DOI Page / Citation link:
https://doi.org/10.11588/diglit.68026#0133
ROYAL COMMISSION UPON DECENTRALIZATION.
127
these improvements invariably mean more money.
On the other hand, under the present constitution,
they are not subject to the safeguards and restraints
which operate on a Ministry which is responsible to
the House of Commons, and whose existence depends
ultimately on the verdict of the taxpayer. Provincial
Governments spend the proceeds of their taxes, but
they do not pay them, and they are not responsible
to those who do. Until a popular element has been
introduced into the Indian constitution, and has been
invested with effective control over at least some part
of the fiscal system, there are grave objections to in-
creasing in any way the existing facilities for imposing
provincial taxation.
It is possible that those who advocate further ex-
tensions of the present system are not fully aware of
the important changes which have been introduced in
1903 and subsequent years. Sir David Barbour when
giving evidence before the Welby Commission in 1895
indicated as one of the greatest drawbacks to the ar-
rangements then in force the fact that at the quin-
quennial revision of the provincial settlement it was
the practice of the Government of India to resume all
•or most of the increase of revenue which had accrued
to the Local Government during the expiring settle-
ment. Since 1903, this grave defect has been got rid
of. The settlements are now gwasi-permanent : there
will be no periodical revision ; and each Local Govern-
ment will be secured in the permanent enjoyment of
its own revenues save in wholly exceptional circum-
stances. This reform, coupled with the extension of
the provincial interest to every appropriate head, the
increase of the provincial shares of the divided heads
to one-half in practically all cases, and the consequent
reduction of the fixed assignments, the introduction
■of the system of minimum guarantees, and the new
.arrangements in regard to famine relief, has materially
altered the character of the new settlements. I believe
that these now rest on a sound basis, and I am unable
to suggest any improvement of importance in them.
There is no objection of principle to a greater separa-
tion between imperial and provincial finance. On the
■contrary, Sir David Barbour’s view that a large pro-
vince with a population of 50 millions or thereabouts
is big enough to possess an independent financial
system, must command general assent. But the
•Government of India have found it impossible to
devise any scheme which would not be attended by
•greater evils than any which now prevail.
The second part of the question contains a sugges-
tion which would present no practical difficulty. The
•expenditure under the other “ divided heads ” could be
provincialized in the same way as has been done with
land revenue. The extra charges thus thrown upon
provincial resources would have to be counterbalanced
by our giving each province a larger fraction of the
revenue under one or more of the “ divided heads.”
This would probably mean that the provincial share
in each divided head would not be uniform for all
provinces, a result which should be avoided if possible.
I would point out, however, that the provincialization
■of divided heads would not in any way add to the
powers of the Local Governments with regard to the ex-
penditure ; their powers in the matter of divided heads
•of expenditure are exactly the same as if the charges
were wholly provincial. It is also open to question
whether the provincialization of the divided heads of
■ expenditure would always make for efficiency. Take
the case of excise. If a Local Government spent more
money on preventive establishments, it might obtain a
larger revenue. But if it had to bear the whole extra
expense, while getting only half the extra revenue, it
might hesitate to move in the matter through fear of
actually losing over it.
44867*. Might the period for which provincial
Governments are permitted to grant loans under the
Local Loans Act be extended, and might provincial
• Governments be given power to sanction loans by local
bodies in the local market ?—The rule recently laid
down regarding the duration of loans made by pro-
vincial Governments to local authorities prescribes
that a loan for a longer term than 20 years may not
'be sanctioned without the approval of the Government
■ of India. This somewhat restrains the liberty of Local
Governments, who formerly had power to give a loan
for a term up to 30 years in “ very special cases.” The
• Government of India found reason to believe that this
maximum term was gradually becoming the ordinary
period for which loans were being sanctioned ; and
having regard to the striking growth of local indebted-
ness, they decided to emphasize the undesirability, in
the great majority of cases, of going beyond 20 years.
It is hardly ever true economy to defer the redemp-
tion of a loan for a longer period. In the case of
loans from the provincial loan account, it is rarely
necessary, as local authorities' are not allowed to
borrow unless they have an ample margin for the
service of their debt. And it is often clearly wrong
in view of the duration of the work for which the
loan is taken. Local Governments are apt to forget
that all these considerations are involved, and to
attach undue weight to the wishes of the present
generation of tax-payers, who are naturally anxious to
defer repayment as long as possible. I think, therefore,
that it is quite justifiable to insist on 20 years as the
normal maximum, and to make an extension difficult
except for the strongest reasons. The Government of
India have to find the money for these loans, and they
have a right to see that it is not tied up for unduly
protracted periods.
The raising of loans by local bodies in the open
market has now reached considerable magnitude, and
become a matter of more than provincial importance.
The main reasons why the Government of India has
reserved the power of sanctioning these operations are
two-fold :—
(a) to secure that the loans do not clash with the
Government’s own borrowings ; and
(&) to prevent the loans from being raised on
terms which will be found unduly onerous in
future.
The first of these points is an essential condition of
borrowing by public corporations. The loan market
in India is limited in capacity, and the Government
of India, as representing the general tax-payer, must
claim priority over other public borrowers. To allow
a municipality or a Port Trust to skim the market
before the Government raises its annual loan would
clearly not be in the best interests of the country at
large, and Government must have a general power to
regulate the times at which, and the conditions on
which, a local body call for tenders. I do not see how
it would be possible to delegate this power to Local
Governments. The selection of the proper moment
for floating our annual loan is a matter of considerable
delicacy, requiring prompt decision ; and it would not
be practicable to take Local Governments into our
confidence throughout the operations. A suggestion
has been made that Local Governments might be left
to sanction local loans, on the condition that no issues
should be permitted during those months of the year
(say, May to September) when the Government of
India have a special interest in the market. This
would serve our purposes : but it would not be fair
to local bodies, and they would strongly resent it.
The second reason why the Government of India
wish to control the floating of local loans is in the
interest of the borrowing corporations themselves.
It is sometimes argued—and Local Governments are
apt to press this view—that the local authorities are
the best judges of their own interests. Unfortunately,
this is not confirmed by many of the actual cases which
come up for decision. I may, perhaps, be permitted to
give one or two concrete examples-
(1) A Local Government recommended that a
Port Trust should be allowed to float a 40-
lakh loan, repayable in 44 years, for the
acquisition of land. The immediate revenue
expected from the property was more than
sufficient to meet the charges (sinking fund
payments plus annual interest) of repaying
the loan in 30 years. The. Government of
India had to overrule the Local Government,
and insist upon the shorter term.
(2) Another Local Government asked, on behalf
of a Port Trust, for a loan of 1J lakhs, to be
spent on revetting the right bank of a river,
and to be repaid in 60 years. The annual
charges (4 per cent, interest plus sinking
fund) would have been Rs. 6,875. The
Government of India had to point out that
to repay the loan in 30 years would mean
only Rs. 9,000 a year ; that the Trustees
have a surplus income of Rs. 50,000 a year ;
that they are only at the beginning of their
borrowings ; and that the shorter term
would in the long run be far less onerous.
Mr. J. S.
Meston.
6 Apr., 1908.
127
these improvements invariably mean more money.
On the other hand, under the present constitution,
they are not subject to the safeguards and restraints
which operate on a Ministry which is responsible to
the House of Commons, and whose existence depends
ultimately on the verdict of the taxpayer. Provincial
Governments spend the proceeds of their taxes, but
they do not pay them, and they are not responsible
to those who do. Until a popular element has been
introduced into the Indian constitution, and has been
invested with effective control over at least some part
of the fiscal system, there are grave objections to in-
creasing in any way the existing facilities for imposing
provincial taxation.
It is possible that those who advocate further ex-
tensions of the present system are not fully aware of
the important changes which have been introduced in
1903 and subsequent years. Sir David Barbour when
giving evidence before the Welby Commission in 1895
indicated as one of the greatest drawbacks to the ar-
rangements then in force the fact that at the quin-
quennial revision of the provincial settlement it was
the practice of the Government of India to resume all
•or most of the increase of revenue which had accrued
to the Local Government during the expiring settle-
ment. Since 1903, this grave defect has been got rid
of. The settlements are now gwasi-permanent : there
will be no periodical revision ; and each Local Govern-
ment will be secured in the permanent enjoyment of
its own revenues save in wholly exceptional circum-
stances. This reform, coupled with the extension of
the provincial interest to every appropriate head, the
increase of the provincial shares of the divided heads
to one-half in practically all cases, and the consequent
reduction of the fixed assignments, the introduction
■of the system of minimum guarantees, and the new
.arrangements in regard to famine relief, has materially
altered the character of the new settlements. I believe
that these now rest on a sound basis, and I am unable
to suggest any improvement of importance in them.
There is no objection of principle to a greater separa-
tion between imperial and provincial finance. On the
■contrary, Sir David Barbour’s view that a large pro-
vince with a population of 50 millions or thereabouts
is big enough to possess an independent financial
system, must command general assent. But the
•Government of India have found it impossible to
devise any scheme which would not be attended by
•greater evils than any which now prevail.
The second part of the question contains a sugges-
tion which would present no practical difficulty. The
•expenditure under the other “ divided heads ” could be
provincialized in the same way as has been done with
land revenue. The extra charges thus thrown upon
provincial resources would have to be counterbalanced
by our giving each province a larger fraction of the
revenue under one or more of the “ divided heads.”
This would probably mean that the provincial share
in each divided head would not be uniform for all
provinces, a result which should be avoided if possible.
I would point out, however, that the provincialization
■of divided heads would not in any way add to the
powers of the Local Governments with regard to the ex-
penditure ; their powers in the matter of divided heads
•of expenditure are exactly the same as if the charges
were wholly provincial. It is also open to question
whether the provincialization of the divided heads of
■ expenditure would always make for efficiency. Take
the case of excise. If a Local Government spent more
money on preventive establishments, it might obtain a
larger revenue. But if it had to bear the whole extra
expense, while getting only half the extra revenue, it
might hesitate to move in the matter through fear of
actually losing over it.
44867*. Might the period for which provincial
Governments are permitted to grant loans under the
Local Loans Act be extended, and might provincial
• Governments be given power to sanction loans by local
bodies in the local market ?—The rule recently laid
down regarding the duration of loans made by pro-
vincial Governments to local authorities prescribes
that a loan for a longer term than 20 years may not
'be sanctioned without the approval of the Government
■ of India. This somewhat restrains the liberty of Local
Governments, who formerly had power to give a loan
for a term up to 30 years in “ very special cases.” The
• Government of India found reason to believe that this
maximum term was gradually becoming the ordinary
period for which loans were being sanctioned ; and
having regard to the striking growth of local indebted-
ness, they decided to emphasize the undesirability, in
the great majority of cases, of going beyond 20 years.
It is hardly ever true economy to defer the redemp-
tion of a loan for a longer period. In the case of
loans from the provincial loan account, it is rarely
necessary, as local authorities' are not allowed to
borrow unless they have an ample margin for the
service of their debt. And it is often clearly wrong
in view of the duration of the work for which the
loan is taken. Local Governments are apt to forget
that all these considerations are involved, and to
attach undue weight to the wishes of the present
generation of tax-payers, who are naturally anxious to
defer repayment as long as possible. I think, therefore,
that it is quite justifiable to insist on 20 years as the
normal maximum, and to make an extension difficult
except for the strongest reasons. The Government of
India have to find the money for these loans, and they
have a right to see that it is not tied up for unduly
protracted periods.
The raising of loans by local bodies in the open
market has now reached considerable magnitude, and
become a matter of more than provincial importance.
The main reasons why the Government of India has
reserved the power of sanctioning these operations are
two-fold :—
(a) to secure that the loans do not clash with the
Government’s own borrowings ; and
(&) to prevent the loans from being raised on
terms which will be found unduly onerous in
future.
The first of these points is an essential condition of
borrowing by public corporations. The loan market
in India is limited in capacity, and the Government
of India, as representing the general tax-payer, must
claim priority over other public borrowers. To allow
a municipality or a Port Trust to skim the market
before the Government raises its annual loan would
clearly not be in the best interests of the country at
large, and Government must have a general power to
regulate the times at which, and the conditions on
which, a local body call for tenders. I do not see how
it would be possible to delegate this power to Local
Governments. The selection of the proper moment
for floating our annual loan is a matter of considerable
delicacy, requiring prompt decision ; and it would not
be practicable to take Local Governments into our
confidence throughout the operations. A suggestion
has been made that Local Governments might be left
to sanction local loans, on the condition that no issues
should be permitted during those months of the year
(say, May to September) when the Government of
India have a special interest in the market. This
would serve our purposes : but it would not be fair
to local bodies, and they would strongly resent it.
The second reason why the Government of India
wish to control the floating of local loans is in the
interest of the borrowing corporations themselves.
It is sometimes argued—and Local Governments are
apt to press this view—that the local authorities are
the best judges of their own interests. Unfortunately,
this is not confirmed by many of the actual cases which
come up for decision. I may, perhaps, be permitted to
give one or two concrete examples-
(1) A Local Government recommended that a
Port Trust should be allowed to float a 40-
lakh loan, repayable in 44 years, for the
acquisition of land. The immediate revenue
expected from the property was more than
sufficient to meet the charges (sinking fund
payments plus annual interest) of repaying
the loan in 30 years. The. Government of
India had to overrule the Local Government,
and insist upon the shorter term.
(2) Another Local Government asked, on behalf
of a Port Trust, for a loan of 1J lakhs, to be
spent on revetting the right bank of a river,
and to be repaid in 60 years. The annual
charges (4 per cent, interest plus sinking
fund) would have been Rs. 6,875. The
Government of India had to point out that
to repay the loan in 30 years would mean
only Rs. 9,000 a year ; that the Trustees
have a surplus income of Rs. 50,000 a year ;
that they are only at the beginning of their
borrowings ; and that the shorter term
would in the long run be far less onerous.
Mr. J. S.
Meston.
6 Apr., 1908.