Vol. 2 · pages 646–650

625IN THE FEDERAL STRUCTURE COMMITTEE not found myself in disagreement with the majority of the recommendations made by the Sub-Committee. The first problem with which the Sub-Committee has dealt is the problem of the division of resources between the Federal Government and the Units ; and, in making the recommendation which the Sub-Committee has made, it has proceeded upon certain principles applying to the division of resources as between the Federal Government and the Units. Those principles are referred to in paragraph 8 of the Report, and there it is suggested that a proper system of allocation of revenues between the Federal Government and the Units would be that “indirect” taxes should go to the Federal Government and “direct” taxes should go to the Units. Now, that is a principle to which I venture to take exception : and the first thing that I would say is this, that this is something which has no foundation in precedent at all. I have examined with much care the constitutions of most of the Federal Governments, and I find that there is no authority for the principle which has been enunciated in paragraph 8 of the Finance Sub-Committee’s Report. Take, for instance, the Constitution of Canada, Section 91 and Section 92. There the scheme laid down is that the Provincial Governments in Canada are restricted to what are called “direct” taxes, but the Central Government is not restricted to “indirect” taxation. The liberty of the Central Government to have either a “direct” tax or an “ indirect” tax is kept intact in Canada. If you take the Australian Constitution, Sections 86, 69 and 90, you will see that the same result is arrived at, although by a different method. These sections provide that the States shall not levy Customs and Excise. Of course, from that it does not follow that the Central Government in Australia can levy only Customs and Excise. There again the liberty of the Central Government in Australia to levy “direct” taxation is preserved intact. The Sub-Committee has made a reference to the fact that the system which it described in paragraph 8 of the Report prevailed in the United States until the 16th Amendment to the Constitution was passed in 1913. I beg respectfully to submit that that is an error. The United States Constitution, even as its very inception, never laid any limitation upon the power of the Central Government in the United States to levy “ direct” taxation. If you refer to Article I, Section 2, of the United States Constitution, you will find distinct provisions stating that the Central Government in the United States shall have liberty to levy “direct” taxation. The only limitation that was put upon the authority of the Central Government in the United States to levy “direct” taxation, was that “direct” taxation, if levied at all, was to be apportioned amongst the various States according to population. The only provision that was made by the amendment of 1913 was that this limitation upon “direct” taxation on the part of the Central Government—namely, apportionment according to population—was abolished. But the right existed from the very start. Not only so, but it was exercised in 1864 by the United States,

626 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES and also in 1894. The only country which had for some time a system, which was in accordance with the proposition enunciated by the Committee, was Switzerland. There the Central Government was entirely dependent upon “indirect” sources, while the Cantons had the power to levy “direct” taxation. But I do not suppose that any member of this Committee would really be so bold as to draw a moral from the experience of Switzerland for the purposes of the Indian Federation. There would be no purpose in comparing, if I may say so, chalk with cheese. And, even there, the Swiss Constitution had to give up this system in 1915 and permit the Central Government to levy “direct” taxation on the citizens of the State. Consequently, in so far as this proposition is going to serve as a direction to the Expert Committee that is to be appointed, I am unable to give my concurrence to it. Coming now to the actual division of resources proposed by the SubCommittee in paragraph 10, of course, the only test that would be applied to this allocation is the test of adequacy. Is the allocation made in paragraph 10 such as to give both to the Central Government and to the Units the necessary adequacy of revenue ? Now, it is not possible to examine the scheme by that test, because—without meaning any offence to the Sub-Committee— the Report is absolutely bare of the necessary Budget Estimates that one would have to have before oneself in order to say whether the allocation is adequate or not. The division seems to have been based on the assumption that the welfare functions are largely Provincial, and that therefore the Provinces must get expanding sources of revenue. That, of course, is true in the main ; but, in so providing, it seems to me they have denied to the Federal Government both adequacy and elasticity in its fiscal system. Take the revenue side of the proposals as contained in paragraph 10 of the Report of the Sub-Committee. You have first of all Customs as a source of revenue. Now, there are various factors on which the Customs revenue would be dependent. First of all, it would be dependent upon trade prosperity or trade depression. In times of depression it is obvious that exports would be reduced, and also the consuming power of the people, and to that extent imports would also be reduced ; and that would mean a direct reduction in the Customs revenue. Secondly, this source of revenue is largely dependent upon the particular kind of tariff policy that will be pursued in times to come. It may be that there may come into power in India a party which may believe in absolute protection, creating a dead wall against any imports of any sort from outside that are likely to compete with industry and products at home. If that happens—if imports are shut out by a policy of extreme protectionism—that would cut at the root of the Customs revenue. If, on the other hand, there comes a party in power which believes in free trade and no protection, that again will make the Customs revenue a very bare and slender source for the Federal Government to depend on. And now, let us take the second source of revenue for the Federal Government—Opium. According to the Government of India’s Despatch, I find the

627IN THE FEDERAL STRUCTURE COMMITTEE Government of India say that we shall lose all our revenue on Opium exports, which amounts to about 2 crores, but shall still retain a small sum of 10 or 15 lakhs from the sale of medical Opium. That shows how meagre is this source of revenue for the Federal Government. The third source of revenue which has been assigned to the Federal Government by the Sub-Committee is the Salt-tax. Now, as we all know, this source has been a matter of contention and has been dragged into the vortex of Indian politics ; and, if the Congress Party had its way, this tax would vanish altogether. Now, apart from the question of whether the Congress would succeed in removing the tax altogether, it is absolutely certain that this tax. which is so intimately bound up with the standard of living of the ordinary masses of the people in India, can never be depended on to give a very large source of revenue to the Federal Government. Lastly, you have the Corporation tax, which is suggested by the SubCommittee as a source of revenue for the Federal Government. I am informed that its yield is somewhere about 3 crores, so that obviously it is at the present moment a source of very small dimensions. It seems to me that, if we agree that industrialisation is a very important thing for the prosperity of India, and if we further agree that, for industrialisation, the incorporation of capital is also necessary, then I am afraid that we cannot increase this tax to any very large extent, for fear of penalising incorporation. This is what I feel regarding the revenue side of the Budget. Coming to the expenditure side, the Sub-Committee has proceeded upon the view that the Government at the Centre will have very little to do except to defend. I do not agree that that can be the view of the function of any government in modern times. There was a time in history when people thought that the proper function of a government was to provide for nothing but anarchy plus the constable ; but I think we have changed. We believe that the government must provide the constable, but it must also provide welfare. It seems to me—this is my personal view, the view of other members may be different—that the Government at the Centre, for some time at any rate, will have to take upon itself certain welfare functions which to my mind are peculiar to India. I think, and I am going to propose elsewhere, that the Government at the Centre should take upon itself the burden of securing and helping, to some extent at any rate, the welfare of what we call the Depressed Classes. I want that the problem of the Depressed Classes, and the problem of removing Untouchability, should not hereafter be looked upon as a purely Local or Provincial problem. I want that it should be looked upon as a national problem in which the whole of India is interested. I want the Government at the Centre to take upon itself the duty of bringing the jungle tribes, which number probably as many as the Depressed Classes themselves, within the pale of civilisation. I want that Government to take

628 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES upon itself certain functions in respect of what are called the “backward tracts”. In other words, my submission is that the Government at the Centre should take at least such welfare functions upon itself as will guarantee what I call the minimum of civilised life to every individual and to every community. Then, again, there may be such afflictions as may affect the whole of India, or as may affect a particular Province and which yet may not be within the competence of that particular Province to deal with. Take, for instance, the curse of malaria. In some Provinces, it is a small malady. In some Provinces, I am told that it is eating into the vitals of the people. The Province may not be sufficiently strong, economically or financially speaking, to eradicate it. It may have to be treated as a national problem, and to that extent the national government will have to take a welfare function upon itself. Again, the Sub-Committee does not seem to have taken into account the fact that, for certain peculiar reasons, apart from reasons which would be common to all the provinces, the Federal Government may have to give certain subventions, for instance, subventions to the North-West Frontier Province, for the peculiar burdens it may have to bear by reason of its special connection with Imperial problems. Similarly, new Provinces may come into being, and, in order that they may be sustained, the Federal Government may have to give them subventions. Now, it seems to me that, if you take a broad view of the expenditure side, as I have tried to explain, and compare it with the revenue side as is proposed in this Sub-Committee’s Report, it should not be at all an exaggeration if I said that the fiscal system which is adumbrated for the purposes of the Federal Government will be such as will enable it to keep its nose just above the water in ordinary times : and even that may not be so. What is absolutely certain is that, with any gust of adverse wind, it will sink. Now, take the provisions suggested by the Sub-Committee in paragraph 21 regarding emergency—I ought to say grave emergency. Now, the recommendation made by the Sub-Committee is that the Federal Government should have power to call for contributions from all the Units of the Federation. The question that arises in my mind is, is this a safe and a sure method ? Is this a method which would be a dependable method in all circumstances ? As regards the willingness of the Provinces to pay contributions in a grave emergency to the Federal Government, a view was expressed yesterday by an esteemed colleague. He said that, if the Provinces were to help the Federal Government in a grave emergency with contributions, then the Provinces should have the discretion in determining whether an emergency has arisen or not. Now, I do not think that that is a view that will be accepted by all ; but that view is surely indicative of

629IN THE FEDERAL STRUCTURE COMMITTEE one thing—namely, that the Provinces will not be willing co-operators in meeting the deficit of the Federal Government in an emergency that may arise. Could the States be depended upon to meet their share of the contribution in an emergency ? I have raised that question, but I do not know that I should give the answer. In any case it seems to me that it is not a dependable method. As to the solvency of the Provinces, we can be more or less certain. About the solvency of the States in an emergency, for emergency purposes, I, for one, could not be certain of that. Therefore, My Lord Chancellor, my conclusion is that, for the purposes of adequacy, for purposes of elasticity and emergency, the best course would be to widen and broaden the basis of the financial system of the Federal Government. Therefore, my proposal would be that the Income-tax should be treated as a common source of revenue both for the Federal Government and for the Provincial Governments, so that each Government will have the inherent right and authority to tap that source, whenever there is any necessity for it, without having to depend upon such contributions as are contemplated in paragraph 21. Now, while I am dealing with this, I should like also to make certain observations as to the method of sharing this Income-tax. Before I do so, let me enunciate two propositions. The first is that in any allocation that we may ultimately agree upon between the Federal Government and the Units—I am speaking particularly of the Provinces of British India—we should so contrive matters that the Provincial finance shall be a self-contained system not dependent upon doles or upon contributions. Secondly, I should so contrive the Provincial system of finance that it would not be destructive of that sense of responsibility which every Executive must feel towards its Legislature. Chairman: Do I rightly interpret your remarks, that it would be most important to get all the Provincial matters into order as soon as possible ? I quite agree with your laying down a canon with regard to Provincial finance, and I gather you mean that all these Provincial questions should be settled as soon as possible. Dr. Ambedkar: They should be. My submission, following these two propositions, is that I would not approve of such a division of the Incometax as would permit the Federal Government to fix the rate of taxation and to divide the yield between the Provinces, and itself. I would allocate the basis of taxation, one base to the Federal Government, and another to the Provincial Government. I want the system recommended by the Taxation Enquiry Committee introduced so far as the division of the Income-tax is concerned. I should allocate “personal income” to the Provinces, and the rest of it to the Federal Government, and the rate on “personal income” should be fixed by each Province, and not by the Federal Government, according to its own necessity.