THE EVOLUTION OF PROVINCIAL FINANCE IN BRITISH INDIA

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PART II

PROVINCIAL FINANCE : ITS DEVELOPMENT

 CHAPTER V

BUDGET BY ASSIGNED REVENUES

1877-78 to 1881-82

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 Continued…

The scheme of Provincial Budgets, the second stage of which we shall presently study, was launched not without mixed feelings. Boundless hopes were entertained, though not unmingled with a sense of misgiving. Just what was expected of the scheme may be correctly gauged from the remarks of Sir Richard Temple, who, when introducing the scheme in 1870, said :

"We hope that this concession (of increased control over revenues and expenditure) will give the Local Governments an additional interest in the study and the enforcement of economy in expenditure; will afford them a just inducement to supplement their local receipts from time to time by methods either most acceptable to the people or least fraught with popular objection; will cause a more complete understanding to arise between the executive authorities and the tax-paying classes respecting the development of fiscal resources; will teach the people to take a practical share in the Provincial Finance, and lead them up gradually towards a degree of local self-government; and will thus conduce to administrative as well as financial improvement." [f1] 

While entertaining these hopes he also took the opportunity of asking the Council to be prepared for disappointment, for he went on to remark:

"the hopes which I am expressing, however sanguinely, or confidently entertained, are after all but hopes, and like all other hopes may or may not be fairly realised. But let all this eventuate as it may, sure I am with certainty free from shade of doubt, that the measure is advantageous to the Imperial Budget of British India. For it will have the direct effect of definitely limiting, for the present, the expenditure from the general Exchequer on certain important branches of civil expenditure, the very branches indeed, where, from the progressive state of the age, the demands for increased outlet have most arisen, and in which from the nature of the case the supreme Central Authority is least able to check the requirements of the local authorities."

The actual results, however, far surpassed these very moderate hopes and were more than necessary to dispel the misgivings that still lingered in the minds of those who looked upon the institution of Provincial Finance as a project of doubtful utility. Confining ourselves to the issues immediately affecting the Government of India or the Provincial Governments, it was abundantly proved that Provincial management was more economical than Imperial management. If we compare the expenditure incurred upon the services while they were an Imperial charge with the expenditure on them after they were provincialised, the superior economy of provincial management is overwhelmingly proved.

Year

Total excess Expenditure on all Transferred Services except Registration over Total Receipts from them inclusive of all Contributions other than those for Bengal Famine under Imperial management

 

Total excess Expenditure on all Transferred Services except Registration over Total Receipts from them inclusive of all Contributions other than those for Bengal Famine under Provincial management

 

 

1863-64

5,111,297

1871-72

4,835,238

1864-65

5,606,248

1872-73

4,964,407

1865-66

5,587,779

1873-74

5,329,180

1867-68

5,821,438

1874-75

5,379,509

1868-69

6,030,214

1875-76Est.

5,135,677

1869-70

5,856,310

 

 

1870-71

5,197,250

 

 

Complied from an official volume of Notes on Imperial, Provincial and Local Finance, 1876.

 

It was therefore with confirmed belief in its utility and even with a sense of relief that the Government of India proceeded to incorporate into the Provincial Budgets additional services local in character or more amenable to local control. But these additions to the incorporated services made the problem of a supply of funds to Provincial Governments assume greater proportions. In the first period the gap between the receipts of incorporated services and the total charges for them was comparatively smaller than what it was found to be the case on the present occasion. The mode of bridging the gap entirely by assignments was deemed to be ill-fitted for the success of the scheme in its enlarged form. The most radical defect in the system of budget by assignment consisted in its rigidity. The provinces did not favour it as a mode of supply for the reason that while the outlay on the services under their management continued to expand the assignments made to them remained fixed in amount. Sir John Strachey, to whom belonged the credit of carrying the scheme a stage further, was particularly alive to this weakness of the system. In place of fixed assignments he desired to give the provinces certain sources of revenue, the yield of which largely depended upon good management. His primary object in doing this, no doubt, was to make better and more elastic provision for the growing needs of the provincialised services. But he had also another, and, as he conceived it, a far more important reason in the substitution for assignments of assigned revenues. That economy was the fruit of good management had by that time become a commonplace, but few were sure as to what good management consisted in. It was Sir John Strachey who, for the first time, defined in unmistakable language his notion of good management, which was since his time applied in an ever increasing degree in the development of Provincial Finance. To him good management of finance was to be had

" not by any action which gentlemen of the Financial Department or by any other department of the supreme Government can take whilst sitting hundreds or thousands of miles away in their offices in Calcutta or Simla; not by examining figures or writing circulars, but by giving to the Local Governments... a direct and, so to speak, a personal interest in efficient management"[f2] 

And in this he had the strong support of recent experience; for, taking the results of the past stage the provinces not only managed the services at a lesser cost to the revenue than was the case under the Imperial regime, but the services yielded increased revenue under the more immediate and fostering care of the provinces than they did under the remote, uninformed, and therefore impotent vigilance of the Imperial Government.

Sir John Strachey had long held to the view that so long as the Provinces collected the revenues for the Government of India they did not care to check evasion, which they would have surely done if they had collected them for their immediate benefit, or, as he put it,

"when the Local Governments feel that good administration of branches of revenues will give them, and not to the Government of India alone, increased income and increased means of carrying out the improvements which they have at heart, then, and not till then, was to be had the good administration that every one desired."

 

RECEIPTS FROM INCORPORATED SERVICES

Allocated Services

Under Imperial Management

Under Provincial Management

 

1865-6

1867-8

1868-9

1869-70

1870-1

1871-2

1872-3

1873-4

1874-5

1875-6

 

Jails

89,260

96,910

141,218

133,806

128,773

149,888

195,755

271,915

297,198

326,023

Police

140,166

231,859

277,179

287,529

270,855

203,624

97,735

90,708

80,509

89,895

Education

53,256

66,869

67,207

72,848

60,740

76,789

80,869

101,306

99,537

101,909

Registration

86,997

127,070

153,488

165,048

147,152

155,262

171,735

121,470

172,111

184,461

Printing

3,333

3,282

2,803

3,718

9,244

10,923

14,383

21,174

18,220

18,066

Medical

 

---

 

 

3,273

20,594

30,649

36,370

43,097

26,583

Miscellaneous

4,070

5,666

4,076

4,489

6,116

20,991

31,345

32,396

39,666

36,234

Compiled from the same source referred to above.

 

This evidence of the expanding receipts of provincialised services were therefore a pleasant surprise which went a great way in confirming the view he had advocated. It was therefore for a double purpose, of augmenting the revenues and of introducing elasticity in Provincial Finance, that Sir John Strachey substituted assigned revenues for assignments as a mode of supply to the provinces.

The plan adopted by Sir John Strachey was not new, neither was it brought forward for the first time. It was present in the minds of the people who took part in the discussions of Provincial Finance in 1870, and was actually advocated by Sir John Strachey as early as 1872. [f3] That the Government of India did not look upon the plan with favour in 1870 was due to the fact that it was afraid to permanently alienate the sources of revenue on the growth of which its stability depended. By now, however, the financial position of the Government of India had a bit improved, and the six years' trial of provincial management had also engendered a greater confidence in the scheme in the minds of those who had never completely accepted the administrative utility of the project. To this was added the prospect of the plan being a means of increased productivity in their resources as it had been of increased economy in expenditure. The force of all these factors combined to bring a new stage in the evolution of Provincial Finance which, because of the distinct mode of supply adopted, may be well designated as a stage of Budget by Assigned Revenues.

To be sure, assignments still formed a part of the new system. But that was because of the difficulty of assigning such revenues the yield of which would have been precisely equal to the incorporated expenditure. Under any circumstances there was sure to be some difference. It happened that the normal estimated yield of the ceded revenues fell short of the requirements and the margin of difference had to be made up by some adjusting assignment in the case of each province.

The method of fixing the adjusting assignment for the different Provinces was on the whole a little too complicated, and may therefore be conveniently explained before proceeding to examine the constitution of the Provincial Budgets of the different Provinces as laid down under the second stage of their growth. It must be borne in mind that the total resources of the Provinces were made up under this system of (1) the receipts accruing from the incorporated services, (2) the yield of the revenues assigned, and (3) the adjusting assignment. How to fix upon an adjusting assignment for a particular Province was a question involving nice calculations. Before arriving at a definite figure for the adjusting assignments it was obviously necessary to have settled the normal yield of the receipts of incorporated services and of the revenues made over. The assessment of the normal yield was a contentious matter. As a rough and ready method the Government of India took the average yield of each over a series of years as the normal yield, and made it the basis from which to calculate the assignments. Similarly on the basis of the annual growth of the revenues in the past years it assumed a certain normal rate of increase for each of the sources, so that the normal for the succeeding years exceeded the normal for the preceding year at the normal rate of annual progression assumed. And as the normal yield of the assigned revenues increased at their assumed normal rate of growth the assignments fixed for the subsequent years diminished in like proportion. This normal rate of growth assumed for the assigned revenues was sometimes an assumption unjustified by their past productivity. At all events, as a higher rate of increase meant lessened assignments, the Provinces questioned its magnitude. To pacify the Provinces and to make due allowances for errors of estimating, the Government of India made a very ingenious concession. It agreed that if the actual results showed deviations from the estimated normal yield, either below or above, they should be equally divided between the provincial and Imperial Governments. If the actual yield was greater than the normal the adjusting assignment from the Imperial Government fixed for the year would be reduced by half the excess, and if it were less than the normal the assignment would be increased by half the deficit.

All this very delicate mechanism was adopted primarily for the advantageous manner in which it enabled the Government of India to adjust the assignments without undue hardship being inflicted on either party. But there was also another advantage which, though unperceived at the time, was none the less effective. The consent secured from the Provinces to bear half the burden of a possible deficit in the normal estimate directly put a premium on economical and judicious administration of the ceded revenues. If the Government of India had agreed to bear the whole of the deficit below the estimated normal, it is doubtful whether the Provinces would have exerted themselves sufficiently to develop their resources to such a degree as to bring their yield to the level of the normal. But the fear that their obligation to bear half the deficit might assume a larger proportion, which would undoubtedly be the case if there was a great falling off in the revenue, compelled them to bestow greater vigilance than they would otherwise have done. Whilst an effectual check on relaxation was thus provided the scheme was not wanting in a stimulus to exertion. The prospect of gaining half the excess over the normal gave a more direct stimulus to the Provinces to develop their resources beyond the normal than would have been the case if the total excess had been entirely appropriated by the Imperial Government. In short, the deterrent effect of a deficit to bear and the stimulating effect of a gain to reap made the mechanism of Provincial Finance as perfect as it could be made from the standpoint of economy in expenditure and productiveness in resources.

Having noted the factors that led to the conception and execution of this new step in Provincial Finance and the features which marked its novelty, we may now proceed to the study of the constitution of Provincial Budgets and the revenue and charges that were incorporated into them. Unfortunately it is impossible to present a conspectus of Provincial Budgets as a whole, for the charges were not uniformly incorporated in all the Provincial Budgets. Each Province was treated individually. This compels us to enter upon the analysis of the Provincial Budgets as they were reconstituted in 1877-8 separately for each of the different provinces.

 

North-Western Provinces and Oudh[f4] 

The budget of the Province was recast rather than enlarged by additions to the already allocated items, as was the case with regard to some other Provinces. In its new form the budget of the Province incorporated the following heads of expenditure and revenue:

 

Heads of Charges

Heads of Revenue

3. Refunds of all Assigned Revenues.

I. Land Revenue—collections from the Terai

4. Land Revenue (excepting settlements, allowances to district and village officers, and Bahbar estates and and special temporary compensations to covenanted civil servants in N.W.P.)

   the Dudi estate in Mirzapore and from stone quarries.

6. Excise

10. Stamps.

IV      Excise.

IX     Stamps.

14. Administration (excepting Account and and Currency Officers).

XIII      Law and justice.

16. Law and Justice (excepting special temporary allowances to covenanted civil servants in N.W.P.)

 

17. Police.

19. Education

XIV      Police.

XVI      Education

21. Medical (excepting the pay of Medical Officers in charge of civil stations).

 

22. Stationery and Printing.

 

28. Miscellaneous (excepting remittance of treasure and any unenumerated item exceeding Rs. 10,000).

XX     Miscellaneous (excepting "Gain by Exchange," "Premium on Bills," unclaimed Bills and unenumerated items exceeding Rs. 10,000 each). Public Works Receipt such as appertained to the Public Works charges incorporated into the Provincial Budget

Public Works Ordinary: Roads and miscellaneous public improvements, civil buildings (except opium, post office and telegraph buildings) and tools and plants; also whole of the Public Works establishment of the P.W.D. excepting that in the Military works and irrigation branches; the imperial government paying towards their cost 20 per cent on the outlay from the imperial funds and works and repairs executed by the establishment.

 

 

In assigning the heads of revenue the Government of India added the proviso that "the Governments of North-Western Provinces and Oudh must surrender to the Imperial treasury half of any sum by which the net revenue from Excise, Stamps, and Law and Justice (omitting Jails and Registration), deducting Refunds under these heads and the charges under 6, Excise and 10, Stamps, exceeded Rs. 83,75,000 "

and agreed to reimburse the province with a sum equal to half the deficit if the yield fell below the above sum. This adjustment was effected by operating upon the balances of the Province so that if the expenditure of the North-Western Provinces and Oudh upon the incorporated services exceeded the enumerated revenues plus any Provincial contribution in support of them by less than Rs. 83,75,000, the difference was to be added to; and if such excess expenditure was more than Rs. 83,75,000 the difference was to be deducted from the balances of the Government of the North-western Provinces and Oudh in the Imperial treasury.

Bengal

Items of Expenditure incorporated in the Bengal Budget

Grant as existing in 1877-8

Retrenchment

Proposed Consolidated Grant

3. Refunds of Revenue from Excise, Stamps, Law and Justice, and of Deposits.

4,91,000

 

4,91,000

4. Land Revenue (Collectors, Deputy Commissioners, etc. Establishments and charges on account of Land Revenue Collections).

22,62,000

 

22,62,000

6. Excise on spirits and drugs

2,92,000

 

2,92,000

8. Customs

6,93,000

 

6,93,000

9. Salt

39,000

 

39,000

11. Stamps

2,38,000

 

2,38,000

15. Administration (excepting Account Office, Allowances to Presidency Banks, Stationery Office at Presidency and stationery purchased in the country).

12,61,000

 

12,61,000

16. Minor Departments (excepting meteorological and archaeological departments, census and gazeteers).

1,68,000

 

1,68,000

17. Law and Justice (excepting Law Officers).

63,97,000

1,00,000

62,97,000

18. Marine

10,92,000

 

10,92,000

23. Political (Govt. House Police Guard).

7,000

 

7,000

26. Miscellaneous (excepting remittance of treasure).

25,000

 

25,000

Stationery and Stamps

4,98,000

50,000

4,48,000

27. Provincial allotment as now existing

1,10,59,000

4,40,000

1,06,19,000

Maintenance of Bishop's Palace, etc.

7,000

 

7,000

Total

2,45,29,000

5,90,000

2,39,39,000

 

The budget of the Province of Bengal [f5]  was enlarged rather than recast by additions to the already incorporated heads of revenue and expenditure. For the second stage of the scheme the Government of Bengal was made responsible for the charges shown in the above table.

 

To meet these charges the following revenues were handed over to Bengal for its use :

assigned revenues (ooo omitted)

 

Esti-

Estimated Yield at the assumed

 

mated

Rate of Growth

Heads of Revenue

Yield

 

 

in 1876-7

1877-78

1878-79

1879-80

1880-81

1881-82

 

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

IV Exercise in spirits and drugs

6,300

6,400

6,500

6,600

6,700

6,800

VI Customs (see, Customs Misc. and Warehouses and Wharf rents).

3,600

3,600

3,600

3,600

3,600

3,600

VII Salt (Rents of Ware houses, fines and forfeitures and misc.).

220

220

220

220

220

220

IX Stamps }

10,300

10,575

10,850

11,125

11,400

11,675

XIII Law and Justice }

 

 

 

 

 

 

XIV Marine (pilotage receipts, registration and other fees and misc.).

1,091

1,084

1,084

1,084

1,084

1,084

XVI Misc. (all except premium on bills, unclaimed bills, and any unenumerated item exceeding Rs. 10,000).

771

792

792

792

792

792

Total

 

22,671

23,076

23,421

23,596

24,171

Complied from statements in the Gazette of India referred to above.

 

But as the revenues assigned were not sufficient for meeting the incorporated charges transferred, after taking account of the excesses over normal to be paid to the Government of India, the Government agreed to make the following assignments from the Imperial treasury to the Government of Bengal :

 

Year

Assignments

 

Rs.

1877-78

48,32,000

1878-79

44,57,000

1879-80

40,82,000

1880-81

37,07,000

1881-82

33,32,000

 

Central Provinces[f6] 

In the case of the Central Provinces the following additional items were incorporated in its budget :

Heads of Charge

Grants as already fixed for 1877-78

Retrenchment

Proposed Net Consolidated Grants

 

Rs.

Rs.

Rs.

Refunds of Excise, Stamp, Law and Justice and

47,000

 

47,000

Miscellaneous.

 

 

 

Excise

52,000

 

52,000

Stamps

14,000

 

14,000

Land Revenue exclusive of settlement charges

6,66,000

 

 

Administration (exclusive of Account and Currency Office).

3,39,000}

 

 

Minor Departments (exclusive of Meteorology

4,000}

 

 

and Archaeology).

 

90,000

17,74,000

Law and Justice

6,91,000}

 

 

Stationery and Stamps

69,000 }.

 

 

Miscellaneous (excepting Remittance of

5,000}

 

 

Treasure and Discount on Supply Bills.

 

 

 

Add—

 

 

 

Existing allotment for provincial services

27,73,000

 

27,73,000

Total Grant for Services to be borne upon the Central Provinces Budget.

46,60,000

 

45,70,000

 

To meet these charges the Government of Central Provinces was authorised to appropriate the yield of  the following sources of revenue :

 

Heads of Revenue Assigned

Estimated Yield in

Estimated Yield at the Assumed Rate of Growth in

 

1876-77

1877-78

1878-79

1979-80

 

Rs.

Rs.

Rs.

Rs.

Excise

13,90,000

14,50,000

15,10,000

15,70,000

Stamps

9,70,000

9,75,000

9,80,000

9,85,000

Law and Justice

1,67,000

1,75,000

1,83,000

1,91,000

Miscellaneous (excepting Premium on Bills, undrawn Bills of Exchange and any unenumerated items exceeding Rs. 10,000 each).

7,000

7,000

7,000

7,000

Total

 

26,07,000

26,80,000

27,53,000

Compiled from the Gazette referred to above.

 

As these revenues were insufficient the Government of India undertook to supplement them by the following assignments from the Imperial exchequer:

Year                Assignments

        Rs.

1877-78       - 19,63,000

1878-79       - 18,90,000

1879-80       - 18,17,000

 

These assignments were, however, subject to change because of the proviso applying to the assigned revenues. By virtue of that proviso the Government of India was to claim half the net increase of their combined annual yield over the estimated normal and was to bear half the deficit if their actual combined yield failed short of the normal. If there was an increase above the normal the assignments were to be reduced by a sum equal to half the increase, and if there was a decrease the assignments were to be increased by a sum equal to half the decrease.

 

Bombay

Coming to the Provincial Budget [f7]  of the Bombay Government we find the following charges were incorporated in it :

Heads of Charge

Grant as already fixed for 1877-8

Retrenchment

Consolidated Grant

 

Rs.

Rs.

Rs.

3. Refunds

1,10,0001

 

 

4. Land Revenue

65,07,000 }

 

 

6. Excise

80,000

 

 

7. Customs

8,09,000 }

 

 

8. Salt

5,69,000 }

 

 

14. Administration

11,43,0001

 

 

15. Minor Departments

1,13,000 }

 

 

16. Law and Justice

43,12,000 }

5,67,000

2,13,96,000

18. Marine

31,000 }

 

 

20. Ecclesiastical

3,25,000 J

 

 

21. Medical

2,68,0001

 

 

22. Stationery and Stamp

2,29,000 }

 

 

24. Allowances and Assignments

64,81,000 }

 

 

26. Superannuation allowances

8,00,000 }.

 

 

28. Miscellaneous

28,000 J

 

 

Add—

 

 

 

Existing allotment for provincial services.

 1,04,54,000

 

1,04,54,000

Total

3,24,17,000

5,67,000

3,18,50,000

 

Besides the receipts accruing from the already incorporated services the Government of India assigned to the Government of Bombay the following sources of revenue :

assigned revenues (ooo omitted)

 

 

 

Heads of revenue assigned

Estimated yield in

Estimated Yield at the Assumed Rate of Growth in

 

1876-77

1877-78

1978-79

1979-80

1880-18

1881-82

 

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

1 Land Revenue (receipts of Inamdari adjustments and service commutations

5,199

6,624

6,624

6,624

6,624

6,624

IV. Excise

3,946

4,000

4,100

4,200

4,300

4,400

Stamps

4,186

4,300

4,350

4,500

4,550

4,600

Law and Justice

277

270

270

270

270

270

Total

 

8,570

8,720

8,970

9,120

9,270

Miscellaneous (excepting gain by exchange, premium on Bills, and on Money Orders, lapsed Money Orders, Sales, Proceeds of Durbar Presents and unenumerated items—exceeding Rs. 10,000 each).

52

70

70

70

70

70

Total

 

15,264

15,414

15,664

15,814

15,964

Compiled from the Gazette of India.

 

The adjusting assignments to cover the difference between the expenditure and revenue incorporated in the Bombay Budget were as follows :

Year                  Assignments

                                 Rs.

1877-78       -    1,53,20,000

1878-79       -    1,51,70,000

1879-80       -    1,49,20,000

1880-81       -    1,47,70,000

1881-82       -    1,46,20,000

 

These assignments, it must be noted, were subject to the same proviso as obtained in the case of the Central Provinces.

 

Punjab

The only remaining Provincial Budget that was framed on the principle of assigned revenues was that of the Punjab.

 

The heads of charge incorporated in this budget were as hereinafter specified—

Heads of Incorporated Expenditure

Grant as Settled for 1877-8

Retrenchment

Proposed Net Consolidated Grant

 

Rs.

Rs.

Rs.

Refunds

65,0001

 

 

Land Revenue, exclusing settlement charges

16,21,000 }

 

 

Excise

58,000}

 

 

Stamps Administration (excluding Account and)

72,000}

 

 

Currency Offices and settlement Secretary

9,74,000}

 

 

Minor Departments

16,00,000}

2,24,000

51,38,000

Law and Justice

20,94,000}

 

 

Superannuation and Retired Allowances,

3,38,000]

 

 

Compasionate Allowances and Gratuities.

}

 

 

Miscellaneous, excluding Remittances of

41,000J

 

 

Treasure.

}

 

 

Stationery and Stamps Add—

83,000 }

 

 

Existing allotments for provincial services

54,22,000

 

54,22,000

Total

1,07,84,300

2,24,000

1,05,60,000

 

To defray these charges it was proposed to assign the following revenues to the Government of the Punjab :

 

Heads of Revenues Assigned

Net Revenue in 1876-7

Estimated Net Yield in

 

 

1877-78

1878-79

1879-80

 

Rs.

Rs.

Rs.

Rs.

Assessed Taxes

 

 

12,00,000

12,00,000

Stamps

 

24,85,000

25,05,000

25,25,000

Law and Justice

 

4,15,000

4,15,000

4,15,000

Excise

 

10,30,000

10,50,000

10,70,000

 

 

39,30,000

39,70,000

40,10,000

Miscellaneous ((excluding gain by Exchange, premium on Bills, and unclaimed Bills of Exchange).

 

60,000

60,000

60,000

Total

 

39,90,000

52,30,000

52,70,000

 

In making over these revenues the Government of India had reserved to itself a share of the improvement in the net yield from Stamps, Law and Justice, and Excise.

 

The estimated net yield having fallen short of the estimated expenditure the Government of India agreed to make the following assignments to the Government of the Punjab in order to restore balance in its budget :

 

 

Less Share of

 

Year

Assignment

Improvement in Net Revenue from Excise, Stamp, Law and Justice

Net Assignment

 

Rs.

Rs.

Rs.

1877-78

 65,70,000

107,000

 64,63,000

1878-79

53,40,000

85,000

52,55,000

1879-80

53,10,000

 

53,10,000

 

It should be noted that the Government of Madras refused to undertake the responsibility of a provincial Budget based upon the new principle of assigned revenues. It preferred to remain on the old basis. Provincial Budgets of Assam and Burma are not included in this chapter. As the principle involved in their constitution appertains to the study undertaken in the following chapter it is deemed expedient not to include them in the present.

Before closing the study of the second stage in the development of Provincial Budgets it is advisable to take stock of the results achieved during its prevalence from the standpoint of sufficiency to the Provincial Governments and gain to the Imperial exchequer. The following is illustrative of the results of this stage from the standpoint of sufficiency to the provinces:

 

 

Annual Surpluses or deficits

Provinces

 

 

 

 

 

 

1877-78

1878-79

1879-80

1880-81

1881-82

 

C.P.

5,992

7,049

—28,133

2,956

95,221

Bengal

173,380

158,932

82,523

—11,313

255,189

N.W.P.and Oudh

4,469

237,100

320,729

280,790

667,613

Punjab

18,578

48,195

7,017

59,497

135,979

Bombay

—609,672

61,249

—11,201

37,855

418,783

Compiled from the Finance and Revenue Accounts of the Government of India.

 

From this it is clear that except in Bombay the funds provided by the Imperial Government proved not only sufficient for the purpose of carrying on the services incorporated in the Provincial Budgets, but were such as to afford a safe margin of revenue over expenditure. That the provinces had enough and to spare is clearly proved by the assistance which they gave without much detriment to their finances to the Imperial Government in the years 1879-80 and 1880-1. In the year 1879 the financial position of the Imperial Government had become rather critical. The fall in the value of the rupee and the commencement of hostilities with the Afghans were expected to bring about a deficit estimated in 1879-80 at 1,395.000. As the first line of defence the Government of India urged on the several Local Governments and Administrations the necessity of reducing the ordinary expenditure of the country within the narrowest possible limits and directed that measures for suspending or postponing all optional expenditure, whether Imperial, Provincial, or Local, should be adopted forthwith and that no proposals for increase of salaries or establishments should be entertained without real necessity. [f8]  As a second line of defence the Government of India ordered that until further—

"arrangements could be settled with the Local Governments... no new work estimated to cost more than Rs. 2,500 shall be commenced at the cost of the Imperial or Provincial Funds, even though it may already have received the sanction of the Government"[f9] 

and decided to make large reductions in the expenditure on productive public works. When it was discovered that these restraints on expenditure were not enough to bring about an equilibrium in the Imperial Budget the Government of India adopted a plan of levying benevolences on the provincial balances as a better alternative to increased taxation. It was, of course, an abrogation of one of the most fundamental conditions of Provincial Finance that the Provincial Balances, though in possession of the Imperial Government, were a sacred trust to be released only when required by the provinces. But the solvency of India was deemed to be more sacred than the sanctity of the terms of Provincial Finance. Accordingly the following sums were appropriated by the Imperial Government from the balances of the provincial Governments:

 


Province

Contributions to the Imperial Government

 

1879-80

1880-81

Total in Lakhs.

 

Rs.

Rs.

Rs.

N.W.P.

10

10

20

N.W.P. .

Bombay

Punjab

Burma

7

4

3

3

7

4

3

3

15

8

6

6

Central Provinces

Madras

2 1/2

2

2 1/2

2

5

4

Assam

1 1/2

1 1/2

3

Total

33 1/2

33 1/2

67

 

These contributions were repaid in 1882-3; but for the time being they were in effect a gain or at least a relief to the Imperial treasury. The real gain to the Imperial treasury consisted in the retrenchments made in assigning allotments for services transferred to provincial management. The amount of retrechment secured in the case of each of the provinces may be summarised as follows :

 

Province

 

Retrenchment

 

Rs.

 

 N.W. Provinces

3,54,000

5 percent of the total allotment.

Oudh

73,000

"

Bengal

5,90,000

"

Central Provinces 

90,000

"

Bombay

73,000

"

Punjab

2,41,000

"

 

This does not exhaust the total gain reaped by the Imperial Government. Two other ways of gain must also be mentioned along with this. It should be borne in mind that by taking the standard yield of the assigned revenues at a level higher than what was justified by their history, the Government of India was able to assign reduced sums for the provincial services than what it would have been required to do if the standard yield had been fixed at a lower level. This reduction in assignments owing to abnormal estimates of the ceded revenues was a direct gain. The excesses above the standard also opened additional possibilities of gain owing to the clause governing the cessation of revenues, although it must be recognised that under the same clause the Government of India stood to lose in the eventuality of the actual revenue falling below the standard. How much it gained from these conditional channels of gain it is difficult to say. On the whole, it cannot be denied that the gain to the Imperial treasury was substantial.

Thus the results show that the scheme of Provincial Finance on the basis of assigned revenues was a success both from the standpoint of the Provincial and Imperial Governments, so that they agreed mutually to make a further move in the development of the scheme which constitutes its third stage.

 

Contents                                                                          Continued..


 [f1]

1 Annual financial statement for the official years 1860-1 to 1873-4, with Appendices : Calcutta, Office of the Superintendent of Government Printing, 1873, p. 348.

 

 [f2]1 Financial Statement, 1877-8.

 

 [f3]See his Minute dated July 27, 1872.

 

 [f4]1Financial Department Notification No. 1807, Gazette of India, Part I, March 31, 1877, p. 172.

 

 [f5]1 Gazette of India. Part I, March 31, 1877, p. 174.

 

 [f6]1 Gazette of India, Part I, dated June 2, 1877, p. 274.

 

 [f7]1Gazette of India, Part I, dated August 4, 1877, p. 468

 [f8]1 Resolution of the Financial Department, No. 4063, dated November 9, 1878.

 [f9]2 Finance Department Resolution of May 1 1879, Gazette of India, Part I, May 3, 1879, p. 329