chapter  X
17 Pages


The problem of fiscal relations of the different public authorities has come to the front everywhere. This is due to two reasons. The growing public expenditure on account of the increasing complexity of social life, and the extension of public activities makes the search for new sources of revenues an imperative necessity. The public authorities of all grades are hard pressed for money, and are naturally anxious to have wider taxing powers. The other reason for this development is the breakdown of the administration of many important and timehonoured fiscal expedients on account of the growing integration of economic life. Tho problem has assumed an acute form in India for reasons which it is not necessary to discuss at length. The constitutional changes called for radical changes in the fiscal inter-relations of Central and the Provincial Governments in order to realize the ideal of giving to the provinces "largest measure of independence of tho Government of India." But unfortunately the authors of tho new constitution had to reckon with the accumulated inequalities of tho past which could not be redressed at once. They knew from experience that the tangle which they had to unravel was the result of an absence of a clear line of demarcation between the duties and the resources of the Central and the Provincial Authorities ; and it appeared natural to them that since the knot could not be untied, it should be cut and the resources of the Government of India completely differentiated from those of the Provincial Governments. The formula which embodied the new wisdom was that for administrative clean-cut, financial clean-cut was necessary. Each authority was to have distinct sources of revenue, and no arrangement which had the remotest " taint of tho divided heads " could be allowed to continue under the new regime. The realization of the project threw certain anomalies into bold relief which till then had been hidden from

the eye by the intricate arrangements of the old order. It was unfortunate that what was implicit should thereby become explicit, and thus be exposed to the public eye; but it was contended that it was better to face the facts of the situation squarely, recognize that they were disagreeable, and work for the future with a firm conviction that the inequalities would be smoothed out in due course, and the specific of the " clean cut " prevent the recurrence of similar complications. It was assumed that for the success of the constitutional experiment it was necessary that the Provincial Governments should have a working surplus, and thereby be made capable of introducing measures of social and economic reform. The later developments belied these expectations. Severalimportantassumptions on which the new arrangements were based proved to be wide of the marie The Provincial Governments, instead of having abundant resources for financing the schemes of social betterment, could not even balance their ordinary budgets. The Central Government found that equilibrium between revenue and expenditure, for the attainment of which it had incurred so much odium, could not be realized. The provinces clamoured for relief from the contributions. The Central Government had nothing better to offer in return than a renewed assurance that their reduction would be the first charge on the betterment of c1,3ntral revenues. 'fhe situation improved last year, and the prospect of a partial relief to the three provinces was held out by the :Finance Member, but the circumstances, which are a matter of common knowledge, made it impossible for him to carry out his intentions. It is not easy to give a correct description of the present situation. It would not be wrong, though not quite apt, to call it a state of suspended animation. It is necessary to analyse briefly the fundamental features of the present arrangements, and see why and in what directions they ought to be revised, if they are to work well in the future.