Vol. 6 · pages 281–285

266 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES In making these recommendations the authors of the Report were careful to observe : 1 “One caveat we are bound to make. Emergencies may arise which cannot be provided for by immediate raising Government of India taxation ; and in that case it must be open to the Central Government to make a special supplementary levy upon the provisions. We must add that inasmuch as our proposals are based on war figures they should be open to revision hereafter, but not subject to change for a period of say six years, and to avoid intermediate discussion the scheme should in the meantime be regarded as part of the constitutional agreement with the Provinces. It should also be one of the duties of the periodic commission which we propose should be appointed to examine the development of constitutional changes after ten years’ experience of their working or of some similar body at that time, to re-investigate the question of the provincial contributions to the Government of India.” These proposals were put before the Provincial Governments, for their opinion. The objections to a plan which appeared to make some Provinces bear a greater burden of the cost of the Central Government than others readily suggested themselves. Madras and the United Provinces seemed to pay 47.4 per cent. and 41.1 per cent, of their surpluses to the Government of India, while Bombay and Bengal appeared to escape with a sacrifice of no more than 9.6 per cent, and 10.1 per cent, of their respective surpluses. The inequity of this treatment seemed to be so very apparent that the Provinces against which a greater burden was set down raised loud protests. So impressed was the Government of India with the justice of this clamour that in its letter 2 to the Secretary of State it observed : “We recommended that the initial contributions should be recognized as temporary and provisional, and that steps should be taken as soon as possible to fix a standard and equitable scale of contributions……The whole question…… requires skilled investigation ; (the difficulty of the position was 1 Report, p. 170. 2 Dated March 5, 1919 (para. 61), on the questions raised in the Report on Indian Constitutional Reforms, pp. Cmd. 123 of 1919.

267 THE NATURE OF THE CHANGE foreseen in the Report and investigation by the first statutory commission was promised, but) we propose that a Committee on Financial Relations be appointed, either by you or by us, to advise fully upon the subject, so that each province may know exactly how it stands before the new regime starts.” And this recommendation was endorsed 1 by the Joint Select Committee of Parliament which sat on the Reform Bill. Accordingly the Secretary of State appointed a Committee under the chairmanship of Lord Meston to advise on : ( a) The contributions to be paid by the various provinces to the Central Government for the financial year 1921 -22; (b) The modifications to be made in the provincial contributions thereafter with a view to their equitable distribution until there ceases to be an all-India deficit; ( c) The future financing of the provincial loan accounts ; and (d) Whether the Government of Bombay should retain any share of the revenue derived from income tax. After about seven weeks of investigation the Committee produced its Report. 2 In advisinng on clause (a) of its terms of reference the Committee expressed its dissatisfaction of the plan set forth in the Joint Report of taking from the Provinces a fixed uniform proportion of their respective surpluses as their contributions to the Central Exchequer. The principal objection urged against the plan was that in some Provinces it left no surplus and in others no adequate surplus after the payment of their respective quotas of contributions. The Committee held, and rightly too, that “in no case may a contribution be such as would force the province to embark on new taxation ad hoc, which to our minds would be an unthinkable sequel to a purely administrative rearrangement of abundant general resources.” The Committee felt itself bound by a limiting consideration in providing the contribution, as a result of which it felt itself obliged 1 Report of the Joint Select Committee on the Government of India Bill (part V, clause 41, para. 9)—House of Commons Return 203 of 1919, p. 12. 2 Report of the Committee appointed by the Secretary of State for India to advise on the question of the Financial Relations between the Central and Provincial Governments in India, pp. Cmd. 724 of 1919, Ch. III.

268 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES “to leave each Province with a reasonable working surplus”— a surplus which it preferred “to calculate, so far as possible, with some relation to the general financial position of the Province and the more imminent claims upon its resources.” “ To be able to comply with the requirements of leaving each Province with a surplus, and of inaugurating the new Councils without the necessity of resort to fresh taxation,” the Committee deemed that the most equitable plan to be to take, not equal contributions as the Joint Report advised, 1 but unequal contributions from the surpluses of the Provinces liable to make them. For the consummation of its plan the Committee held that the augmentation of Provincial Surpluses was an essential step. Without it, it deemed its task to be futile. The only way to augment the provincial surplus was to allocate some other source of Imperial revenue in addition to those already provincialized. To the provincialization of the income tax, a matter which was included in clause (d) of its terms of reference so far as Bombay was concerned, the Committee being impressed by the reasonings of the Joint Report, felt bound to oppose. As an alternative it recommended that General Stamps should be provincialized, as means of augmenting provincial surpluses, along with Judicial Stamps. The effect of this transfer of General Stamps from the allIndia list to the provincial list was to increase the provincial resources and diminish those of the Central Government. That deficit the Committee accepted as amounting in the year 1921-2 to ten crore, composed of six crores previously 1 The Report of the Financial Relations Committee seems to argue that the difference between its plan of levying contributions and that suggested in the Joint Report is a difference in the basis of the contributions ; its basis being that of “increased spending power”, while that of the Joint Report was “gross provincial surplus.” The Financial Repations Committee pointedly criticized the method proposed in the Joint Report to assess the contribution from each province “ as a percentage of difference between the gross provincial revenue and the gross provincial expenditure.” There does not seem to be much difference between that scheme and the scheme of the Committee consisting of a percentage levy on what is called increased spending power of the provinces under the new distribution of the revenues between the Central and Provincial Governments. That these two are different bases of assessment seems to be the general impression (cf. the speech of the Hon. Rai Bahadur Bakshi Sohan Lal on the Resolution re Provincial Contributions to the Central Exchequer, Legislative Assembly Debates, Vol. III, No. 8, p. 508). This of course is an error; for spending power is simply another name for gross surplus. The change made by the Committee was in proposing unequal contribution in place of equal contribution. It kept unchanged the basis of the assessment.

269 THE NATURE OF THE CHANGE estimated by the Government of India 1 plus four crores for the loss of General Stamps, the revenue from which the Committee gave to the Provinces. This amount subject to certain adjustments, 2 which when made resulted in a clear deficit of 9,83.06 lakhs net. In strict adherence to the limiting consideration which it felt bound to respect, the Committee proceeded to fix the following ratios in which each of the nine Provinces were to contribute to make up this amount of 9,83 lakhs in the year 1921-2 :— INITIAL CONTRIBUTIONS (IN LAKHS OF RUPEES) Provinces Increased spending power under new distribution of Revenue Contributions as recommended by the Committee Increased spending power left after Contributions are paid Madras … 5,76 3,48 2,28 Bombay … 93 56 37 Bengal … 1,04 63 41 United Provinces … 3,97 2,40 1,57 Punjab … 2,89 1,75 1,14 Burma … 2,46 64 1,82 Bihar and Orissa … 51 nil 51 Central Provinces … 52 22 30 Assam … 42 15 27 Total … 18,50 9,83 8,67 This ratio of initial contributions was not intended in any manner by the Committee “to represent the ideal scale on which the Provinces should have in equity to be called upon to contribute.” Indeed in making its recommendations as to initial contributions the Committee paid less attention to equity of contributions and more to “established programmes of taxation and expenditure and legislative and administrative expectations and habits, that cannot without serious mischief be suddenly adjusted to a new 1 Recommendations of the Government of India regarding the Demarcation between Central and Provincial Revenues, Cmd. 334 of 1919, Statement III. 2 These adjustments were, with regard to the Military Police Force in Burma, the payment of pensions and leave allowances. Cf. Report of the Financial Relations Committee, para. 10.

270 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES and more equitable ratio of contributions widely different (as an equitable ratio must admittedly be) from that of the past. It is accordingly inevitable, if such mischief is to be avoided, that the ratio for initial contributions should bear little relation to that which would be ideally equitable.” But the Committee also recognized that “an initial ratio of this nature can only be defended as a measure of transition. It is necessary, but it is necessary only in order to give time to the provinces to adjust their budgets to a new state of affairs; and we are clearly of opinion that no scheme of contribution can be satisfactory that does not provide for a more equitable distribution of the burden of the deficit within a reasonable time.” The Committee therefore proceeded next to consider the question of standard contributions as distinguished from initial contributions, which were only transitional. As to what should be the ideal basis for such an equitable distribution of the burden the Committee felt quite certain ; for it stated that “to do equity between the provinces it is necessary that the total contribution of each to the purse of the Government of India should be proportionate to its capacity to contribute.” Two questions were involved in translating this principle into practice. What is the total contribution of a province to the purse of the Government of India ? Secondly, what is the measure of the capacity of a Province to contribute ? With regard to the first the Committee observed that “the total contribution of a Province to the purse of the Government of India will consist in future of its direct contributions towards the deficit, together with its indirect contribution (as at present) through the channels of customs, income tax, duties on salt, etc.”; in other words, the pressure of the taxes from within its jurisdiction for the benefit of the Central Government. With regard to the second the Committee held that “the capacity of a Province to contribute is its taxable capacity, which is the sum of the incomes of its taxpayers, or the average income of its taxpayers multiplied by their number.”