*

[For remarks on the draft rules, see extracts under notes to the DEVOLUTION RULES (APPENDIX A) THE LOCAL GOVERNMENT (BORROWING) RULES (APPENDIX B), THE NON-OFFICIAL DEFINITION RULES, (see under notes to s. 46, Act 1919) and the rule made under s. 33 regarding relaxation of control of the Secretary of State (see under notes to s. 33, Act 1919)].

GENERAL.

6. This concludes the Committee's observations on the draft rules. In the course of their deliberations they have, however, considered at the request of the Government of India, two cognate matters which call for some comment. In their Report on the Bill the Committee expressed the opinion that it would be a great advantage if, wherever possible, the Presidents of provincial Legislative Councils (who for the first four years are to be nominated) were persons with Parliamentary experience. The Government of India and the local Governments have given full consideration to this suggestion, and their views have been laid before the Committee. The consensus of opinion is that there would be great practical difficulties involved in carrying out the suggestion, and the Committee are prepared to defer to this opinion. They are glad, however, to learn that it is intended to give effect to their recommendation

in this respect as regards the President of the Legislative Assembly.

7. The second matter which has been brought to the Committee's notice is the desire that they should reconsider the recommendation made in their Report on the Bill, that if a provincial Executive Council contains two members with service qualifications, neither of whom is by birth an Indian, it should also contain two non-official Indian members. The Committee have given their best consideration to the arguments upon which this request was based, but they see no reason to change their opinion. They recognise that this decision may involve a slightly greater man-power in the Government than present statistics would strictly justify, but they have little doubt that the increase of work arising out of the new legislative bodies will be such as to render past experience a doubtful guide as to the volume of business likely to fall upon the executive, and in any case they think it of more importance that as many Indian gentlemen as possible should obtain experience inside the government, than that the salaries of a few of them should be economised.

10th August, 1920.

NOTE ON THE REPORT

OF THE

FINANCIAL RELATIONS COMMITTEE.

The authors of the M-C. R. urged the importance of entirely separating the resources of the central and local governments and they proposed the abolition of the system of divided heads. They advocated that certain heads of revenue should be handed over entirely to the central government and others to the provincial governments; but as this scheme would result in a large deficit in the Government of India's budget, it was proposed to meet this deficit by the levy of contribution from the provinces (see M-C. R. 200, 202, 203, 206 and 207). In fixing this levy, the authors of the report recommended an assessment in the ratio of the gross surplus which they estimated that each province would enjoy under the new allocation of resources. But it was admitted that some provinces would bear a very much heavier proportion of the cost of the central government than others and that this scheme would largely affirm existing inequalities. The Government of India in their First Despatch (para 61) urged the appointment of a committee on financial relation to advise on the subject. The Joint Select Committee accepted and endorsed their recommendation that a fully qualified financial commission should be appointed to advise as to the principle on which contributions from the local to the central govern

ment should in future be adjusted (see Jt. S. C. R. I, 9). The Secretary of State accordingly appointed the Financial Relations Committee (popularly known as the Meston Committee) to advise mainly on :

(a) the contributions to be paid by the various provinces to the central government for the financial year 1921-22; (b) the modifications to be made in the provincial contributions thereafter with a view to their equitable distribution until there ceases to be an all-India deficit; (c) the future financing of the provincial loan accounts. [Para 3].

The Committee made the report on the 31st March, 1920. We summarise here the main points :(1) The Committee accepted the recommendation in the M-C. R. (para 203) that the income-tax should go to the central exchequer. The needs of the central government in the near future were likely to be quite as great and to develop quite as rapidly, as those of the provinces (para 7).

(2) As regards general (i.e., non-judicial) stamps, the Committee advised that they be made a provincial head throughout, so that the whole of the stamp revenue (general and judicial) would be provincial (para 8).

(3) As regards provincial contributions the

Committee said :

"We anticipate that the Government of India will direct its financial policy towards reducing those contributions with reasonable rapidity, and their ultimate cessation. We recognise that it would be imprudent on the part of the central government to give any guarantee of the precise pace of reduction; but we think that a formal enunciation of the general policy would go some way to allay apprehensions which have been expressed to us. Such a policy would clearly be subject to the important reservation mentioned in the report, by which the central government must remain empowered to levy special contributions, by way of temporary loan or otherwise, from the provinces in the event of any crisis of first importance." [Para 9].

(4) After examination of figures, the Committee found the deficit in the revenue of the central government to be 983 lakhs, which was to be distributed over the provinces (para 10).

(5) In fixing the ratio in which each of the

nine provinces should contribute to