Vol. 6 · pages 121–125

106 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES His object was to enact local budgets “not merely to meet a temporary difficulty but to inaugurate a permanent improvement,” to the relief of the Imperial treasury and the benefit of the Provincial Governments. This scheme involving the management of the public works charges by the Local Government with an allotment from the Imperial revenues supplemented by the power to tax had secured a general approval. But at the time when the scheme was put forward the Local Government was without the requisite machinery for carrying into execution the powers of legislation necessary to impose the taxes proposed to be given to them. The execution of the scheme had therefore to be postponed pending the enactement of local legislative councils then undertaken by Parliament. But, the ensuing years having been years of financial prosperity, the interest in the scheme relaxed and it was consequently dropped sine die. This spell of prosperity, however, proved to be only a passing phase and the stress of returning adversity which beset Mr. Massey compelled him to revive the scheme in a much more enlarged form. 1 He proposed that: “In considering the ways and means by which the additional amount (of one million sterling) should be raised .....the most convenient mode of proceeding would be by a partial transfer of charges of a local character from Imperial to local account.” As the annual produce of local funds applicable to local purposes in India did not much exceed two million sterling, it was proposed to make the moderate addition to this amount of £1,200,000 in round numbers to be raised in rateable proportions in the several Presidencies and Local Governments, and applied in relief of a corresponding amount of charge for local services then borne by the Imperial revenues. The above-mentioned sum of £1,200,000 was arrived at by an assessment of 4 per cent on the estimated revenues of the several Local Governments (except Burma) for the current year, after excluding customs duties and the income tax. 2 The heads of charges to which the proceeds of the new funds were applicable were (1) education, (2) police, (3) district jails, (4) public works, (5) repairs and maintenance of roads. The list of taxes suggested to provide ways and means 1 Demi-official letter dated February 25, 1866, to the Local Governments. Papers, etc., on the extension of Financial Powers of Local Governments, p. 67. 2 Ibid, para. 8.

107 THE COMPROMISE included (1) a license tax on trades and professions, (2) a house tax, (3) an octroi duty in towns, and (4) a succession duty on lands which did not pay revenue. The Local Governments were to be left free, subject to the approval of the Government of India in Council, to select the particular tax most suited for being levied in their respective territories so as to yield the full amount required, after deducting the cost of collection, and spend the proceeds on the services mentioned above, on all or any of them, according to their discretion. The replies of the Local Governments and administrations addressed in connection with this scheme, indicated a general agreement as to the practicability of such a transfer of charges being made and being met by new local taxation, though there was also a general disposition to object to the transfer of charges without a simultaneous transfer of revenue with which to meet the expenditure on them. Under the circumstances the Government of India agreed to reduce the expenditure to be transferred to the Local Governments to £ 800,000 and to transfer to them the proceeds of the license tax as a means for making adequate provision for the same. 1 The favourable reception accorded to the scheme and the sympathetic criticism to which it was subjected led Mr. Massey to extend and modify it. In his exposition 2 of the new and enlarged scheme Mr. Massey wrote : “my first object has been to select, for the first series of charges to be transferred to local authorities, those items of expenditure which being least susceptible of control by the Government of India, give as a whole, an amount of such dimensions as will not be difficult to manage, and yet will be of sufficient importance to indicate that the measure is intended to be a reality, and a step towards the more complete transfer of the financial administration to the local government. Taking the civil estimates..... it seems to me, plainly, the most convenient method of proceeding to transfer a few entire grants or section of grants, in preference to selecting special items from several 1 Circular letter dated September 19, 1867. Op. Cit., p. 67. 2 The new scheme was outlined at the request of Mr. Massey by Col. R. Strachey in Note on the Transfer to Local Governments of the Control over Certain Portions of Public Expenditure, ibid, pp. 51-62.

108 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES grants..... By adopting the plan..... no change whatever in the system of accounts will be called for; and the only alteration will be, that certain sections of the grants for various purposes, will be provided in a special manner. The only exception to this rule..... is in dealing with a head ‘Miscellaneous’ which..... is rather an incongruous collection of charges. Among these will be retained, for transfer to local management, all those items which would reasonably be termed local..... and the residue..... could easily be classed under some of the other main heads of charge. The most important of the charges which I should propose to transfer is that for ‘Jails’ subordinate to ‘Law and Justice,’ which may... be taken in lump. The charges for ‘ Registration ‘and’ Tulubana’ also under ‘Law and Justice’ follow. These are met from special fees credited under the head of ‘Law and Justice’. To set off against these charges, a transfer of the revenue under ‘Law and Justice’ is also proposed... Under ‘Education’ the ‘Miscellaneous’ charges are proposed to be transferred to the corresponding transfer of the revenue credited under ‘Education’. Next follows the whole of the charges under ‘Medical Services’ except the fixed ‘Medical Establishments and Chemical Examiners’. The entire charge under ‘Stationery and Printing’ is also taken. Under ‘Police’ the charges met by contributions from local sources are transferred, including the Railway Police. Against this is set off the receipts under ‘Police’. ‘Besides the above it is proposed to transfer a portion of the charges, for the collection of the Land Revenue and of the Income Tax and License Tax, which... I have assumed as likely to be levied in future. It has been necessary to assign a sum sufficient to cover the general charges which would be transferred and the propriety of transferring a corresponding portion of the cost of collection seems apparent. Under the designation of charges of collection of the Land Revenue were not included the cost of the Revenue Survey or Settlement as they were exceptional and variable, though the charges under ‘Allowances to Village Officers’ were included. **** “The first and principal transfer of revenue will be a portion of the Land Revenue, which I propose to fix at 1/16th or one anna in

109 THE COMPROMISE the rupee. The same rate will govern the proportion of the charges for collection transferred.......... “The next item of revenue which I assume at onefourth of the Income Tax and License Tax, which I shall suppose to be raised. 1 “It is next proposed to transfer the whole of the receipts under the following heads : (1) Law and Justice, (2) Police, (3) Education, (4) Miscellaneous, except items of a financial nature, and also (5) all income under Police Works excepting that derived from Irrigation. The items of expenditure under Public Works proposed to be transferred are (1) Roads, (2) Repairs of Civil Buildings, (3) Miscellaneous works both new and repairs, and (4) Tools and Plant.” The scheme thus enlarged was discussed at length from various points of view. But though it won the approval of cautious critics2 the scheme was too large for the Imperialists. And as the two greatest of them, Lord Lawrence, the Viceroy of India, and Lord Napier of Merchistoun, Governor of Madras, disapproved of it, it failed to materialize in consequence of their opposition. But unfortunately for the Imperialists, throughout this decade during which they were stubbornly objecting to any surgical operation on their patient—the Imperial system of Finance—it did not show any sign of convalescence. On the other hand, the delay in the operation aggravated its ills. Notwithstanding the constant enhancement in taxation and the reduction in expenditure, the three Chancellors of the Indian Exchequer sent from England could point to only three years of surplus during the decade between 1860 to 1870. On the other hand, to the embarrassments due to constant deficits was added the bewildering breakdown of the budget system created to bring about order and economy in 1 In thus calculating the share Mr. Massey wrote, “The Income Tax I have taken at 2 per cent, and I have conceived that it will cease below incomes of 2,000 rupees. The Licence Tax I have supposed to be a trade tax beginning at the existing limit and going upwards to meet the Income Tax.” 2 Sir Stafford Northcote declared—“We must take care that the solidarity of Indian Finance is not shaken, and we must provide safeguards against reckless expenditure. We have a system which has raised the credit of India to the highest pitch, and therefore I should be the last to disturb it, and would be slow and cautious in introducing any change. Nevertheless, I repeat that in the principles of Mr. Massey’s suggestions I concur.”— Hansard’s Parliamentary Debates, Vol. 191, April 23, 1868.

110 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES the public finances of the country. Not to speak of its efficiency as an instrument of economy, the budget system under the strain due to excessive centralization proved useless even as an instrument of order. The finances fell into a chaos. Notwithstanding the elaborate circulars and orders issued with regard to the accuracy in the framing of the budget estimates, it was an extraordinary phenomenon which confronted the Finance Ministers when the budgets, which were begun with large estimated surpluses, strangely enough closed with large actual deficits. To what extent the actuals erred from the estimates may be seen from the following table : DERANGEMENT OF GOVERNMENT FINANCES 1 Year Estimate Deficit— Surplus Actual Deficit— Surplus ££ 1866-67 ... ... ... —66,700 —2,307,700 1867-68 ... ... ... 1,628,522 — 923,720 1868-69 ... ... ... 1,893,508 — 2,542,861 1869-70 ... ... ... 48,263 — 1,650,000(est.) From the above table it is clear that the estimates for 1868-9 and for 1869-70, which were based on the revised estimates of 1868-69, were expected to end with an estimated surplus of £1,893,508 and £48,263 respectively. But when the actuals of the year 1868-69 showed that instead of a surplus there was to be a large deficit, Lord Mayo, who was in the meantime appointed to the Viceroyalty of India, became convinced that if his budget was recast on the basis of these results, it would close with an actual deficit instead of the estimated surplus. This financial surprise threw his budget into confusion, and to restore order he was obliged to adopt the 1 Hunter, W.W., Life of Mayo, Vol. II, pp. 7-8. The figures for actual deficits given in the Table differ from those given by Mr. Chapman, Offg. Secretary to the Government of India, F.D., in his Circular letter of 17-8-1870 to the Government of Bombay communicating to the latter Lord Mayo’s scheme. According to Mr. Chapman the figures for deficit (actual) are as follows:— In 1866-67 the actual deficit was ... ... £2,517,491 ” 1967-68 ” ” ... ... £1,007,695 ” 1968-69 ” ” ... ... £2,774,031 —cf. Papers, etc., on the extension of Financial Powers of the Local Governments, p. 243, for the Circular letter referred to.