THE
EVOLUTION OF PROVINCIAL FINANCE IN BRITISH INDIA
___________________________________________________________________________________
PART II
PROVINCIAL
FINANCE : ITS DEVELOPMENT
CHAPTER
IV
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.
Imperial
Assignments for Services |
|||||||||
C.P. |
Bt. Burma |
Bengal |
Punjab |
Madras |
Bombay |
Total |
|||
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
Jails |
26,922 |
27,881 |
32,777 |
218,210 |
88.394 |
58,204 |
91,983 |
73,440 |
617,811 |
|
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 |
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 |
32,900 |
63,403 |
63,000 |
157,800 |
82.636 |
84.200 |
123,880 |
121,900 |
||
20,090 |
14,406 |
23,959 |
111,370 |
63,341 |
39,710 |
58,506 |
107,500 |
438,882 |
|
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 |
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 |
|
|
|
|
|