THE EVOLUTION OF PROVINCIAL FINANCE IN BRITISH INDIA

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PART II: PROVINCIAL FINANCE : ITS DEVELOPMENT

 Contents

 Budget By Assignments

 

PART II

PROVINCIAL FINANCE : ITS DEVELOPMENT

CHAPTER IV

BUDGET BY ASSIGNMENTS

1871-72 TO 1876-77

 

The origins which led to the formulation of the scheme of Provincial Budget having been presented in the foregoing part of this study, we may now proceed to examine the constitution of the scheme as it was introduced and the changes which it underwent from time to time.

With his sureness of instinct Lord Mayo traced the financial deficits and surprises to the inefficiency of the Imperial and the irresponsibility of the Provincial Governments, and was led to the conclusion that the inauguration of Provincial Budgets was the only remedy equal to the malady. But it must be recalled that the situation was yet dominated by Imperialistic considerations, and while every one in charge of the affairs was desirous, even anxious, to ease the situation by some means or other, few were willing to do so at the cost of Imperial control. Even Lord Mayo was not without his Imperialistic leanings. But the force of the baffling circumstances compelled him to break through the hitherto prevailing spirit of hesitation and indecision, although the steps he took in determining the constitution of the Provincial Budget were slow and cautious.

The scheme which actually came to be introduced from the financial year 1871-2 was first adumbrated in a confidential circular of the Home Department of the Government of India, dated February 21, 1870. Enlarging upon the policy of retrenchment by which the road grant for 1869-70 fixed in the beginning at 1,236,000 came to be reduced at the close of the year to 1,021,178 and that estimated for 1870-1 at 1,000,000 came to be finally settled at 784,839 supplemented by 29,110 for Miscellaneous Public Improvements, the circular gave the Provincial Governments

" to understand that the diminution that has been made in the  Imperial grant for communications and roads is not a temporary diminution caused by present financial pressure. It is the result of a settled policy, deliberately adopted, independently of temporary considerations, and it is far more probable that in future years the special grant for these purposes will be reduced than that it will be increased. It therefore becomes a matter of very urgent necessity that no time should be lost in providing from local sources the funds necessary for the maintenance of the existing provincial and district roads, and for the construction of the new lines of communications which become every day more necessary."

That local wants should be met by local resources had been the ideal of Indian financiers during the entire period of its reconstruction. But that the view had by that time passed beyond the stage of academic discussion is obvious, for the Circular stated that " the Governor-General in Council had fully resolved that he will insist on full effect being given to this principle " in future. Many of the Local Governments took the sentiments of the Government of India conveyed in the Circular in all the seriousness in which they were meant to be taken and had begun to develop their local resources. In the Bombay Presidency a cess of 6 1/4 per cent. on the Land Revenue was levied and two-thirds of it was set aside for roads and works of public utility. The Madras Government under an old Act of 1866 levied a cess of one-half of an anna on every rupee of annual rental equal to 3 1/8 per cent. on the Land Revenue for purposes of district roads. The Bengal Government had declared its intention to follow the Madras Presidency. Encouraged by the steps taken by these Local Governments the Circular urged upon other Local Governments and Administrations   in Northern India, namely, North-Western Provinces, Punjab, Oudh and Central Provinces, to consider the expediency of increasing their road cesses on the land revenue to 5 per cent. The object of the move evidently was to relieve the Imperial treasury of the road grant, once the Provincial Governments were in possession of adequate local revenues.

In this way the Circular contemplated a very meagre scheme of Provincial Budget, incorporating only the charges on local public improvements and the revenues derived from local resources to meet them. But before it could be set into operation the financial difficulties of the Government of India called for a larger measure of relief. Bad as the position already was, there was little confidence to be placed in the stability of the opium revenue; and while there was practised a retrenchment in expenditure, the charges for interest on public debt was found to swell enormously. In the midst of such a precarious situation the Government of India decided to reduce the hitherto prevailing rate of the income tax in order to silence the outcry raised against it by the richer classes. As a possible method of ways and means to meet the additional deficit of 1,000,000 that was expected to arise from the reduction in the income tax rate, the Government of India issued another Confidential Circular, dated August 17, 1870, in which a much wider scope was given to the contemplated scheme of provincial Budgets. It was stated in this Circular that

" If the income tax was to be reduced, the ways and means of government must be otherwise recruited...... preferably...... through the agency of Local Governments, and by adopting such methods of taxation as are considered most suitable to each province and least burdensome to the people."

The method of throwing the burden on Local Governments consisted in making over to them charges of certain departments of the administration more or less local in character with a net grant on them for 1870-1 reduced by a million sterling[f1] . It was proposed to distribute this sum among the various provinces in the proportion which the net provincial grant of each bore to the total net grant and leave them free to make up their respective quota of retrenchment either by redistribution, retrenchment, or taxation.

After the concurrence of the Provincial Governments had been obtained to the plan of the Circular, it was announced by the famous Financial Resolution of December 14, 1870, as being adopted for execution from the commencement of the Financial year 1871-2.

We will now proceed to analyse the constitution of the Provincial Budgets as framed by this Resolution. Taking first the expenditure side of the Provincial Budget, it may be noted that the charges for the following Imperial services were incorporated into it :

 

1[f2] . Jails

2. Registration.

3. Police.

4. Education.

5. Medical services (except Medical establishments).

6. Printing.

7. Roads.

8. Miscellaneous, Public Improvements.

9. Civil Buildings.

 

To provide the Provincial Governments with funds to meet the above charges incorporated into their budgets the Government of India surrendered to them the receipts which accrued from services handed over to them with an additional assignment from the Imperial fisc to bring about an equilibrium. The receipts surrendered and assignments granted to the Local Governments were as follows:

Assignments made to Provincial Governments for services incorporated into their Budgets by the Financial Resolution No. 3334 dated December 14, 1870.

Services incorporated into Prov. Budgets.

Imperial Assignments for Services

Oudh

C.P.

Bt. Burma

Bengal

N.W.P.

Punjab

Madras

Bombay

Total

 

Jails

26,922

27,881

32,777

218,210

88.394

 58,204

91,983

73,440

617,811

Registration

 

3,509

 

36,609

20,129

11.623

22.970

25,372

120,212

Police

103,269

130,607

139.253

555,757

348.135

289.950

350,730

388,703

2,306,409

Education

26,056

27,864

10.998

234,385

103.528

64.909

90,052

118.271

676,063

Medical services (except Medical establishments)

5,049

11,770

6,460

89,713

27.607

24,935

61,696

74,852

302.532

Printing

7,609

3,640

3,000

41,732

25,302

14,106

25,840

27,050

148,279

Roads and misc. public improvements

32,900

63,403

63,000

157,800

82.636

84.200

123,880

121,900

729.819

Civil buildings

20,090

14,406

23,959

111,370

63,341

39,710

58,506

107,500

438,882

Public Works Establishments

13,777

20.230

22,635

69,984

37,954

32,217

47.421

59,644

303,862

Tools and Plant

1,060

1,556

1.741

5,383

2,920

2,478

3,648

4,588

23,374

Total

237,182

304,866

303,923

1,520,943

799,946

622,332

876,726

1,001,320

5,667.243

 

Estimated Receipt of the Services

Jails

1,575

6.000

9,420

110,385

11,154

 

7,300

664

146,498

Registration

 

5,500

 

40,000

35.030

20.694

34.000

30,141

165,356

Police

10,586

12,520

18.671

70,363

51.730

41.724

32,350

14,000

251,944

Education

1,482

 

500

42,012

11,050

5,000

6,900

10,480

77,424

Printing

1,080

 

 

2,000

2,160

 

1,260

 

6,500

Total

14,723

24,020

28.591

264,760

111,124

67,418

81.810

55.285

647,731

Grand Total of net assignments

222,459

280.846

275,332

1.256,183

688,822

554,914

794,916

946,040

5,019,512

Constructed on the basis of figures given in the resolution of December 14,1870.

 

These would have been the total assignments to the Provincial Governments for meeting the charges on the incorporated services, had it not been for the fact that the Government of India desired to obtain relief by way of retrenchment of the provincial resources to make up for the deficits expected to follow the reduction in the income tax. The relief originally fixed at 1,000,000 was reduced to 350,000, distributed rateably among the various provinces. Taking account of these retrenchments the permanent assignments made to the provinces were as shown below:

PROVINCES

NEXT

ASSIGNMENTS

PROPORTION

OF

RETRENCHMENTS

PERMANENT

ASSIGNMENTS

Oudh

222,459

15,511

206,948

C.P.

280,846

19,583

261,263

Burma

275,332

19,199

275,332

Bengal

1,256,183

87,591

1,168,592

N.W.P.

688,822

48,030

640,792

Punjab

554,914

38,693

516,221

Madras

794,916

55,428

739,488

Bombay

946,040

65,965

880,075

Total ...

5,019,152

3,50,000

4,688,711

For conversion into Rupees, 1 equal to Rs. 10.

 

Before the commencement of the time appointed to carry the scheme into practice the Government of India incorporated the following additional services[f3]  into the Provincial Budgets :

The Charges for Petty Construction and Repair of Buildings in the Civil Department excepting the Opium Department in Bengal, the Salt Department outside the Lower Provinces of Bengal and Medical Services such as (1) Salaries of Medical Officers of Medical Colleges and Central Jails, and of Lunatic Asylums at the Presidency towns; (2) Extra allowance to Medical Officers for the Medical charge of Lunatic Asylums in the mofussil, and of Colleges, Central Jails, etc., also extra allowances to Medical Officers for the executive charge of jails, and (3) charges for sub-assistant Surgeons and Apothecaries employed in other than civil medical charge of the sudder stations or districts, and for all other subordinate medical establishments. Side by side with these transfers the Government of India withdrew the Calcutta

 

IMPERIAL ASSIGNMENTS FOR 1871—72*

 

 

Oudh.

C.P.

Bt. Burma

Bengal

N.W.P.

Punjab

Madras

Bombay

Total

 

Assignment as per Resolution of December 1870

169355

205271

192488

1176406

613095

463727

643271

707693

4171306

Add-

 

 

 

 

 

 

 

 

 

Official Postings

1551

5093

 

4893

10840

8031

4163

4311

38882

Transfer from Medical Services

2139

1767

745

6649

5624

2828

7597

8500

35849

Transfer of petty construction and repairs of civil buildings

699

1778

420

6508

2555

1908

1050

4050

18968

Other items net

 

 

 

7866

1485

 

 

4600

13753

 

 

 

 

 

 

 

 

 

 

Deduct

 

 

 

 

 

 

 

 

 

Transfer of Ajmere charges to Govt.Of India

 

 

 

 

28714

 

 

 

28714

Total

173744

213909

193653

1202124

604885

476494

656081

729154

4250044

Deduct

 

 

 

 

 

 

 

 

 

Receipts from Budget of 1870-1

14723

24020

28591

260578

109992

67418

81810

55285

654417

Net charge in Civil Department

159021

189889

165062

941546

494893

409076

574271

673869

3607627

Add budget grant for P. W. as per Res. of 14-12-1870, viz

 

 

 

 

 

 

 

 

 

Roads and miscellaneous public improvements

32900

63403

63100

157800

82636

84200

23880

121900

729819

Civil Buildings

20090

14406

23959

111370

63341

39710

58506

107500

438882

P.W. Establishments

13777

20230

22635

69984

37954

32217

47421

49644

303862

Tools and Plants

1060

1556

1741

5383

2920

2478

3648

4588

23374

Total public works

67827

99595

111435

344537

186851

158605

233455

293632

1495937

Grand total

226848

289484

276497

1286083

681744

567681

807726

967501

5103564

Deduct

 

 

 

 

 

 

 

 

 

Proportion of 350,000

15557

19853

 

88199

46753

38931

55394

66351

331038

Revised permanent assignment

211291

269631

276497

1197884

634991

528750

752332

901150

4772526

Or in round numbers

211300

269600

276500

1197900

635000

528800

752300

901200

4772600

#Add—India

---

 

 

 

 

 

 

 

26700

 

 

 

 

 

 

 

 

Total

4799300

* Based on the Fin. Dept. Resolution No. 1660 of March 20, 1871.

#The item opposite to " India " in the above table is for the Calcutta University and for Prov. services (not including Public Works) in Coorg, Ajmere and other district under immediate administration of the Government of India.—Sir Richard Temple's Financial Statement for 1871-2.

 

University from the Provincial to the Imperial Budget[f4] . To take account of the revision of charges for Official Postage[f5] and Bengal Police[f6] , and the additions and withdrawals of services referred to above, the Imperial assignments to Provincial Governments for the year 1871-2 were further altered so that they stood as shown in the table on the preceding page. (Page 117)

Besides these assignments for the fiscal year 1871-2, the Government of India gave the Local Governments a special donation of 200,000 in the year 1870-1 in order that they " may be able to inaugurate the plan successfully, and to have as it were a fair start." Taking round numbers then, the several Provincial Governments had the following resources[f7]  at their disposal in the year 1871-2 to meet the expenditure incorporated in their budgets:

 

Provincial Budget for

Resources
Total

 

Receipts surrendered by the Imperial Government

Assignments from the Imperial Treasury

 

 

Oudh

14,700

211,300

226,000

Central Provinces

24,000

269,600

293,000

Burma

28,600

276,500

305,100

Bengal

264,800

1,197,900

1,462,700

N.W. Provinces

110,000

635,000

745,000

Punjab

67,400

528,800

596,200

Madras

81,890

752,300

834,100

Bombay

55,300

901,200

956,500

 

Having analysed the constitution of the Provincial Budgets and noted the receipts and charges incorporated into them, we will proceed to inquire into the peculiarity which marks their constitution as framed in 1870-1. No method of ascertaining this peculiarity would be more direct in its approach towards the question raised above than to ask ourselves what problem the framers of the Provincial Budgets were presented with and how it was solved.

 From our knowledge of the history of the controversy that raged over the creation of Provincial Budgets we can say that what items of expenditure to incorporate into Provincial Budgets was no longer a prominent question of the time. Long since it was settled that there were charges in the Imperial Budget of a purely local character. By common consent they were regarded as the most unsatisfactory part of the Imperial Budget. It was admitted on all hands that, knowing nothing about these charges, the Government of India was either obliged to sanction an unnecessary charge which may have been carelessly endorsed by the head of a department having no immediate interest in guarding against the waste of public money, or by a too cautious spirit of a random parsimony, or by parsimony regulated only by the state of public revenue, refuse its sanction and check prudent and profitable expenditure. As either procedure was likely to cause mischief, it was commonly agreed that such matters over which the Central Government by its supreme ignorance was powerless to exercise any control, should be transferred from the direct purview of the Imperial Government to the immediate control and responsibility of the Provincial Government. One side of the problem had thus been solved by sheer force of circumstances. The matter on which all attention was mainly concentrated was the problem of providing the Provincial Governments with funds sufficient to meet the charges incorporated into their budgets. It was allowed on all hands to be reasonable that the receipts arising from the incorporated services should be appropriated by the Provincial Governments. Two good reasons were advanced for adopting such a procedure. It is laid down as a canon of good finance that tax administration and tax appropriation should go as far as possible together. On this principle it was but proper to have allowed the Provincial Governments to appropriate the receipts from the services which they administered. But there was also another weighty reason which influenced this decision. The main idea in the inauguration of Provincial Budgets was to interest the Provincial Governments in a judicious and economical management of the finances, and one way of sustaining their interest in the same was to have given them the receipts of the services they managed. The receipts, however, were so small a portion of the total funds necessary to meet the provincialised expenditure that the problem of balancing the Provincial Budgets remained unsolved notwithstanding. Two possible ways of solution were before the Government of India at the time : either to transfer for provincial uses certain sources of Imperial revenue or to give a lump assignment from the Imperial treasury. It was difficult for a time to decide which was the more suitable of the two, for they were not only of unequal merits, but they made different appeals to the different parties concerned. To the Provincial Government assignment of revenues was preferable to fixed assignments as giving greater elasticity to their finances. To the Government of India, on the other hand, assignment of revenues seemed to be fraught with grave consequences. The past and the existing financial condition of India did not warrant the Central Government to alienate the sources of revenue it then possessed with equanimity and safety for the future. On the other hand, its prospective condition looked as precarious as its past, and it therefore desired to retain its control over the sources the mobilisation of which alone could enable it to stave off any impending crisis. The second alternative, on the other hand, was just such a one as to give the provinces sufficient funds without the Government of India forfeiting its control over its resources. It must not be forgotten that the Government of India by reason of its constitutional position had the sole authority to manage and appropriate the revenues of India. Any solution for financing the provinces had therefore to be in accord with its interests as conceived by itself This being the situation the method of assignments was adopted in preference to that of assigned revenues in solving the principal problem that arose in connection with the constitution of provincial budgets.

It is because assignment of funds from the Imperial treasury was adopted as a method of supply to balance the Provincial Budgets that the system instituted in 1871-2 has been characterised in this study as a system of Budget by Assignments.

This principle on which the Provincial Budgets were constructed in 1871-2 endured till 1876-7. The assignment made to the Provincial Governments for the year 1871-2 had been declared to be fixed and recurring. Recurring they were, but fixed they were not: for, every year, since the start, the Government of India kept on adding to and withdrawing from Provincial Budgets items of charge already incorporated in them. In accordance with these modifications in the incorporated charges the Imperial assignments had to be either reduced or augmented as necessity dictated. The progressive changes in the assignments from 1871-2 to 1876-7 with the specific purposes for which they were granted are entered in the following tables :

 

Statement of Imperial Assignments to the Provinces

for the year 1871-72

 

Purpose of the Assignment

Amount Assigned

 

Details

Total

 

Rs.

Rs.

Original Assignment

 

11979000

Add

 

 

For Cemetery establishments

4000

 

For Compensation for Agra Brick Factory

28000

114000

For Office and House Rent

82000

 

 

 

12093000

Deduct

 

 

For transportation charges for convicts

15000

 

For fees for licensing cargo-boats

2600

124690

For receipts of public Works Departments

107000

 

 

 

11968310

Special Grants

 

 

Add ----

 

 

For Calcutta University

60000

 

For Midnapore Civil Court Buildings

31680

341680

For Calcutta Small Causes Court Building

250000

 

 

 

12309990

Total Assignments for 1871-72

 

12309990

 

 

Statement of Imperial Assignments to the Provinces

for the year 1872-73

Purpose of the Assignment

Amount Assigned

 

Details

Total

 

Rs.

Rs.

Original Assignment

 

11979000

Add

 

 

Permanent additions in 1871-2 (as above)

114000

 

For Miscellaneous services

267070

388936

For books and publications

7600

 

For ground-rent of Orphan School at Howrah

266

 

 

 

12367936

Deduct

 

 

Permanent deductions in 1871-2 (as above)

124680

 

For repairing charges of University

5700

130390

 

 

12237546

Special Grants

 

 

Add ----

 

 

For Burdwan Fever Relief

100000

 

Compensation for Sudder Court Building

400000

966670

Capital value of annual, rent of Rs. 21,000 for public offices

466670

 

 

 

13204216

Deduct fractions

 

380

Total Assignments for 1872-73

 

13203836

 

 

Statement of Imperial Assignments to the Provinces

for the year 1873-74

 

Purpose of the Assignment

Amount Assigned

 

Details

Total

 

Rs.

Rs.

Permanent additions in 1872-73 (as above)

 

12237546

Add

 

 

 For payment of Medical Officers in charge of Civil stations

385000

 

For Land Revenue Sub-divisional establishments

100000

485000

 

 

12722546

Deduct--

 

 

Reduction of rent for public offices

21000

21000

 

 

12701546

Sanctioned for 1873-74

 

12701000

Add for----

 

 

Ground rent for Howrah Orphan School

266

 

Charges on account of European vagrants

11500

18066

Ground rent charges

6300

 

Deduct

 

 

For pay of medical pupils withdrawn from Provincial to Imperial

 

5400

For pay of medical officers in charge of civil stations withdrawn from provincial to imperial.

385000

390400

 

 

 

Special Grants

 

12328666

Add ----

 

 

For rent of Small Cause Court

 

14400

Total Assignments for 1872-73

 

12343066

 

Statement of Imperial Assignments to the Provinces

for the year 1874-75

 

Purpose of the Assignment

Amount Assigned

 

Details

Total

 

Rs.

Rs.

Permanent additions in 1873-74 (as above)

 

12328666

Add

 

 

Assignment for encouragement of Mohammedan education.

50000

50000

 

 

 

Sanctioned assignment

 

12378000

Add---

 

 

Grant on account of Model Farm

7000

8180

Additional grant for ground-rent

1180

 

 

 

12386180

Deduct

 

 

Reduction of outlay on account of churches and burial grounds.

14314

 

Reduction on account of Assam transferred

1330000

1344580

For ground rent Howrah Orphan School

266

 

 

 

 

Total Assignments sanctioned

 

11041600

 

 

Statement of Imperial Assignments to the Provinces

for the year 1875-76

 

Purpose of the Assignment

Amount Assigned

 

Details

Total

 

Rs.

Rs.

Permanent additions in 1874-75 (as above)

 

11041000

Add

 

 

Grant for Botanical gardens

52500

 

Grant for Ground rents

1180

53680

 

 

11094680

 

 

 

Deduct

 

 

Public Works charges on account of the Salt Department

13683

 

Assignments on account of lighthouses and ships withdrawn

1769

33163

 Assignment on account of Town Improvement Fund of Assam

 

17711

 

 

 

Total Assignment

 

11061517

 

Statement of Imperial Assignments to the Provinces

for the year 1876-77

 

Purpose of the Assignment

Amount Assigned

 

 

Details

Total

 

Rs.

Rs.

Original Assignments for 1875-76

 

11041000

Add

 

 

For ground rents

1180

 

For Botanical gardens

52500

53680

 

 

11094680

Deduct

 

 

For Form Store Department

 

13683

 

 

11080997

 

 

 

Deduct

 

 

For Form Store department

8034

 

Add---

 

6034

For Exhibitions and Fairs

2000

 

Total

 

11074963

 

 

 

Assignment as sanctioned

 

11075000

Add----

 

 

Grant on account of Bankee and Ungool Estates

3271

 

Cost of the snake-poison commission, establishments and contingencies.

6000

58753

Grant on account of census registers

49482

 

 

 

11133753

Deduct

 

 

Assignment on account of lighthouses and lightships withdrawn.

1769

 

Assignment of Town Improvement Fund, Assam

17711

22180

Annual cost of lunatics transferred to Tezpore Lunatic Asylum.

2700

 

 

 

 

Total Assignment

 

1,11,11,573

 

This completes the account of the services incorporated from time to time and the assignments made for them by the Imperial exchequer during the period in which the system of budget by assignments remained in force. It now remains to consider whether the system under the assignment plan was a success. What constitutes success is a question, which is always open to discussion, for what may seem successful from one point of view may be the reverse of it from another standpoint. A discussion, however, of this aspect of the question cannot be avoided, for it was on the results of one stage that an advance towards the second was made to depend all throughout the expansion of Provincial Finance. As the definition of success varies with the standpoints, we must first ascertain them for the purpose of our investigation. Let us therefore inquire into the possible parties whose standpoints counted in the moulding of Provincial Finance, and without whose satisfactory opinion about the results achieved, a new step in advance could not have been taken. The Government of India and the Provincial Governments were obviously the two principal parties. Naturally their standpoints were different, if not antagonistic. The question prominent in the mind of the Government of India was how big was the gain to the imperial treasury on the transfer. On the other hand, the Provincial Governments were concerned to know whether the resources offered by the Government of India were adequate enough for their safely accepting the responsibility of managing the incorporated expenditure. It is obvious the Provincial Governments would not undertake the responsibility of managing the Imperial expenditure within a certain assignment unless they were sure that the assignments were adequate. Similarly, the Imperial Government would see no advantage in making the transfer unless the Provincial Governments undertook to manage the expenditure at a sum less than what it cost under the direct management of the Imperial Government. Adequacy to the provinces and gain to the Imperial treasury were therefore the two chief considerations, which prevailed in the determination of the continuance and expansion of the scheme. The people of the Provinces may also be conceived of as a third possible party whose concurrence may have been deemed a necessary factor in the situation. What their viewpoint would have been is not altogether a matter of guess. On the other hand, anyone sufficiently acquainted with the nature of popular demands for political advancement could easily imagine that the most urgent concern of the taxpayers would have been neither the well-being of the Imperial nor that of the Provincial Governments, but the distribution of the money they paid along the different channels of expenditure; and if their approval of the results of the scheme had been made a necessary condition of advance, it is probable that the development of Provincial Finance would have been along different lines.

There was a suggestion even at that time that the people of the country should have some voice in the financial arrangements of the country. In paragraph 19 of its Resolution of December 14, 1870, announcing the scheme of Provisional finance, the Government laid down that

" Each local Government will publish its own Provincial Service Estimates and Accounts in the local Gazette, together with a financial exposition (which should, where possible, be made before the local Legislative Council) analogous to that annually made in the Legislative Council of the Governor-General."

If this suggestion had materialised, the Indian taxpayer would have obtained a voice in determining the financial arrangements between the Government of India and the Provincial Governments. There were, however, certain legal difficulties in the way of giving effect to this suggestion. If the Budget was introduced in the Council and debate had followed upon it, such a proceeding would have offended against Section 38 of the Indian Councils Act (24 and 25 Vic. c. 67) and would have, therefore, been illegal unless the Budget involved some proposal for tax legislation. For, that Act had provided that the activity of the legislative Council should not be called into play except for strictly legislative purposes. If, on the other hand, there was to be no debate, there was no advantage in this mode of giving publicity to the Budget which was not equally secured by its publication in the official Gazette. As a solution of these difficulties, the Government of Madras proposed[f8]  to the Government of India.

" that the Provincial Budget should form a schedule to an Appropriation Bill, the contents of which would, after all the necessary explanation and discussion, be voted section by section."

But the Government of India, which had first broached the subject, was shocked by this suggestion as being revolutionary. In reply[f9] it observed:—

 

" 2. His Excellency in Council does not...... consider that the plan proposed...... for bringing the annual financial statement within the terms of the Indian Council's Act, would be appropriate or possible. The passing of the Appropriation Bill in the House of Commons is a proceeding by which authority is given to carry into effect the Resolutions of the House in Committee of Supply, which till the passing of the Appropriation Bill are not law. The Bill enumerates every grant that has been made during the whole session, and authorises the several sums voted by the Committee of Supply to be issued and applied to each separate service. It also contains a provision that the various aids and supplies shall not be issued or applied to any other uses than those mentioned.

"3. Such a proceeding would, His Excellency in council considers, be out of place in India, and might have the effect of transferring from the Executive to the Legislative Council, the power of disposing of all public moneys. His Excellency, therefore does not consider that the introduction of an Appropriation Bill would be advisable."

Against this ruling the Government of Madras appealed to the Secretary of State[f10]  and pleaded that either the proposal of an Annual Appropriation Act be approved or

" such an alteration in the Council's Act be made as will allow the financial statement to be legally made and discussed in the Local Legislative Council."

But the Secretary of State upheld the decision of the Government of India[f11] on the ground that

" such mode of procedure is only applicable in a representative assembly, which has full powers of control over the Executive, and any such powers Parliament has advisedly withheld from the Legislative Council of India."

The suggestion was therefore dropped and was not given effect to till 1921. As the voice of the people did not prevail[f12]   in the framing of the financial contracts between the Imperial and Provincial Government, it is of no immediate advantage to seek for results that would have interested them to know, if they had been allowed their say in the matter. In so far then the results of the past influenced the policy of the future we have only to lay ourselves out to seek for results in which the two remaining parties to the contract were primarily interested, namely, gain to the Imperial treasury and adequacy to the Provincial Governments. Applying ourselves first to the test of adequacy to the provinces the results of the period may be gauged from the annual surpluses and deficits in the finances of each of the different provinces brought within the pale of the system of Provincial Budgets.

provincial surpluses and deficits

Province

1871-72

1872-73

1873-74

1874-75

1875-76

1876-77

 

C.P.

20,988

—8,423

2,268

13,108

8,307

16,800

Bt. Burma

27,634

33,832

—9,922

—21,889

—5,471

5,100

Assam

 

 

 

5,159

590

9,833

Bengal

180,622

74,622

393,955

271,044

27,397

46,978

N.W.P. and Oudh

31,595

64,036

36,358

11,693

20,945

128,501

Punjab

109,828

28,008

—33,347

-117,644

—92,724

26,908

Madras

40,787

—19,264

—56,381

4,303

—14,210

504

Bombay

65,553

128,805

—64,373

9,929

—18,354

—140,718

Compiled from the annual Finance and Revenue Accounts of the Government of India for the respective years.

 

It is evident from these figures that the surpluses outnumber the deficits in frequency and magnitude to such an extent that the deficit could have been easily met from the accumulated balances without seriously exhausting them. Care, however, must be taken in explaining the cause of this apparent prosperity of Provincial Governments. Did the province succeed in building up their balances from the savings from the assignments and receipts made over by the Imperial Government is what we have to find out. The answer to this question cannot be given in a categorical form, for the total resources and changes to which the above figures refer include more than the receipts and assignments set apart for provincial management. Besides Imperial assignments and receipts of incorporated services they include a part of what hitherto were known as Local Funds. It must be recalled that long before the separation of provincial from Imperial Finance there was created since the year 1855 a separation between the Imperial and Local Finance in British India. The Local Funds when separated were under the immediate management of the several Provincial Governments and comprised of two different classes: (a) those which by law or custom were required to be spent within the districts in which they were collected and on the specific objects for which they were collected; and (b) those collected all throughout the province and over the disposal of which the Provincial Government possessed unrestricted discretion. When the scheme of provincial Finance was inaugurated it was deemed natural to merge the second class of Local Funds into the Provincial Funds. The total addition made thereby to the provincial resources it is difficult to ascertain. But it was the opinion of Sir John Strachey, the Finance Minister of the time[f13] , that such addition was " inconsiderable " and could not therefore have affected materially the financial consequences of the new system[f14] 

The question of estimating the gain to the Imperial treasury need not detain us very long. The indirect gain due to the economical management of the services by the Provincial Governments will come for discussion when we come to consider the influences that played a prominent part in bringing about the second state in the evolution of Provincial Finance. The direct gain made by the Imperial treasury was effected throughout the retrenchment in provincial assignments already referred to. It may be recalled that the Government of India had planned to obtain relief to the extent of one million sterling annually on the services transferred,3 but the Government of India soon realised that all this retrenchment would necessitate some taxation by the provincial authorities. The burden had already grown since the Mutiny, and being anxious not to add to it directly by Imperial levy or indirectly through provincial levies, it decided to reduce the relief it sought by lowering the retrenchment on provincial assignments from 1,000,000 to 350,000, or more accurately to 350,801 if we deduct, as we must, the sum of 19,199 restored to Burma, being its quota of relief owing to the special circumstances of that province.

Summing up the results of the period, the Government of India, it must be said, realised full share of the benefits it had contrived to obtain by the annual relief of 330,801, though not without causing an insufficiency, however small, in the Provincial finance. But notwithstanding the burden thrown on the Provinces their position as disclosed by the results cannot by any means be called unhappy.

One unwelcome feature marred the inauguration of Provincial Finance. That feature consisted in the large increase in the levy of rates and cesses for purposes of local improvement.

 

Receipts from New Resources of Income and Cesses enhanced since 1870

 

1870-1

1871-2

1872-3

1973-4

1874-5

1875-6

 

Oudh—

 

 

 

 

 

 

Ord. cesses on:

 

 

 

 

 

 

Land Revenue

38,813

29,018

34,354

34,259

33,208

33,146

Margin Fund

7,363

3,461

 

 

 

 

Local rate

 

36,810

42,535

42,883

41,097

41,461

Total

46,176

69,289

76,889

77,142

74,305

74,607

Assam—

 

 

 

 

 

 

Ord. cess on land :

 

 

 

 

 

 

Rev. Old Fund

6,506

4,333

711

1,916

*17,149

 

New Fund

 

 

 

 

15,267

16,300

Total

6,506

4,333

711

1,916

32,416

16,300

Bengal—

Road Cess Fund:

 

 

22,917

59,039

120,128

158,516

N. W. Provinces

168,532

201,548

216,818

213,672

215,968

150,619

Punjab...

58,330

214,441

216,194

208,063

211,862

193,573

Madras-Road Cess

212,813

234,567

377,031

368,031

371,311

369,325

Madras-Tolls Cess

 

 

12,144

12,234

14,860

26,531

Grand Total

492,357

724,178

922,704

940,333

1,040,850

980,545

* Balances recovered from Bengal on account of Road and Government Estates Improvement Fund.

For the new resources of income and cesses given above, refer to Papers, etc., on the extension of the Financial Powers of the Local Governments, p. 494.

 

This shows an increase in 1875-6 over 1870-1 of 488,188, chiefly by raising the cesses in the North-West Provinces, the Punjab and the Madras Presidency to 6 1/4 per cent. on Land Revenue in the two last mentioned, to about 5 per cent. in the North-Western Provinces (after deducting the rural police charge); by a road cess in Bengal and by granting an assignment to Assam, at the Imperial charge, of 6 1/4, per cent. instead of 3 per cent on Land Revenue pending the levy of a cess of a corresponding amount on the ryots. In the Bombay Presidency the 61/4 per cent. was imposed some years before and hence is not included in the above table. The only province which did not levy any additional cess was the Central Province, though a cess of 6V per cent. on the Land Revenue was in 1870 considered practicable but not opportune.                          

Of what benefit, a cynic may say, was the institution of Provincial Finance if it did not obviate the necessity for further taxation ? If further taxation was unavoidable, why did the Imperial Government throw the onus of facing it on the Provincial Government under the garb of Provincial Budgets when it would have done that itself? It must be said in reply that the merits of Provincial Finance are to be looked for in other directions, and it will be shown in its proper place that they justified its institution, even though a certain amount of enhanced taxation followed in its wake. It would indeed be unwise to decry against taxation in general, for no benefit can be obtained without a charge. But it would be equally unjust not to protest against the kind of taxation resorted to, for what really mattered was not the increase of taxation but the inequity of taxation. The method of taxation resorted to make up the deficit in the Provincial Finance was an imposition of rates and cesses on the already over-burdened class of tax-payers, namely the landholders. Now the services incorporated into the Provincial Budgets, for whose support these rates and cesses were levied, though called local, were not more local in the sense of their being beneficial to the particular localities than those retained by the Imperial Government. On the other hand, the former were from the standpoint of the localities as onerous to them as the latter, and yet they were financed by rates and cesses levied from the localities as though they were directly beneficial to them, which as a matter of fact they were not. This is all the more lamentable when it is recalled that the necessity for retrenchment which caused the levy of these rates and cesses was occasioned by the abolition of the income tax. As a matter of justice we should have expected the continuance of the income tax to the relief of the State and the ratepayers. But justice was for a long time absent from the Financial Secretariat of the Government of India. A few cared for it in the abstract, but none looked upon it as an element worthy of consideration in providing for the exigencies of provincial or local finance; and as it was unrecognised, its violation by the Provincial Governments was no bar to the development of Provincial Finance.

 

 

Contents                                                                                              Continued....

 


 [f1]Net grant means total expenditure on a service minus the receipts from the service.

 

 [f2]Appendix B of the Resolution gives a schedule of certain works for which separate funds were to be provided from the Imperial Revenue. They were Buildings and Offices of the following Departments :—

 

Opium (not including the Board of Revenue's office in Calcutta). Mint and Currency.

Post Office.

Telegraph.

Offices of the Supreme Government.

Viceregal Residences.

Imperial Museum, Stamp and Stationery Office, Treasury Buildings-Calcutta.

Bhishop's Palace, Godavery Works} Reserved as Imperial for the present.

Karachi Harbour Improvements       }

Such Military Roads as have been till the current year provided for from the grant for " Military Works".

 [f3]Finance Department Resolution No. 1659 of March 20, 1871

 [f4]1 Letter fom the Secretary to the Government of India, Finance Department, No. 1683 dated March 21, 1871.

 

 [f5]Finance Department Resolution No. 1659 of March 20, 1871

 [f6]3 Finance Department Resolution No. 1587 of March 20, 1871.

 

 [f7]Financial Statement of 1871-2.

 

 [f8]Letter to the Government of India, Finance Department, No. 147 of April 18, 1871

 [f9]Legislative Letter to Madras dated July 11, 1871, No. 765

 [f10]Letter from the Government of Madras, Financial Department, dated September 19, 1871, to the Secretary of State and the whole of the correspondence accompanying it

 [f11]Legislative Despatch No. 4 to the Government of India, dated January 18, 1872

 [f12]3 In fact the point that decentralisation should not be extended unless it was followed by devolution of political and financial power on the representatives of the people was not specifically raised till 1908, and that too only by the late Hon. Mr. Gokhale in his evidence before the Royal Commission on decentralisation of India, q.v

 [f13]1See his Minute, dated March 15, 1877, appended to the Financial Statement for 1877-8.

 [f14]2This amalgamation was, however, abandoned with effect from 1876 to enable the Government of India to ascertain the financial consequences of the new system as compared with the old