Vol. 6 · pages 126–130

111 THE COMPROMISE unusual procedure of addition to taxation and the reduction of expenditure in the midst of the fiscal year. The following is a synopsis of the measures he adopted :— £ I. Additional Taxation (1) Income Tax raised from 1 to 2½ per cent 320,000 (2) Enhanced Salt Duty (in Madras and Bombay) 180,000 Total ... 500,000 II. Reduction of Expenditure— (1) Education ... 350,000 (2) Public Works ... 800,000 Total ... 1,150,000 Estimated Deficit ... 1,650,000 So grave was the crisis that with all these measures he could do nothing more than close his budget with an estimated deficit of £1,650,000 which would have been inevitable had it not been for certain windfalls such as the recovery of the value of supplies in the Abyssinian War and the adjustment of other large outstanding accounts which enabled him to convert his large deficit into a small surplus. Happy as he was over the immediate results of his efforts, Lord Mayo was convinced that there was something rotten in the system of Imperial Finance and, while anxious not to end it, he courageously set forth to mend it by inaugurating the scheme of Provincial Finance represented by the compromise the growth of which will be the subject-matter of Part II of this study. zz

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

113 BUDGET BY ASSIGNMENTS 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 6¼ 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 ⅛ 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,

114 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES 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 percarious 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. 1 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. Jails. 1 Net grant means total expenditure on a service minus the receipts from the service. *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 Calcutta. Treasury Buildings 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”.

115 BUDGET BY ASSIGNMENTS 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. BL 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 Receipts 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 ... 10,566 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 9 46,040 5,019,512 Constituted on the basis of figures given in the Resolution of December 14, 1870