ABSTRACT
Independent India’s economic policy was based on the hope that a dynamic industrialisation would help to trigger off an equally dynamic development in the field of agriculture. This economic policy, however, was conditioned by the constraints of the colonial legacy. When India attained independence in 1947, this was not due to a revolution, although there had been a long and ardent freedom struggle. The independent republic took over the colonial administration, the legal and educational systems, and the entire infrastructure as a going concern. The fact that the transfer of power was accompanied by a partition of the country was a burden for the new state, but this partition also reinforced the maintenance of the status quo, as any departure from it was thought to be a threat to the integrity of the new republic. The strong position of the central government was emphasised and attempts at creating a new federal order were postponed, as they seemed to violate national unity. After long debates and considerable unrest, the principle of linguistic states was adopted and several new federal units emerged in the late 1950s. At the same time, however, the power of the centre was strengthened by the new process of economic planning. When India started to receive foreign aid in the late 1950s, this also contributed to the leverage of the central government. Moreover, the old imperial practice of reserving the most dynamic sources of taxation for the centre was also continued by the independent government of India. However, the Finance Commissions, which according to the Indian constitution were appointed at regular intervals of five years in order to assess the shares of the central and the state governments in various revenues, etc., did make an impact on federal finance in
the long run. Whereas the relationship of central government expenditure to that of all the state governments put together was about 2.6 to 1 in 1950, it changed to 1.6 to 1 by the 1970s. Of course, this strengthening of the financial position of the states was part and parcel of a general increase in the share of government expenditure in the gross national product. By 1975 total expenditure of the central and all the state governments amounted to 28 per cent of GNP, and in 1985 it reached 40 per cent.
