Vol. 6 · pages 196–200

181 BUDGET BY SHARED REVENUES period of its currency :— PROVINCIAL SURPLUSES OR DEFICITS (IN RUPEES) Provinces 1912-13 1913-14 1914-15 1915-16 1916-17 1917-18 1918-19 C.P. ... 5085246 1881245 —6544416 —13836 4235704 1870517 920121 Burma ... 8874174 914026 —3729808 1896621 9427702 12067708 4873587 Assam ... 3610494 —2217691 —4550789 658812 6044904 2800634 435872 Bengal ... 14705270 480842 —3967607 1028156 3708638 5280082 732237 Bihar & Orissa 7022199 —920062 —1870264 1133562 5919907 7176786 3643564 UP. ... 9588749 50704 —4611080 —973090 3427808 —2268311 3686945 Punjab ... 7411069 —692512 —3730641 —1133541 500995 —695216 1185930 Madras ... 4330275 —5298411 —1207754 318508 2571241 1042303 —972354 Bombay ... 7083281 1558566 —2639924 —951099 122434 611321 1681066 Compiled from the Annual Finance and Revenge Accounts of the Government of India. While the condition of Provincial Finance was thus undoubtedly prosperous, the erratic movements in the provincial balances do not quite bear out the hope of orderly progress that was entertained of the permanent settlement. It should be noted, however, that the period during which the permanent settlement was current was not wholly a normal period. Part of the permanent settlement was no doubt a peace period, but it was not even as long as a quinquennium, and it should not on that account detract from the merits of a permanent settlement if it disclosed the faults of the quinquennial settlements. Most of the period covered by the permanent settlement was, however, a period of the Great War, the abnormal events of which could not have had any but disturbing effects on Provincial Finance. Whether the permanent settlements would have been adequate for the purpose in view if sufficient length of time had been allowed for conditions to have become settled it is not given to us to say. For, from April 1, 1921, provincial Finance in British India entered on an entirely new phase. That phase of it will be dealt with in another part. Here the study of the growth of Provincial Finance as it developed stage by stage under the old phase comes to an end. But this study will not be complete until we deal with the mechanism which inter-related the finances of the Central and Provincial Governments under the old phase. But before we proceed to do so it might be of interest as well as of value that the study of the final stage in the development of Provincial Finance were to close with the following retrospect of provincial revenue and expenditure which shows, as nothing else can, the small beginnings, the large strides and the vast proportions that Provincial Finance had reached during the half century over which it had been allowed to run its course. zz

182 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES GROWTH OF PROVINCIAL FINANCE Provinces Provincial Revenues As a percentage of the total Revenues of India Provincial Expenditure As a percentage of the total Expenditure of India 1871-2 1882-3 1892-3 1904-5 1912-3 1918-9 1871-2 1882-3 1892-3 1904-5 1912-3 1918-9 C.P. ... ... ... .655 1.055 .863 .905 2.52 1.715 .652 1.008 .87 .984 2.19 1.685 Burma ... ... ... .572 1.66 2.256 3.023 4.73 3.57 .592 1.914 2.16 3.31 4.14 3.15 Bengal ... ... ... 2.8 5.9 4.72 4.12 5.56 4.00 2.7 6.68 4.52 4.26 4.56 3.84 N.W.P. and Oudh ... ... 1.99 4.16 3.6 ... ... ... 2.04 4.4 3.32 ... ... ... Punjab ... ... ... 1.66 1.59 1.888 2.08 3.96 3.11 1.55 2.165 2.03 1.83 3.47 2.81 Madras ... ... ... 1.595 3.32 3.3 2.88 6.27 4.75 1.61 3.24 3.4 3.09 6.1 4.53 Bombay ... ... ... 1.8 4.9 4.49 4.05 6.17 5.45 1.836 5.08 4.4 3.77 5.7 5.00 Assam ... ... ... ... .61 .738 .597 1.38 1.00 ... .505 .617 .618 1.13 .857 U.P. ... ... ... ... ... ... 2.99 5.5 4.15 ... ... ... 3.01 4.87 3.94 Bihar and Orissa ... ... ... ... ... 2.6 1.9 ... ... ... ... 2.11 1.775 Total Provincial ... 11.11 22.8 21.75 20.4 38.6 29.2 10.8 25.00 21.3 20.8 34.3 27.6 Complied from the Annual Finance and Revenue Accounts of the Government of India.

PART III PROVINCIAL FINANCE : ITS MECHANISM CHAPTER VII THE LIMITATIONS OF PROVINCIAL FINANCE To those who might be expected to have a knowledge of the anomaly—unparalleled in the annals of administration— involving the existence of provincial Government without there being the necessary complement of Provincial Finance, the study could not but have been of profound interest as disclosing the manner in which the anomaly created in 1833 was rectified or seemed to be rectified in 1870. 1 1 There, however, prevails the idea that Provincial Finance existed long before 1870, But this is undoubtedly an error which may as well be corrected in this place by briefly recalling the history of financial decentralization prior to 1870. The year 1855 will always stand preeminent in the history of decentralization of Indian Finance. It is from that year that Local Finance dated its origin. It must not, however, be supposed that prior to 1855 there were no local revenues. On the contrary, there were very small funds such as Ferry Funds, Toll Funds, Cesses, etc., in existence and were spent on improvements of local utility, but the important point to note is that the balances from such funds were not carried to a separate account but as a rule merged in the general balances of the country, with the exception probably of Bengal and North-Western Provinces, where it seems that such balances were carried to separate Local Fund Accounts (cf. Calcutta Review, 1851, Vol. 16, pp. 464 and 466). It was by the Financial Resolution of May 11, 1855, that Local Funds were completely separated from Imperial Funds and were treated as “Deposits”—a sub-division of the Account Head “Debt” (cf. Accountant’s Manual, by Y. Venkatramaiah, Part I, Madras, 1866, p. 79) and by the Resolution of September, 1863, Local Finance was established on a separate footing by the institution for each of the different provinces of a distinct Local Fund Budget as separate from the Imperial Budget. It so happened that in the absence of local authorities the Government of India entrusted the task of the preparation and execution of the Local Funds Budget to the respective Provincial Governments as being more in touch with local wants. It is this accident that has betrayed many into the supposition that this was essentially Provincial Finance. But nothing can be a greater blunder. What existed before 1870 was Local Finance, pure and simple, although under the supervision of the Provincial Government, in whose hands the Local Funds were essentially a kind of trust. The mere bringing together by the Provincial Governments of the receipts and charges pertaining to the Local Funds into a Local Fund Account for the whole Province can hardly be interpreted to mean the amount to be at their disposal—and that is the only sense in which Provincial Finance can be a reality—any more than the bringing together of the Local Rates levied in the United Kingdom in the budget of the Chancellor of the Exchequer can give an indication of its financial position. The Local Funds were not at the disposal of the Provincial Governments, for they could not be disposed of on purposes other than those which attached to them. In this sense they constituted Local Finance and not Provincial Finance. Some people mistake it for Provincial Finance probably because the term “Local Government” is used as a synonym for Provincial Government. But, while Local and Provincial Governments are often used as interchangeable terms, it must be remembered Local and Provincial Finance cannot be so used. As a matter of fact, there was a period in the history of Financial organization in India during which there was Local Finance without Local Government to be precise, and there was no Provincial Finance, even though there were Provincial Governments. It is probable that, as long as the habit of speaking of Provincial Government as Local Government continues, this confusion of ideas will not entirely vanish. While some have insisted that Provincial Finance had its being long before 1870, the Resolution of December 14, 1870, which instituted the scheme of Provincial Finance, is called “Resolution on Local Finance” as though it gave rise to Local and not Provincial Finance. Such absurdities can be avoided only by insisting upon precision of terminology.

184 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES On a purely a priori consideration of the matter, nothing could have been more natural than to suppose that the system of Provincial Finance thus established in British India was independent in its organization. Indeed it is difficult to imagine how one could emerge from the study of its origin and development without such a faith having silently grown upon him. But if Provincial Finance was independent in its organization, we should find the Provinces in possession of financial powers which are commonly associated with the functioning of independent States. For the immediate purpose of finding out whether or not Provincial Finance was an independent system of finance, we may take the freedom of budgeting and everything that is involved in it as an evidence of the existence of these powers. Independent budget powers would involve the power to determine the services which, according to the needs of the country, a good government should undertake, and to decide upon the mode of raising either by taxation or loan sufficient money to meet the expenditure upon those services. Alongside these powers the budget: system entails the obligation of keeping accounts and submitting them to independent audit. Applying these tests to the Provincial Budget, the origin and growth of which have been treated in the foregoing parts of this study, we cannot predicate a tithe of the independence which characterizes the budgets of sovereign States. On the contrary, the budget system introuced into India with regard to the different Provinces was accompanied by the most stringent limitations. They were given a budget without its powers, and they bore the obligations of accounts and audit just because they were left free within the limits of their budgets. Why these limitations were imposed will be explained when we come to scrutinize the ways of enlarging the scope of Provincial Finance. it must, however, be emphasized that these limitations formed an integral part of the scheme, and the stringency of the former had grown pari passu with the scope and proportions of the latter. In fact they defined the law of the Constitution of Provincial Budgets. A complete comprehension of the operation of Provincial Finance in British India is therefore not possible without a thorough knowledge of its rules of government. Such being the importance of these rules it cannot but be to our advantage to analyse them at this stage.

185 LIMITATIONS OF PROVINCIAL FINANCE These rules were laid down on various occasions during the interval between 1870, when the scheme of Provincial Finance came into being, and 1912, when the scheme reached through an evolutionary process its final and permanent stage, in the form of Resolutions of the Government of India in the Department of Finance. The rules framed in 1870 1 were few and simple. Nor was there any necessity for a complex code to govern the operation of the very meagre budgets which were then constituted. Many supplementary rules were issued afterwards to dispose of unforeseen cases of order and procedure; but it was not till 1877 2 that we come across a most elaborate set of rules and regulations governing the financial transactions of the provincial Government. The Rules of 1877 were the basis of all those that were subsequently issued. With very small addenda or corrigenda they remained in force for a period of fifteen years, when they were superseded by a new series of Rules promulgated in 1892. 3 But only within a short span of a quinquennium this series was replaced by another issued in 1897,4 and the latter formed the governing body of Rules till the year 1912, when a new series was brought out to regulate the working of the permanent settlement made in that year. 5 The same was reissued in the Financial Department Resolution No. 361 -E-A. dated July 24, 1916. But as the alterations therein were not in any sense consequential, the series of 1912 may be taken as laying down the final regulations of Provincial Finance. Recognize as we must the necessity for analysing the rules, we must determine beforehand the point or points of view from which to conduct the analysis. It must be premised at the outset that the object of entering upon the examination of the Rules is twofold : (1) to know what limitations there were and (2) why they were placed. Our immediate interest, it is true, is to state what limitations there were, but this is only a preliminary, if not a minor, object. The second is really the more important of the two. It is only as an aid to the proper understanding of the causes of the necessity for these limitations that a knowledge of them is to be sought. While keeping in our mind the immediate object of stating the limitations, it will be unimaginative not to foresee that in the following chapter, 1 Financial Department Resolution No. 3334 dated December 14, 1870. 2 Financial Department Resolution No. 1709 dated March 22, 1877. 3 Financial Department Resolution No. 1142 of March 17, 1892. 4 Financial Department Resolution No. 3551 dated August 11, 1897. 5 Financial Department Resolution No. 249-E.A. dated July 15, 1912.