DOI Page / Citation link:
https://doi.org/10.11588/diglit.68026#0132
Mr. J. S.
Meston.
6 Apr., 1908,
126 MINUTES OF evidence:
this almost entirely with a view to satisfy ourselves
that the aggregate provincial expenditure is likely to
be worked up to. I do not see how it would be
possible to satisfy ourselves as to the accuracy of
the estimates unless we have an opportunity of
examining the main figures which go to compose
them, and in practice the Local Governments would
not obtain any larger liberty in the handling of
their funds under the proposed plan than they have
at present.
44866*. Is it desirable to effect a larger separation
between imperial and provincial heads of revenue and
expenditure? Would it be expedient to keep the
revenue heads divided as at present, but to make all
expenditure, that is now divided, entirely provincial ?—•
A larger separation between imperial and provincial
finance would apparently be effected by some arrange-
ment by which the imperial budget should exhibit
only the imperial revenue and expenditure, omitting
those of provincial Governments, while the accounts
of provincial Governments should either not be
shown at all in the Finance and Revenue Accounts, or
be shown separately from those of the Government of
India. As a mere matter of book-keeping such an
arrangement would be possible. But I am unable to
see that it would be attended by any advantage what-
ever, while, unless it were accompanied by, and based
upon, a revolutionary change in the fiscal system of the
country, it would yield highly misleading results and
be productive of serious public inconvenience.
Under the system now in force, the provincial
Governments are responsible for practically the whole
charges of the civil internal government of the country.
In the eight large provinces, which between them com-
prise 94 per cent, of the whole area of British India,
the expenditure has been provincialized to the
extent already described. The provincial expenditure
amounts in all to about 241 millions sterling out of a
total of about 74| millions. To publish accounts or
estimates which exclude one-third of the total expendi-
ture incurred by Government agency, especially when
the items excluded are of so vital a character, would in
my judgment be calculated to mislead the public and
to give a wholly incorrect idea of the financial position.
To get at the true facts, it would be necessary for the
observer to combine the two sets of accounts for
himself ; and I see no reason for imposing this
unnecessary inconvenience upon him, or for opening
such a door for possible misconception.
Very similar considerations apply to the receipt side
of the accounts. The Government of India reserve as
wholly imperial a few important heads which are con-
sidered to be not well adapted for provincialization,
and divide the remainder in the manner already
described. If separation were made in the manner
apparently contemplated, the effect would be to exhibit
the receipts from these great heads of revenue as being
approximately only one-half of what they actually are.
So long as the provincial Governments derive the
major part of their funds, not from separate provincial
imposts of their own, but from a share in the proceeds
of general taxation, this result could not be wholly
avoided, though it might possibly be mitigated by
means of “ deduct ” entries. That, however, is a
rather clumsy device, and is not to be recommended
without strong reasons.
The present system of financing provincial Govern-
ments by means of a share of all the principal heads
of revenue (except a few which are unsuited for this
arrangement for special reasons) seems clearly pre-
ferable to a system by which they would be dependent
entirely on the yield of one or two taxes, and have no
concern with the remainder. By the former system,
the financial interests of the Imperial and provincial
Governments are brought as nearly as possible into
unison ; troublesome difficulties of classification are
eliminated, and the financial progress of both proceeds
at an equal pace. A still more important considera-
tion is that by broadening the bases of provincial
revenue as widely as possible, we make for financial
stability. If a province were dependent on only one
or two large heads of revenue, its finances would be
subject to serious disorganization if these were to
undergo a set-back owing to any special or unforeseen
cause. For instance, a province, which retained the
whole of its land revenue, and received no share of
the other principal heads, would be rendered bankrupt
by the occurrence of a severe famine, in which the
collections would of necessity be largely reduced.
Even as it is, though no Local Government retains
more than one-half of its land revenue, the Govern-
ment of India have found it expedient in the most
recent settlements to protect the Local Governments-
against this danger by guaranteeing them a certain
minimum figure under this head, and sometimes also-
under irrigation.
I have already referred to the possibility of a
“ revolutionary change ” in the fiscal system of India.
What I had in my mind was an arrangement by which
the Imperial Government would retain the whole of
the proceeds of the existing heads of revenue or most
of them (which in that case would not need to be-
maintained at their present rates), while the pro-
vincial Governments would be empowered to impose
independent taxation, each in accordance with its own.
provincial requirements.!
Such a system is quite conceivable, and in the distant
future I should think it not unlikely to rise above the
administrative horizon. But in present circumstances,
and for many years to come, it could not be regarded
without grave apprehension. I will not dwell on the-
unpopularity of all new taxation merely because it is
new, though such considerations are exceptionally
weighty in India. The other objections which are-
most serious are two. In the first place, it is inevi-
table that taxation of the kind in question must fall
chiefly on the land, for the reason that no other in-
terest is large or rich enough to provide the requisite
funds. In this case, the provincial Governments
would be levying a kind of second land revenue, over
and above the land revenue proper, which would be an
asset of imperial revenues. In addition to this there
would also be levied the district or local rates, also
falling on the land. Even though it were arranged
that the aggregate of these three imposts should not
exceed its present total (and it is doubtful whether
such a stipulation could be enforced), to collect two
imposts from a single source in place of one would
be inconvenient both to the administration and to the
taxpayer, and would tend to engender the suspicion
that the total burden of taxation was being increased.
Our policy should be to consolidate and unify the
existing imposts on the land, and not to multiply-
them. A second and still more powerful objection is
that this system would dangerously facilitate the in-
crease of taxation, while making it more difficult to
reduce it. The imperial taxes would no doubt be
affected ; but if Local Governments were empowered
and required to provide their own resources, then-
when any Government alleged that it required larger
funds for general or specific purposes, it would be
almost impossible in practice for the Imperial Govern-
ment to assume the responsibility of negativing the
proposal. It is a remarkable fact that in present
circumstances, almost all Local Governments are at
best lukewarm in regard to reduction of taxation
even though fully J compensated for it, while not in-
frequently they are actively hostile. The history of
the recent abolition of the famine cesses, and the
patwari cess, and the reduction of the salt duty,
affords significant illustrations of this attitude. It is
a common experience, when the Government of India
suggests the abolition of some cess or tax raised for
a specific purpose, on payment of compensation from
imperial funds, to be met by a counter-proposal that
the compensation should be paid, but that the tax
should be retained and its proceeds made over to the
Local Government for expenditure on something else.
The explanation of this tendency is not far to seek.
Local Governments and their officers are keenly alive
to the importance of effecting improvements in the
branches of administration entrusted to them : and
+ It is, of course, also possible to conceive a combination
of this hypothetical system with the present one, i.e., the
provincial Governments might retain a share in some or
all of the heads that are now divided, and be empowered
to impose independent provincial taxation to meet the
remainder of their requirements. It is unnecessary to
consider this variation in detail.
J Perhaps “ fully ” is a little too strong a word. Our
practice has been to compensate Local Government for
the full present loss of revenue arising from remission or
reduction of taxation, but not for the loss of the future
growtn of the impost reduced. So long, however, as the
provincial settlements are revised from time to time so as
to substitute a share of growing revenues for a largely
swollen fixed assignment, this objection is removed, or
reduced to very small proportions.
Meston.
6 Apr., 1908,
126 MINUTES OF evidence:
this almost entirely with a view to satisfy ourselves
that the aggregate provincial expenditure is likely to
be worked up to. I do not see how it would be
possible to satisfy ourselves as to the accuracy of
the estimates unless we have an opportunity of
examining the main figures which go to compose
them, and in practice the Local Governments would
not obtain any larger liberty in the handling of
their funds under the proposed plan than they have
at present.
44866*. Is it desirable to effect a larger separation
between imperial and provincial heads of revenue and
expenditure? Would it be expedient to keep the
revenue heads divided as at present, but to make all
expenditure, that is now divided, entirely provincial ?—•
A larger separation between imperial and provincial
finance would apparently be effected by some arrange-
ment by which the imperial budget should exhibit
only the imperial revenue and expenditure, omitting
those of provincial Governments, while the accounts
of provincial Governments should either not be
shown at all in the Finance and Revenue Accounts, or
be shown separately from those of the Government of
India. As a mere matter of book-keeping such an
arrangement would be possible. But I am unable to
see that it would be attended by any advantage what-
ever, while, unless it were accompanied by, and based
upon, a revolutionary change in the fiscal system of the
country, it would yield highly misleading results and
be productive of serious public inconvenience.
Under the system now in force, the provincial
Governments are responsible for practically the whole
charges of the civil internal government of the country.
In the eight large provinces, which between them com-
prise 94 per cent, of the whole area of British India,
the expenditure has been provincialized to the
extent already described. The provincial expenditure
amounts in all to about 241 millions sterling out of a
total of about 74| millions. To publish accounts or
estimates which exclude one-third of the total expendi-
ture incurred by Government agency, especially when
the items excluded are of so vital a character, would in
my judgment be calculated to mislead the public and
to give a wholly incorrect idea of the financial position.
To get at the true facts, it would be necessary for the
observer to combine the two sets of accounts for
himself ; and I see no reason for imposing this
unnecessary inconvenience upon him, or for opening
such a door for possible misconception.
Very similar considerations apply to the receipt side
of the accounts. The Government of India reserve as
wholly imperial a few important heads which are con-
sidered to be not well adapted for provincialization,
and divide the remainder in the manner already
described. If separation were made in the manner
apparently contemplated, the effect would be to exhibit
the receipts from these great heads of revenue as being
approximately only one-half of what they actually are.
So long as the provincial Governments derive the
major part of their funds, not from separate provincial
imposts of their own, but from a share in the proceeds
of general taxation, this result could not be wholly
avoided, though it might possibly be mitigated by
means of “ deduct ” entries. That, however, is a
rather clumsy device, and is not to be recommended
without strong reasons.
The present system of financing provincial Govern-
ments by means of a share of all the principal heads
of revenue (except a few which are unsuited for this
arrangement for special reasons) seems clearly pre-
ferable to a system by which they would be dependent
entirely on the yield of one or two taxes, and have no
concern with the remainder. By the former system,
the financial interests of the Imperial and provincial
Governments are brought as nearly as possible into
unison ; troublesome difficulties of classification are
eliminated, and the financial progress of both proceeds
at an equal pace. A still more important considera-
tion is that by broadening the bases of provincial
revenue as widely as possible, we make for financial
stability. If a province were dependent on only one
or two large heads of revenue, its finances would be
subject to serious disorganization if these were to
undergo a set-back owing to any special or unforeseen
cause. For instance, a province, which retained the
whole of its land revenue, and received no share of
the other principal heads, would be rendered bankrupt
by the occurrence of a severe famine, in which the
collections would of necessity be largely reduced.
Even as it is, though no Local Government retains
more than one-half of its land revenue, the Govern-
ment of India have found it expedient in the most
recent settlements to protect the Local Governments-
against this danger by guaranteeing them a certain
minimum figure under this head, and sometimes also-
under irrigation.
I have already referred to the possibility of a
“ revolutionary change ” in the fiscal system of India.
What I had in my mind was an arrangement by which
the Imperial Government would retain the whole of
the proceeds of the existing heads of revenue or most
of them (which in that case would not need to be-
maintained at their present rates), while the pro-
vincial Governments would be empowered to impose
independent taxation, each in accordance with its own.
provincial requirements.!
Such a system is quite conceivable, and in the distant
future I should think it not unlikely to rise above the
administrative horizon. But in present circumstances,
and for many years to come, it could not be regarded
without grave apprehension. I will not dwell on the-
unpopularity of all new taxation merely because it is
new, though such considerations are exceptionally
weighty in India. The other objections which are-
most serious are two. In the first place, it is inevi-
table that taxation of the kind in question must fall
chiefly on the land, for the reason that no other in-
terest is large or rich enough to provide the requisite
funds. In this case, the provincial Governments
would be levying a kind of second land revenue, over
and above the land revenue proper, which would be an
asset of imperial revenues. In addition to this there
would also be levied the district or local rates, also
falling on the land. Even though it were arranged
that the aggregate of these three imposts should not
exceed its present total (and it is doubtful whether
such a stipulation could be enforced), to collect two
imposts from a single source in place of one would
be inconvenient both to the administration and to the
taxpayer, and would tend to engender the suspicion
that the total burden of taxation was being increased.
Our policy should be to consolidate and unify the
existing imposts on the land, and not to multiply-
them. A second and still more powerful objection is
that this system would dangerously facilitate the in-
crease of taxation, while making it more difficult to
reduce it. The imperial taxes would no doubt be
affected ; but if Local Governments were empowered
and required to provide their own resources, then-
when any Government alleged that it required larger
funds for general or specific purposes, it would be
almost impossible in practice for the Imperial Govern-
ment to assume the responsibility of negativing the
proposal. It is a remarkable fact that in present
circumstances, almost all Local Governments are at
best lukewarm in regard to reduction of taxation
even though fully J compensated for it, while not in-
frequently they are actively hostile. The history of
the recent abolition of the famine cesses, and the
patwari cess, and the reduction of the salt duty,
affords significant illustrations of this attitude. It is
a common experience, when the Government of India
suggests the abolition of some cess or tax raised for
a specific purpose, on payment of compensation from
imperial funds, to be met by a counter-proposal that
the compensation should be paid, but that the tax
should be retained and its proceeds made over to the
Local Government for expenditure on something else.
The explanation of this tendency is not far to seek.
Local Governments and their officers are keenly alive
to the importance of effecting improvements in the
branches of administration entrusted to them : and
+ It is, of course, also possible to conceive a combination
of this hypothetical system with the present one, i.e., the
provincial Governments might retain a share in some or
all of the heads that are now divided, and be empowered
to impose independent provincial taxation to meet the
remainder of their requirements. It is unnecessary to
consider this variation in detail.
J Perhaps “ fully ” is a little too strong a word. Our
practice has been to compensate Local Government for
the full present loss of revenue arising from remission or
reduction of taxation, but not for the loss of the future
growtn of the impost reduced. So long, however, as the
provincial settlements are revised from time to time so as
to substitute a share of growing revenues for a largely
swollen fixed assignment, this objection is removed, or
reduced to very small proportions.