Vol. 6 · pages 211–215

CHAPTER VIII THE NATURE OF PROVINCIAL FINANCE The study of Provincial Finance cannot be said to be complete unless it furnishes a true answer to the question which is bound to be asked in the end. What was the resulting financial relationship under the old scheme between the Central and Provincial Governments in British India? The question is an important one, for the validity of the criticisms and proposals with regards to Provincial Finance, or any subject for that matter, depends entirely upon a correct understanding of its nature. Unfortunately it had not received the attention that its importance demanded, and consequently we find the rather distressing fact that no subject was so confidently discussed, and yet none was so grossly misunderstood, as that of the nature of the old system of Provincial Finance in British India. It therefore becomes necessary to explain what was the exact nature of the system of Provincial Finance established in British India. In an inter-related system of polities, such as is composed of Central and Provincial Governments in British India, it is always difficult to grasp the exact nature of their financial relationship; for, what may appear on the surface may be very different from what it may really be. None the less, the view was commonly held that the Indian system was based on a separation of sources between the Provincial and the Central Governments, and contributions from the yield by the former to the latter, much the same as was found in the federal system of finance which obtained in the German Empire. Whether such a view was wrong or right there were various incidents of the relationship between the Central and Provincial Governments in India, which, there can be no doubt, went a long way to strengthen that view. Among such incidents must be mentioned the division of functions between the Central and Provincial Governments. An onlooker could not fail to observe that in this distribution of functions the former controlled matters pertaining to Military Affairs, Foreign Affairs, General Taxation,

197 THE NATURE OF PROVINCIAL FINANCE Currency, Debt, Tariffs, Posts and Telegraph, Railways and Adult and Accounts; while the latter administered matters of ordinary internal administration, such as Police, Education, Sanitation, Irrigation, Roads and Buildings, Forests, and the control over Local Bodies. If this incident encouraged the view that there was a separation of services, there was another incident of the relationship which encouraged the view there was also a separation of revenues between the Central and Provincial Governments in British India. That incident was the collection of most of the taxes in India by the agency of Provincial Governments. As observed by the Royal Commission on Indian Expenditure 1 “in the United Kingdom the Revenue Administration is centralized..... under the Chancellor of the Exchequer in London. In India the administration of some branches of revenue is centralized, though not always under the Finance Minister (of the Government of India). That of other branches is decentralized. The Land Revenue is under the control of the Central Department at Calcutta, but that department is subject not to the Finance Minister but to the Minister in charge of the Home and Revenue Departments. The Telegraph Department is under the Minister of Public Works. The Central Government controls the collection of part of the Salt duty and of part of the opium revenue, of Post Office revenue and of other revenues..... The remainder of the revenue is collected by the Provincial Governments.... As regards..... a large portion of the revenue, the Provincial Governments are units of administration and are efficiently equipped for their duties.” As a third incident supporting the same view, reference must be made to the peculiar mode of presenting Indian Accounts adopted in official Blue Books. As might have been noticed, to the General Accounts of the Government of India is attached a supplementary account professing to show the distribution of the different heads of receipts and expenditure among the various Provinces into which British India has been divided. This mode of showing the accounts is beyond doubt misleading. It appears as if the aim was to show the financial position of the Provinces. But as a matter of fact the figures given in the columns in which the revenues and charges are shown in their provincial distribution do not represent the respective claims and responsibilities of the different Provinces. Far from showing the financial position of the Provinces, the figures in the columns merely represent the geographical distribu1 Para 25 of the Final Report.

198 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES tion of the different agencies through which the financial business of the Government of India is conducted, and through which the revenues are collected and the expenditure is defrayed. The revenue and expenditure, for instance, shown under “Bombay” represent the income and outgo which pass through the books of the Accountant General of the Government of India stationed at Bombay, and the same is true of entries under the heads of other Provincial Governments. The figures really represent the transactions of the Government of India distributed geographically, and there is nothing provincial about them in the least. However, such a system of account bears the impression that the system of finance in India is primarily Federal. With these three incidents before one’s mind it was easy to fall into a federal line of thinking in reasoning about the financial relationship between the Central and Provincial Governments in British India. So deep seated was the view that the Indian system was one of separation of sources and contributions from the yield, that many witnesses giving evidence before the Royal Commissions on Indian Expenditure (1892) and on Decentralization in British India (1909) sallied forth to assail the Commissioners with the criticisms on the inequity of the system and proposals for amending it according to what they considered to be the requirements of justice. Nowhere have they stated the reasons for their assumptions in explicit terms. 1 Yet their proposals are an unmistakable proof that they held that view. Unless they had taken for granted that the Provinces had separate revenues and separate services, they could not be expected to have wasted their energies in directing as they did their efforts to getting redressed what appeared to them as a piece of injustice embodied in the unequal contributions made by the different Provinces form their revenues to the support of the Central Government. If their view of the financial relationship between the Central and Provincial Governments was acceptable, then a good deal could not but have been conceded in favour of their criticisms and their proposals. Contributions, if the Imperial share could have been conceived of in such a light, as between the different Provinces whether in ratio to their revenues or population, were certainly unequal if calculated on the somewhat questionable but generally accepted hypothesis that all the revenues collected within a Province belonged to the Province. 1 Cf., however, Indian Expenditure Commission Minutes of Evidence, Vol. 3, Q. 18094, and Decentralization Commission Evidence, Vol. 2, Q. 9497.

199 THE NATURE OF PROVINCIAL FINANCE PROVINCIAL CONTRIBUTIONS TO THE IMPERIAL GOVERNMENT Province Ratio of Amount Surrendered to the Government of India to the Total Revenues raised in the Province. Ratio of Amount Surrendered to the Government of India per Head to the Population of the Province. 1871- 2. 1882- 3. 1892- 3. 1904- 5. 1912- 13. 1871- 2. 1882- 3. 1892- 3. 1904- 5. 1912- 13 C.P. ... .655 .464 .615 .297 .204 .9 .69 1.3 .55 .59 Burma ... .728 .575 .598 .497 .38 3.4 .39 .7 4.37 3.08 Assam ... ... .438 .390 .376 ... ... .75 .75 .87 ... Bengal ... .903 .746 .761 .742 .596 2.4 1.99 2.9 2.29 2.39 N.W.P. and Oudh ... .785 .617 .435 ... ... 1.5 1.24 1.4 ... ... Punjab ... .768 .648 .726 .512 .391 1.7 1.5 1.4 1.57 1.64 Madras ... .828 .664 .667 .638 .479 2.3 2.0 2.3 2.34 1.79 Bombay ... .845 .648 .66 .614 .58 5.0 4.1 5.4 4.75 5.6 U.P. ... ... ... ... .567 .381 ... ... ... 1.48 .93 Bihar and Orissa ... ... ... ... ... .220 ... ... ... ... .17 Compiled from the Finance and Revenue Accounts of the Government of India and the Decennial Census Reports. Similarly, whatever may be said of the relative merits of the proposals 1 of changning the system of divided heads of revenue into one of complete separation supplemented in favour of the Central Government by contributions from the Provinces in the form of (1) a fixed sum revisable every few years, or (2) a lump percentage on provincial revenues, or (3) a fluctuating contribution from the provinces on their population, revenues or wealth, there can be no doubt that they were all aimed at reaching some such intelligible basis of distributing the burden of the Imperial exchequer as equality of payment or ability to pay. No one who had cared to scrutinize the true nature of Provincial Finance could have been expected to take these proposals with the same seriousness with which they were offered by their authors. However, strange as it may seem, none of the two Commissions questioned their propriety. The Royal Commission on Decentralization did make it clear, though not quite forcibly, that equal contributions were not necessarily equitable contributions, but neither it nor the Royal Commission on Indian Expenditure challenged the language which spoke of the Provinces as surrendering their revenues to make contributions to the Imperial treasury after paying for their services. It therefore becomes all the more necessary to examine at some length the grounds which 1 See Report of the Royal Commission on Decentralization (hereafter abbreviated into R.C.D.)

200 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES supported that view which argued that the system was based on the principle of separation of sources and contributions from the yield. Indeed the question of equity of contributions would hardly be worth discussion until it is settled that the Provinces had revenues which they could call their own and services for the efficient discharge of which they were primarily liable. What is the criterion by which to judge whether the provinces had revenues and services which they could call their own? There is, of course, the administrative criterion by which it would be possible to say that anything which a Province administered was provincial. But that criterion cannot be a final criterion. For, whatever may be the view regarding the origin of administrative polities or regarding what their position should be in an ideal organization, yet all regional rights of an administrative polity are in modern times exercised in the main, not in virtue of any social compact or the mere discharge of certain functions, but in virtue of a general law. The question must therefore be decided with reference to the law which defined the status of the Provincial Governments in British India. Did the Provinces have a legal title to the revenues? Although it is uncertain whether or not those who spoke of Provincial revenues invested the term provincial with a legal status there is no doubt that it had acquired such a connotation in ordinary parlance. Even the Provincial Governments, who ought to have known better, thought and argued that by the provincialization of revenue what the Government of India passed on to them was not the mere usufruct but a title to the revenue. But the Government of India had always been prompt in suppressing such pretences. The facts are patent that provincial settlements were revisable every five years, that the usufruct was not perpetual and that the Government of India could resume it at the end of five years if it wanted. This is made quite clear in answer to the pretensions advanced by the Government of Bengal in a letter No. 284 of January 14, 1882, from which the following is extracted :— “For the sake of diminution of friction and other wellknown objects which need not be specified, the Imperial Government delegated a share in its administration to Local Governments. It makes a rough calculation that a certain portion of the general income, together with the increment thereon, will suffice to meet