Vol. 6 · pages 286–290

271 THE NATURE OF THE CHANGE The Committee was frank in its avowal of the fact that the data available was not sufficient for a direct quantitative evaluation either of the total net contribution which a Province made to the Government of India or of its capacity to contribute, and held that it was “useless to attempt to state a formula, to serve as a basis for a standard ratio of contributions, capable of automatic application from year to year by reference to ascertained statistics.” None the less the Committee did not abandon the ideal basis it had selected for fixing the standard contributions. For it observed: “We are able, after surveying such figures as are available and after close inquiry into the circumstances of each Province, to recommend a fixed ratio of contributions which in our opinion represents a standard and equitable distribution of the burden of any deficit. In arriving at this ratio we have taken into consideration the indirect contributions of the Provinces to the purse of the Government of India, and in particular the incidence of customs duties and of income tax. We have inquired into the relative taxable capacities of the Provinces, in the light of their agricultural and industrial wealth and of all other relevant incidents of their economic positions, including particularly their liability to famine. It should be observed that we have considered their taxable capacities not only as they are at the present time, or as they will be in the immediate future, but from the point of view also of the capacity of each Province for expansion and development agriculturally and industrially, and in respect of imperfectly developed assets such as minerals and forests. We have also given consideration to the elasticity of the existing heads of revenue which will be secured to each Province, and to the availability of its wealth for taxation.” After estimating, to the best of its ability, the weight which should be given to each of these circumstances, the Committee

272 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES recommended the following fixed ratio as representing an equitable basis for the relative contributions of the Provinces to meet the deficit in the Budget of the Government of India :— STANDARD CONTRIBUTIONS Province … Per cent. Contribution to Deficit. Madras … … 17 Bombay … … 13 Bengal … … 19 United Provinces … … 18 Punjab … … 9 Burma … … 6½ Bihar and Orissa … … 10 Central Provinces … … 5 Assam … … 2½ Total … 100 The Committee agreed that there should be an interval of time sufficient to enable the Provinces to adjust their budgets to the new conditions before they should in equity be called upon to contribute according to this standard ratio. 1 But the Committee thought that the interval allowed for adjustment should not be unduly prolonged. “ The initial ratio which,” the Committee said, “we have proposed is a practical necessity, but the Provinces which will be called upon to pay thereunder more than they should pay in equity, ought not to be required to bear that burden for a longer period or to a greater extent than is required to prevent dislocation of the provincial budgets.” The Committee therefore proposed “that contributions should be made on the standard ratio to any deficit that there may be in the seventh year of 1 For a good piece of criticism of the basis adopted by the Financial Relations Committee in arriving at the standard ratio, see para. 12 of a rather splenetic letter from Rai Bahadur K. V. Raddi to the Reforms Commissioner, Simla, pp. Cmd. 974 of 1920, p. 58.

273 THE NATURE OF THE CHANGE contribution, and that the process of transition from the initial to the standard ratio should be continuous beginning in the second year of contribution, and proceeding in six equal annual steps.” The following table shows the initial, intermediate, and ultimate ratios of contributions for the seven years in accordance with the recommendations of the Committee :— PER CENT. CONTRIBUTIONS TO DEFICIT IN SEVEN CONSECUTIVE YEARS BEGINNING WITH THE FLRST YEAR OF CONTRIBUTION (rounded off to even halves) Province 1stYear 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year Madras 35½ 32½ 29½ 26½ 23 20 17 Bombay 5½ 7 8 9½ 10½ 12 13 Bengal 6½ 8½ 10½ 12½ 15 17 19 United Provinces 24½ 23½ 22½ 21 20 19 18 Punjab 18 16½ 15 13½ 12 10½ 9 Burma 6½ 6½ 6½ 6½ 6½ 6½ 6½ Bihar and Orissa nil 1½ 3 5 7 8½ 10 Central Provinces 2 2½ 3 3½ 4 4½ 5 Assam 1½ 1½ 2 2 2 2 2½ Total 100% 100% 100% 100% 100% 100% 100% These recommendations were accepted by the Government of India and the Secretary of State. But when the rules in which they were embodied came before the Joint Select Committee of Parliament appointed to revise the draft rules made under the Government of India Act, for consideration, the Committee made some important alterations in the allocation of revenues and contributions from the Provinces. In its Report 1 the Joint Committee recognized “ the intricacy of the problem with which the Financial Relations Committee had to deal, and the difficulty, amounting 1 Second Report of the Joint Committee appointed to revise the draft rules made under the Government of India Act, pp. 172 of 1920, pp. 2-3.

274 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES almost to impossibility, of arriving at any solution which was likely to be acceptable to all Local Governments…… They believe that such dissatisfaction as the proposals have aroused is inevitable in distributing resources between a Central and Provincial Governments, and that the impossibility of removing by a stroke of the pen inequalities which are the result of long-standing and historical causes have been overlooked.” “None the less,” the Committee desired, “ on grounds of policy, to alleviate the disappointment caused by the restraints which the system of contribution laid on the employment by the provinces of their revenues. As a means of alleviating the burden the Committee suggested : “(1) That there should be granted to all provinces some share in the growth of revenue from taxation on incomes so far as that growth is attributable to an increase in the amount of income assessed. “(2) That in no case should the initial contribution payable by any province be increased, but that the gradual reduction of the aggregate contribution should be the sole means of attaining the theoretical standards recommended by the Financial Relations Committee.” Accordingly it is provided in the Devolution Rules that: (15) There shall be allocated to each Local Government a share in the income tax collected under the Indian Income Tax Act, 1918, within its jurisdiction. The share so allocated shall be three pies on each rupee brought under assessment under the said Act, in respect of which the income tax assessed has been collected. The number of pies to be specified shall be so calculated as to yield at the outset to the Local Governments collectively a sum amounting as near as may be to 400 lakhs. 1 1 This arrangement was subject to the following provision attached to Devolution Rule 15:— (2) In consideration of this allocation, each Local Government shall make to the Governor-General in Council a fixed annual assignment of a sum to be determined by the Governor-General in Council as the equivalent of the amount which would have accrued to the Local Government in the year 1920-21 (after deducting the provincial share of the cost of special income tax establishments in that year) had the pie-rate fixed under sub-rule (1) been applied in that year, due allowance being made for any abnormal delays in the collection of tax. (3) The cost of special income tax establishments employed within a province shall be borne by the Local Government and the Governor-General in Council in the proportions of 25 per cent, and 75 per cent, respectively. [contd overleaf]

275 THE NATURE OF THE CHANGE and that (17) In the financial year 1921-2 contributions shall be paid to the Governor-General in Council by the Local Governments mentioned below according to the following scale :— Name of the Province Contributions (in lakhs of rupees) Madras … … … 3,48 Bombay … … … 56 Bengal … … … 63 United Provinces … … … 2,40 Punjab … … … 1,75 Burma … … … 64 Central Provinces and Berar … … … 22 Assam … … 15 (18) From the financial year 1922-3 onwards a total contribution of 9,83 lakhs, or such smaller sum as may be determined by the Governor-General in Council, shall be paid to the Governor-General in Council by the Local governments mentioned in the preceding rule. When for any year the Governor-General in Council determines as the total amount of the contribution a smaller sum than that payable for the preceding year, a reduction shall be made in the contributions of those Local Governments only whose last previous annual contribution exceeds the proportion specified below of the smaller sum so determined as the total contribution ; and any reduction so made shall be proportionate to such excess : Madras … … 17 ths90 Bombay … … 13 ths90 (4) If in any financial year the total amount payable by a Local Government under sub-rules (2) and (3) in respect of the fixed assignment and the cost of special income tax establishments exceeds the amount of the share of income tax allocated to it under sub-rule (1), the fixed assignment for that year shall be deemed to have been reduced by the amount of such excess.