tax and freedom to spend, was only a matter of accounts, the operations on the
debit and credit side of which were subject to stringent control on the part of the
Government of India.
This
means that there was no change in the nature of the financial relationship between the
Central and Provincial Governments as a result of the introduction of the scheme of
Provincial Finance. The relationship of aggregation of sources and distribution of the
yield was not a new one but was as old as 1833. It was a financial counterpart of the
Imperial system then established. It was because there was no alteration in the
relationship that Provincial Governments, even with Provincial Finance, far from becoming
separate clocks, each with its own mainsprings in itself, remained as before the
departments of the Government of India. Such a conclusion is bound to be regarded as
somewhat of a startling character. There can, however, be no doubt that it is true and
that no other conclusion is possible, given the legal relationship of the Provincial and
Central Governments in British India. But if Provincial Finance is only a matter of
accounts then, were there no changes that followed in its wake, in the financial
organisation of the Imperial system? It would be idle to deny that any change took place
in the financial organisation of Imperial system owing to the introduction of the scheme
of Provincial Finance, and equally idle to assert that some fundamental change had taken
place in consequence thereof. To be just, only two changes worth speaking of may be said
to have resulted from the introduction of Provincial Finance :—
(1)
Before 1870 balances on all services lapsed to
the Government of India at the close of the financial year. After 1870 all unspent
balances on the services delegated to the management of Provincial Governments remained at
their disposal and formed a part of their resources for the ensuing year.
(2)
Before 1870 Budget estimates on ail services had to be sanctioned by the Government of
India and the Provinces could not undertake any reappropriations between the different
grants for the year, even if it was found necessary, without the previous sanction of the
Government of India. After 1870 the Provinces were left to a greater extent free to
distribute their expenditure in any way they thought proper among the various services
delegated to their management, provided their total expenditure did not exceed the funds
lying in the Imperial treasury to their credit respectively.
[f55]But
by the rules they were required to maintain all the services under their management in a
state of administrative efficiency. Similarly after 1870 the Provincial Government had
complete freedom which they never enjoyed before to carry on reappropriations between the
grants under their management without the sanction of the Government of India, provided
their total expenditure did not exceed the amount budgeted for the year.
For
the purposes of visualisation the financial relationship between the Provinces and the
Government of India may be
likened to the Hindu Joint Family System with the Patria Potestas vested in the latter. Before 1870 the similarity
between the two was more or less exact. Like the family property of the Hindus the
revenues of India were jointly enjoyed by all the departments whether under Central or
Provincial management without metes and bounds being fixed to the shares of any one of
them. After 1870 the only change that took place consisted in the cesser of commensality and the
fixing of metes and bounds to the shares of each in the common property according to their
respective needs. The system remained a joint family system, although separate accounts
were opened by the head of the family, namely the Government of India, to guard against
any member overdrawing the amount placed to his credit.
Were
these results worth striving for? On the results achieved in consequence of Provincial
Finance a variety of opinion has been expressed. But if we judge of the results as we
ought to in the light of the antecedents that gave rise to the system in 1870, it cannot
be said that the hopes entertained were in any way belied. It is only when critics, solely
because of their misunderstanding of the nature of Provincial Finance, sought for results
which were never intended by its promoters that an adverse pronouncement came to be made.
But if we keep clear of these misunderstandings and never lose sight of the fact that in
1870 what the Provinces wanted was freedom and the Government of India stability, none can
assert that this compromise between Imperialism and Federalism
was tried in vain. How great was the freedom gained by the
provinces can be appreciated only when it is realised that before 1870 the Governor of
Bengal could make
“no
alteration in the allowances of the public servants.... establish
a new school or augment the pay of a daroga (watchman) to
the extent of a Rupee”[f56]
nor
could the Governor of Bombay have. a lock made[f57]
without a vote of the Council of India. Nor can the importance of the large measure of
stability derived from it be fully realised unless it is borne
in mind how before 1870 the Government of India was left
between the devil and the deep sea by having to refuse or to accept the bewildering
demands ranging from dustbins for a Department to education for the people made by the
Provinces on its not too large resources. The Provincial Governments had been saved the
delay and the indignity in having to depend upon the Government of India for sanction of
the meanest of their wants. The Imperial Government on the other hand was saved the
fumbling task of scrutinising the most trivial of demands and grant or reject it, but
always under the apprehension of having done wrong by acting either way. The system not
only gave freedom to the Provinces and stability to the Government of India, but had
replaced the irresponsibility and extravagance which had proved the bane of the Imperial
System by economy and responsibility, for by setting bounds to the funds of the Provincial
Governments the Government of India had ended in setting bounds to itself. These results,
it is true, did not satisfy the critics of Provincial Finance. More in other directions
was expected of it, but that could have been possible only if Provincial Finance was a
system independent in its organisation. So tong as Provincial Finance was a part of
Imperial Finance, inseparably linked to it, it could have yielded no greater results than
have followed from it, and those that have followed are by no means slight.
There,
however, remains the question that, although it was not possible to alter the nature of
Provincial Finance, whether it would not have been feasible to enlarge its scope by
relaxing the limitations imposed upon it by the Government of India without in any way
interfering with the due discharge by it of its own responsibilities. That aspect of the
question will be examined in the next chapter.
CHAPTER
IX
THE
ENLARGEMENT OF THE SCOPE OF PROVINCIAL FINANCE
It
used to be made a matter of complaint that the system of Provincial Finance was unjust in
that under it the Government of India conscripted, at every revision of the financial
settlement, the increases in the revenues given over to the management of the Provinces,
either for its own benefit on the pretext of meeting the requirements of the Central
Exchequer or for the benefit of such of the Provinces as had by inertia not cared to
improve their resources on the pretext of tempering the wind to the shorn lamb. There was
a good deal of truth in this complaint in the early period of Provincial Finance. Being
the custodian of the funds, the Government of India did
often put the consideration of Imperial Services above that for the Provincialised
Services. In the early period of Provincial Finance the prevailing idea[f58]
in the distribution of funds was not how much of the revenues assigned under the expiring
settlement could be continued to be usefully spent on heads of expenditure controlled by
Provincial Governments, but how much of the general revenues consistently with its
obligations, and having regard to the growth of demands upon its resources during the
currency of the settlement, could the Government of India surrender for a further period
to the Provincial Governments in order to enable them to meet whatever expenditure was
essential to the conduct of their administration. This attitude of the Government of
India, justifiable as it was by the financial stringency of the period, changed as the
financial condition became easy, so that in the latter period
"the
distribution of revenues between the Provincial and Central Governments was made, except
on occasions of grave emergency, with direct reference not to the needs of the Central
Government, but to the outlay which each Province might reasonably claim to incur upon the
services which it administered. The first step taken in concluding a settlement was to
ascertain the needs of the Province and assign revenue to meet them; the residue only of
the income of the Province coming into the Imperial
Exchequer."[f59]
With
the shifting of emphasis on the competing needs of the Central and Provincial Governments
the complaints on the score of unfair distribution of funds ceased, and no fear of an
adverse revision remained when the settlements were declared permanent. There, however,
remained the other main objection to the system of Provincial Finance, namely, that the
limitations imposed upon it tended to reduce the Provincial Government to a nonentity by
restricting the scope of their activity within the field allotted to it.
It
was said that if the system of Provincial Finance was inaugurated on the understanding by
which the Government of India said to the Provinces
"
Take what we are able to give you, and for the residue take certain powers of taxation and
raise it yourself.... for there are subjects which can be
dealt with far better by local than by imperial taxation,"
there
was no reason why the Provinces should not have been allowed the freedom to tax. Again, if
certain resources had been made over to the Provinces, what justification was there in not
allowing them to raise loans for promoting purposes of local utility? This restriction was
particularly resented; for , it was pointed out that even
the humblest local Authority in India enjoyed the power to raise loans to effect
improvements in its respective jurisdiction, while such an important polity as a
Provincial Government was deemed unworthy of shouldering such a responsibility. Indeed it
was felt as a most galling restriction, for under it it
happened that a Provincial Government which was deemed to have enough credit to be
accepted as security by the Government of India against loans to other local bodies
subordinate to it, was ruled to have no credit to pledge in its own behalf!
What,
again, was the justification for limitations on the spending powers of the Provincial
Governments in the matter of staff and establishments? If the administration of certain
services had been entrusted to the Provincial Governments, why should they have been
circumscribed in the matter of creating new or abolishing old appointments or revising the
establishments of their departments? If under the system of Provincial Finance the
Provinces were responsible for the services they managed, why should they not have been
trusted with powers to make needful changes in the agencies which carried out those
services?
Further,
it was asked, what justification was there for the limitations on the preparation and
execution of the Provincial Budgets? If separate Budgets had been carved for each of the
Provinces out of what once formed an Imperial Budget for the whole of India, why should
the Provinces have been required to submit their Budgets to the Government of India?
Merely as a matter of conveying information the requirement was comparatively of a
trifling character. But why should the Government of India have claimed to alter their
estimates and compel them to abide by the grants as fixed by it? Was such a scrutiny of
Provincial Budgets a cover for dictating a policy to the Provincial Governments? If this
was so, what was the scope for initiative and freedom left to the Provinces which it was
the primary object of Provincial Finance to promote and of the permanent settlements to
ensure? Again, why should a Provincial Government have been required to come to the
Government of India for a supplementary grant as it had to do where the excess over
estimates could not be met by reappropriations, even when it had balances to its credit so
sufficient as not to be reduced below the required minimum by a draft to meet the excess?
For
each of these limitations which fettered the Provincial Governments and contracted the
scope of Provincial Finance, the Government of India was of course ready with abundant
excuses.[f60]
In the matter of revenue restrictions it urged that the revenues of India were its
constitutional possession for the proper disposal of which it was responsible to the
Secretary of State and Parliament. That being the case it was fair that the Government of
India should require that the sources assigned to the Provinces should not be alienated
nor spent on unauthorised grants or unapproved services. Again, being responsible for all
services it followed that the Government of India could not have afforded to weaken its
position as to managing the resources of the country by partitioning the taxing or
borrowing powers. The field for taxation in India being considerably limited, an
indiscriminate levy of taxes by a competing authority, it was feared, would have led
either to discontent by additions[f61]
to the Imperial imposts or to a retrenchment of the field for Imperial taxation. The
concentration of borrowing powers in its hands, the Government of India urged, was a
natural corollary of the statutory hypothecation of all India revenues to all-India needs.
The Government of India could not allow its revenues to be mortgaged by a Provincial
Government for its own needs. Besides it was afraid
[f62]that
if this freedom to borrow were granted
"the
temptation to hypothecate revenues in advance might become inconveniently strong, and the
future administration of a Province might be starved because a former Government had been
in a hurry to proceed with some costly ambitions and non-productive project."
Moreover,
the loan market in India, it was said, was as limited as the taxable capacity of the
country. Therefore
"if
many buckets are dipping into one well and drought cuts short the supply of water,
obviously the chief proprietor of the well must take it upon himself to regulate the
drawings."[f63]
In the matter of specific restrictions on spending powers with respect to staff and
establishments, the defence of the Government of India was that such restrictions were
necessary in the interest of uniformity and economy. It was urged that if each province
was allowed the freedom to regulate the remuneration of the Public Service which carried
on the actual work of administration the result would probably have been unequal pay for
equal work. Such a consequence would have engendered discontent in the servants of the
State which it was desirable to prevent in the interest of good administration. Again, if
the Provinces had been given full freedom to revise establishments it might have resulted
in considerable additions to the recurring expenditure of the Provinces, thereby
jeopardising the stability of the Provincial as well as of the Imperial finance, for in
the last resort the Government of India was responsible for maintaining the Provincial
Governments.
In the matter of control over the preparation and execution of Provincial Budgets the Government of India urged that the scrutiny was not motivated by a desire to control an unwelcome policy, [f64]but was inevitable because of the three important ties by which the Provincial Budgets were bound up with the Budget of the Government of India. These were (1) the incorporation of the income and expenditure of the Provincial Governments into the Budget and the Annual Accounts of the Government of India as an integral part thereof; (2) the system of divided heads of revenue and expenditure, and (3) a common treasury involving a combined " ways and means " for the transaction of the Central and Provincial Governments. The first two points of inter-relation required that the Government of India should examine the Budget Estimates of the Provincial Governments. It was urged[f65] that the power to make such alterations was rendered specially necessary by the inveterate tendency of local Governments to over-estimate their expenditure and under-estimate their revenue. Estimates which departed widely from actuals meant bad finance and also a provision of larger ways and means for the working of the Treasury. But even if this tendency was absent it was incumbent on the Government of India to scrutinise the Provincial Estimates in order to preserve accuracy in the combined accounts. Besides the interests of accuracy, the Government of India had to ascertain by a scrutiny of their estimates that a Province did not impair the stability of its finances by (1) including in its budget expenditure on schemes which had not received due administrative sanction, or was not likely to receive such sanction in time to be incurred during the year; or (2) by entering on an enhanced scale of expenditure a Province was not unduly depleting its balances. But by far the strongest reason why the Government of India needed to scrutinise the Provincial Estimates consisted in the fact that in so far as some of the Heads of Accounts were shared, the ultimate result of the Central Budget, whether there was to be a surplus or deficit, depended upon the accuracy of the estimates. The Government of India, it was urged, was thus directly interested in the Provincial Budgets, and could not have abandoned its right to scrutinise them without exposing its budgetary system to serious derangement. The third point of inter-relationship necessitated that the Provincial Governments should work within the grants as fixed finally by the Government of India. To have allowed the Provincial Governments the liberty to exceed the grants because they had ample balances to their credit would have been incompatible [f66]with the responsibility of the Imperial Government to provide the ways and means for the whole administration of the country. A provincial balance, it was pointed out, was not a separate balance locked up in a separate provincial chest. It was a part of the general balances on which the Government of India operated daily. If a sudden demand uncontemplated in the Budget were to be made upon these balances, as would have been the case if the Provincial Governments had exceeded their budget grants, it would have disturbed the ways and means transaction and would have involved the Government into insolvency by causing insufficiency of cash.
All
these defences of the restrictions on Provincial Governments were plausible defences and
could have been decisive if the centralised system of administration in favour of which
they were urged could be deemed to have satisfied the ends of good government. But it was
not unreasonable to argue as was done by the Provincial Governments[f67]
that modern tendencies were all moving in the direction of forms of government which
placed fullest powers as tow down in the administrative scale (i.e. as near the section of
population immediately affected) as could be safely arranged. It is reasonable to
centralise such powers as could not be efficiently exercised otherwise. But it is equally
unreasonable to centralise powers where central control or uniformity is not clearly
essential or is impracticable. By centralisation all progress tends to be retarded, all
initiative liable to be checked and the sense of responsibility of local Authorities
greatly impaired. Besides, centralisation involves and must involve a serious sacrifice of
elasticity, for it is naturally disagreeable to a central department to have to deal with
half a dozen different ways of managing the same branch of administration, and which
therefore aims at reducing all types to one. Further centralisation conflicts with what
may be regarded as a cardinal principle of good government, namely, that when
administrative business reached an authority fully competent to deal with it, that
authority should deal with it finally. Even when there is a higher authority equally
competent, to pass the business on to it would at best help to transfer power to the hands
of the tower ranks of the official hierarchy, by causing congestion of business in the
Central Department. Thus centralisation, unless greatly circumscribed, must lead to
inefficiency. This was sure to occur even in homogeneous states, and above all in a
country like India where there are to be found more diversities of race, language,
religion, customs and economic conditions than in the whole continent of Europe. In such
circumstances there must come a point at which the higher authority must be less competent
than the tower, because it cannot by any possibility possess the requisite knowledge of
all local conditions. It was therefore obvious that a Central Government for the whole of
India could not be said to possess knowledge and experience of all various conditions
prevailing in the different Provinces under it. It, therefore, necessarily became an
authority less competent[f68]to
deal with matters of provincial administration than the Provincial Governments, the
members of which could not be said to be markedly inferior, and must generally be equal in
ability to those of the Central Government, while necessarily superior as a body in point
of knowledge.
To
these arguments the only reply the Government of India could make was that it concentrated
all power in its hands, not from principle but from necessity. That necessarily arose out
of its constitutional obligations. The law had invested it with the superintendence,
direction, and control of the civil and military government and the ordering and
management of the revenues of the country. It could not therefore relax its control over
the powers it had delegated to the Provincial Governments. It was, of course, impossible
to deny the force of this argument. So tong as the Government of India remained the authority solely responsible to Parliament it was
reasonable to hold that it should be the controlling authority in all matters pertaining
to the administration of the country. But it was equally reasonable to ask whether it
would not have been possible in the interests of cordiality between the Central and
Provincial Governments to have relaxed such of the restrictions on the financial powers of
the Provinces as would not have been incompatible with the due discharge by the former of
its own responsibilities. That it was possible so to enlarge the scope of Provincial
Finance by a relaxation of the limitations without injury to the position of the
Government of India must be said to be evident from the following
analysis of the suggestions made by the Provincial Governments. These suggestions were
(i) Power of taxation and borrowing on the security
of Provincial Revenues.
(ii) Power of sanctioning expenditure on Staff and
Establishments up to a limit higher than that allowed by the Government of India.
(iii) Separation
of Provincial Estimates from the Imperial Budget and Accounts.
(iv) Abolition
of the system of divided heads of revenue and expenditure and the replacement of it by a
system of separation of sources and contributions from the yield.
(v) Power
to spend part of their balances up to a defined amount, without the previous sanction of
the Government of India in meeting an excess of expenditure over Budget Estimates.
What
objections were there, from the standpoint of the constitutional responsibilities of the
Government of India, to the grant of these demands? Clearly it was possible for the
Government of India to have marked off certain sources of taxation best suited for
provincial levy and unconnected with the imperial imposts. Similarly it was possible to
have permitted the Provincial Governments to borrow to a limited extent on the security of
the revenues assigned to them. To suggest as did the Government of India, that the
Provincial Governments would abuse these powers to the extent of causing discontent or
jeopardising the stability of their financial system, was to believe that such legally
recognised polities as the Provincial Governments were run by incompetent administrators
unmindful of their obligations. The second demand could have been granted with greater
ease. It is to be noted that the Civil Service of the country which deals with revenue and
general administration has been divided into
(i)
The
" Indian Civil service "recruited in England by
competitive examination, at which natives of India, like other subjects of His Majesty,
can compete; and
(ii)
The
" Provincial " and
" Subordinate "
Civil Services, recruited in India, and, as a rule, only open to persons who are natives
of the country or domiciled therein.
Each
Province has had its own separate " Provincial " and " Subordinate " Services, but while it has a free hand in recruiting
for the latter, appointments to the former have been regulated by rules laid down by the
Government of India. That being the case it would have been only logical that the
Government which had the power of recruiting for an appointment should also have the power
of regulating the salary. There can be no reason why the salaries of posts of similar
grades should be equal in all Provinces; nor can they be equal having regard to the
differences in the economic conditions of the Provinces. A local Government knows better
the economic value of a local man, and should therefore have been trusted with powers up
to a limit covered by the Provincial and Subordinate Services. The suggestion of the
Government of India that the grant of such powers would have resulted in heavy additions
to the recurring expenditure of a Province must be said to be too ungracious to be taken
seriously.
The
acceptance of the third recommendation could not have in any conceivable way affected the
responsibility of the Government of India. The only objection which the Government of
India urged was that such a separation would have been unwise. To have published accounts
or estimates of the Imperial Government which excluded the accounts of the Provincial
Governments, when the items excluded covered such a large magnitude, would have misled the public and rendered a wholly incomplete
idea of the financial position of the Government of India.[f69]
Now it must be granted that if such a separation of accounts could have avoided the
scrutiny and the consequent restraint on budget-making by the Provinces, not to have done
so was to have put the supposed convenience of the student of Accounts above the
administrative convenience of the Provincial Governments. Besides, it is to be pointed out
that the suggestion was not a novel one. It was only a
revival of the old practice which obtained between 1871 and 1877. During that period of
financial decentralisation Provincial figures did not appear in the Imperial Budget.
The Provincial Budget as framed by the Accountant
General was passed by the Provincial Government and no more reference was required to the
Government of India except to inform it that the estimate was a probable one and that it
was within the limits of the revenues assigned to the Province. It is therefore obvious
that there could not have been any constitutional objection to the granting of the demand
for a separation of accounts.
The
fourth recommendation was of the same class as the third, in that it too could not be said
to have involved any infringement of the constitutional responsibilities of the Government
of India. The abolition of the divided heads of revenue would have clearly eliminated the
interference of the Government of India in the preparation of the Budget Estimates by the
Provinces. Similarly the abolition of the divided heads of
expenditure would have given the Provinces greater[f70]
freedom in the matter of spending the revenues assigned to them. Under that system a
Provincial Government could not spend more on a particular service if it was a divided
head unless the Government of India consented to increase its figure for expenditure under
that service. If the Government of India reduced its figure the Provincial Government was
perforce obliged to reduce its own. The substitution of a system of separation of sources
and contributions from the yield for the system of divided heads would have clearly
resulted in a greater freedom to the Provincial Governments, without any evil consequence
to the Government of India. The objections which the Government of India was able to
oppose to this demand was far from convincing. It was urged[f71]
that the Provincial Governments under complete separation may cease to take such interest
as it took in respect of revenues which were divided. But it is evidently a mistaken view
that a Provincial Government could not have been trusted to administer a tax efficiently
unless it had a financial interest in the result. This view
supposed that the people engaged in the collection of revenue really knew whether it went
to the Imperial or the Provincial credit. As a matter of fact the ultimate credit could in
no way have affected the collection of the revenue. And even if that view were true the
difficulty could easily have been met by each government having its own staff to collect
its own revenues. The employing by one Government to execute
its functions the agencies of another, as has been the case in India, is obviously a
complicated and awkward system. If separation of agencies had resulted from the separation
of sources it would have been a reform all to the good. Besides it was overlooked that the
fact that the divided heads gave a personal interest to the Provincial Governments was
indeed a point against the system rather than in favour of it. A system which created a
vested interest in a revenue apart from the interest of the public was a bad system, for
such an interest was sure to lead to harshness and rigidity in collection.[f72]
As an instance of this may be cited the notorious unwillingness of Provincial Governments
in the matters of remitting taxation[f73]
If humanising the Provincial Governments was a desirable end, then the abolition of
divided heads was a good means. The other objection which the Government of India was able
to oppose was that such a change would have given the share of the Government of India
from the revenues raised in the provinces the character of a tribute, and the Government
of India would have appeared to be the pensioner of the Provincial Governments, depending
upon them rather than controlling them. This objection must be ruled out as being
sentimental.
The
fifth and the last suggestion for the enlargement of the scope of Provincial Finance was
least obnoxious to the responsibility of the Government of India. There is no reason why
there should have been a single-treasury system for both the Governments, Provincial and
Central. It is true that a common treasury permits a high state of economy in the cash
balances of the country, which it is the duty of every Government to effect, just as any
business firm looks upon it as its duty to economise its till money or floating cash. But
if a common treasury hindered the use of the balances the
gain in freedom would have more than compensated the toss involved by the increase in the
cash balances that would have followed the institution of separate treasuries and separate
ways and means. But the demand of the Provincial Governments did not ask for a complete
separation of Provincial balances from the balances of the Central Government involving separate
treasury system and separate ways and means, probably because they anticipated that as
such a proposal meant separate possession of provincial revenues the Government of India
would raise a constitutional objection to such a demand. All they asked for was a power to
spend part of their balances up to a defined amount without reference to the Government of
India. The suggestion was accepted[f74]
as
" reasonable," for its consequences, provided it
was not a big amount, would have been not a deprivation of
the Government of India's power of control over nor a disturbance in the ways and means,
but only a slight increase in the cash balances of the country.
Thus
it is clear that the scope of Provincial Finance was unduly restricted by a too narrow and
too legalistic an interpretation of the constitutional
obligations of the Government of India. From the above analysis of the suggestions made by
the Provincial Governments it is clear that without making any breach in the
constitutional position of the Government of India it would have been possible, with a
more charitable view of their sense of responsibility, to effect the changes they desired.
Such concessions would have made Provincial Finance as self-sufficient and as autonomous
as it was capable of being made. The system would no doubt have rested on pure convention:
none the less its benefits would have been as real as though it was based on law.
But
the time had arrived when the financial arrangements could no longer be looked upon as a
matter which concerned the Central and Provincial Governments. There arose a third party
whose counsels were rejected in 1870 but which now insisted
on having a voice in the disposition of the financial resources of the country. It was the
Indian taxpayer, and his clamour had grown so strong that it compelled the powers that be
to alter the system so as to permit him to take the part he claimed to play.
The
changes that followed upon this event will form the subject-matter of Part IV.
[f1]Financial
Department Resolution No. 3334 dated December 14, 1870
[f2]Financial
Department Resolution No. 1709 dated March 22, 1877
[f3]Financial
Department Resolution No. 1142 of March 17, 1892.
[f4]Financial
Department Resolution No. 3551 dated August 11, 1897a
[f5]5
Financial Department Resolution No. 249-E.A. dated July 15, 1912.
[f6]Rule
4 (3) (a) of 1897
[f7]Rule
10 (1) of 1912
[f8]3
Rule 4 (3) (b) of 1897
[f9]Rule
10 (4) (a) of 1912.
[f10]Rule
4 (4) of 1897.
[f11]Rule
10(3) of 1912.
[f12]1Rule
10(9) (a) of 1912
[f13]Rule
10 (9) (b) of 1912
[f14]3Rule
10 (6) of 1912.
[f15]1Rule
7 of 1877 and 14 of 1897
[f16]2Rule7of1877and
14 of 1897.
[f17]3Rule
1 (8) of 1877, 4 (1 1) of 1897, and 5 (6) of 1912.
[f18]4Rule
1 (1) of 1877 and subsequent Resolutions
[f19]5Rule
1 (6) of 1877, also embodied in subsequent Resolutions. *
[f20]6Rule
5 (13) of 1912. It is surprising that the various resolutions on the subject of provincial
Finance prior to 1912 do not contain this ruling, though it cannot be doubted that it has
been in operation since the commencement of provincial Finance. In the absence of a
specific ruling prior to 1912, attention may be invited to the Resolution reviewing the
Financial Statement for 1879-80, where it is said " so tong, therefore, as a local
Government does not incur debt (which is absolutely
forbidden), there is etc., etc." F.S. 1878, Calcutta, p. 5.
[f21]Rule
5 (5) of 1912
[f22]2Rule
4 (10) of 1897
[f23]3Rule
10 (12) (a) of 1912
[f24]Rule
10 (12) (6) of 1912.
[f25]5Rule 10 (10) of 1912.
[f26]6Rule
10 (7) of 1912
[f27]1Rule
10 (8) of 1912.
[f28]2 Rule 11 of 1897, also embodied in subsequent
Resolutions
[f29]3Rule
4 (2) of 1897.
[f30]4
Rule 5 (1 1) of 1912
[f31]5
Rule 10(11) of 1912.
[f32]1Rule
10 (4) of 1912.
[f33]2Rule
10 (6) of 1912
[f34]3Rule
10 (15) of 1912.
[f35]4Rule
10 (17) of 1912.
[f36]5Rule
10 (18) of 1912
[f37]6Rule
10 of 1877, also embodied in subsequent Resolutions
[f38]7Rule
10 (13) of 1912.
[f39]Rule
11 of 1892, 13 of 1897, and 19 of 1912.
[f40]2 Rule 8 of 1892
[f41]3Rule
21 of 1912.
[f42]4Rule
21 and 22 of 1912.
[f43]1Rule
24 of 1912.
[f44]2Rule
25 (1) of 1912
[f45]3Rule
1 (a) of 1897 also embodied in subsequent Resolutions.
[f46]4Rule
4 (2) of 1897.
[f47]1
Rule 30 and 31 of 1912. 2 Rule 5 of 1877 ; Rule 15 of 1897; and Rule 6 and 7 of 1912
[f48]Para
25 of the Final Report
[f49]Cf.,
however, Indian Expenditure Commission Minutes of Evidence, Vol. 3, Q. 18094, and
Decentralisation Commission Evidence, Vol. 2, Q. 9497
[f50]1
See Report of the Royal Commission on
Decentralisation (hereafter abbreviated into R.C.D.)
[f51]'
Cf. Despatches to the Government of India No. 51, dated February 16, 1882, and No. 208,
dated July 6, 1882
[f52]Financial
Statement, 1897-8, p. 1 10, etc.
[f53]'Of
course, it is not necessary that there should be a federal system. A legalised system of
decentralisation will be equally compatible with separation of sources and contributions
from the yield.
[f54]'
The remarks made by Captain Pretyman, M.P., in his evidence before the Royal Commission on
local taxation in England with regard to the revenues assigned to local Governments may be
cited in this connection. He said: " I absolutely hold that it is imposible to say
that you give a contribution from Imperial Taxation from a particular source. A man might
just as well pour a bucket of water into a pond and then go and hook it out again and say
that he had hooked out the same bucket of water. The taxes are paid into the Imperial
Exchequer and the contribution is made from the Imperial Exchequer, and to say that you
select a particular sum of money as the produce of a particular tax and that you hand that
over is, I think a fallacious statement altogether."
Vol.
1 of Min. of Evid. C. 8763 of 1898, Q. 9873.
[f55]1Whether
they could materially alter the distribution of the grants on the different services
delegated to them is doubtful. In his despatch No. 30, dated December 10, 1874, in the
Revenue Department, on a proposal by the late tord Hobart, Governor of Madras, to
discontinue the grant made from provincial funds for Roads and to devote the money to
education, the Secretary of State wrote ; " I am unable to reconcile it with the
principles which govern the so-called provincial administration of the revenue. I am not,
indeed, of opinion that the same relative proportion which existed, on the introduction of
the system, between the services made over and the expenditure upon them, should always be
maintained. But I agree with Mr. Sim, that there was an implied engagement to maintain all
these departments in full efficiency and integrity and an implied understanding that no
one of them should be wholly sacrificed to the others, or to any others. The new financial
arrangements in question were most fully discussed, both by the various Indian Governments
as constituted at the time, and by the Home Government. During this discussion it was
certainly never suggested that an effect of the change might be to put a stop to the
construction of new roads in some parts of India: if such an eventuality had been
considered probable, I doubt whether the change would have been made."
[f56]1
Calcutta Review, Vol. 3, p. 169.
[f57]Report
of the Committee on the Affairs of the East India Co., 1852, Vol. 10
[f58]Finance
Department Resolution No. 458 of January 28, 1881
[f59]1
Finance Department Resolution No. 27 dated May 18, 1912
[f60]1
In this connection, of. Evidence of Mr. J. S. Meston before the Royal Commission on
Decentralisation. Mit. of Evid., Vol. X, Q. 44807—45336.
[f61]1
Between 1870 and 18.79, when the Provinces had a freer hand in the matter of local
taxation, all of them selected the already overburdened basis of taxation, viz. land for
their levy.
[f62]2
R.C.D.
Mit. of Evid., Vol. X, Q. 45310
[f63]3Report
on Indian Constitutional Reforms, Cd. 9109 of 1918, p. 94, hereafter called Joint Report.
[f64]1
R.C.D., Mit. of Evid., Vol. X, Q. 44981
[f65]2
R.C.D., Mit. of Evid. Vol. X Q. 44863.
[f66]1
R.C.D., Mit. of Evid., Vol. X, Q. 44865
[f67]2
In this connection see the very trenchant memorandum by the Government of Bombay on
Decentralisation, R C. D., Mit. of Evid., Vol.
VIII, Appendix II
[f68]1
In this connection it may be of interest to draw attention to the semi-serious suggestion
made by Mr. A. C. togan, in which he argued that if decentralisation " cannot be
effected then there is an alternative method of so remodelling the constitution of the
Government of India as to replace the present departments by departments of various local
areas each with its own Secretary and Member; thus there should be a department of Bombay
with Secretary and Member appointed from that Province dealing with all Bombay questions
and the like for other (six) provinces. Thus each Province could govern itself from
Calcutta under the supervision of the Governor General,"—Vide R.C.D., Mit of Evid., Vol. Vlll, Q. 35531.
[f69]1
R.C.D., Mit. of Evid., Vol. X, Q. 44866,
45179-180
[f70]1
R.C.D., Mit of Evid., Vol. VIII, Q. 35225-28
[f71]2
Ibid. Vol. IV. Q. 15100 16791
[f72]Cf.
in this connection The Fee System, by Prof.
Urdhal
[f73]R.C.D.,
Mit of Evid., Vol. X, Q. 44866.
[f74]1R.C.D.,
Mit of Evid., Vol. X, Q. 44900.