PROVINCIAL SURPLUSES OR DEFICITS (in rupees)

Provvinces.

1912-13. 1913-14. 1914-15. 1915-16. 1916-17. 1917-18. 1918-19.

Compiled from the Annual Finance and Revenue Account of the Government of India.

While the condition of Provincial Finance was thus undoubtedly prosperous, the erratic movements in the provincial balances do not quite bear out the hope of orderly progress that was entertained of the permanent settlement. It should be noted, however, that the period during which the permanent settlement was current was not wholly a normal period. Part of the permanent settlement was no doubt a peace period, but it was not even as long as a quinquennium, and it should not on that account detract from the merits of a permanent settlement if it disclosed the faults of the quinquennial settlements. Most of the period covered by the permanent settlement was, however, a period of the Great War, the abnormal events of which could not have had any but disturbing effects on Provincial Finance.

Whether the permanent settlements would have been adequate for the purpose in view if sufficient length of time had been allowed for conditions to have become settled it is not given to us to say. For, from April 1, 1921, Provincial Finance in British India entered on an entirely new phase. That phase of it will be dealt with in another part. Here the study of the growth of Provincial Finance as it developed stage by stage under the old phase comes to an end. But this study will not be complete until we deal with the mechanism which inter-related the finances of the Central and Provincial Governments under the old phase. But before we proceed to do so it might be of

interest as well as of value that the study of the final stage in the development of Provincial Finance were to close with the following retrospect of provincial revenue and expenditure which shows, as nothing else can, the small beginnings, the large strides and the vast proportions that Provincial Finance had reached during the half century over which it had been allowed to run its course.

PART III

PROVINCIAL FINANCE: ITS

MECHANISM

CHAPTER VII

THE LIMITATIONS OF PROVINCIAL FINANCE

To those who might be expected to have a knowledge of the anomaly-unparalleled in the annals of administration-involving the existence of Provincial Government without there being the necessary complement of Provincial Finance, the study could not but have been of profound interest as disclosing the manner in which the anomaly created in 1833 was rectified or seemed to be rectified in 1870.1

1 There, however, prevails the idea that Provincial Finance existed long before 1870. But this is undoubtedly an error which may as well be corrected in this place by briefly recalling the history of financial decentralization prior to 1870. The year 1855 will always stand pre-eminent in the history of decentralization of Indian Finance. It is from that year that Local Finance dated its origin. It must not, however, be supposed that prior to 1855 there were no local revenues. On the contrary, there were very small funds such as Ferry Funds, Toll Funds, Cesses, etc., in existence and were spent on improvements of local utility, but the important point to note is that the balances from such funds were not carried to a separate account but as a rule merged in the general balances of the country, with the exception probably of Bengal and North-Western Provinces, where it seems that such balances were carried to separate Local Fund Accounts (cf. Calcutta Review, 1851, Vol. 16, pp. 464 and 466). It was by the Financial Resolution of May 11, 1855, that Local Funds were completely separated from Imperial Funds and were treated as "Deposits -a sub-division of the Account Head "Debt " (cf. Accountant's Manual, by Y. Venkatramaiah, Part I, Madras,

On a purely a priori consideration of the matter, nothing could have been more natural than to suppose that the system of Provincial Finance thus established in British India was independent in its organization. Indeed it is difficult to imagine how one could emerge from the study of its origin and development without such a faith having silently grown upon him. But if Provincial Finance was independent in its organization, we should find the Provinces

1866, p. 79) and by the Resolution of September, 1863, Local Finance was established on a separate footing by the institution for each of the different provinces of a distinct Local Fund Budget as separate from the Imperial Budget. It so happened that in the absence of local authorities the Government of India entrusted the task of the preparation and execution of the Local Funds Budget to the respective Provincial Governments as being more in touch with local wants. It is this accident that has betrayed many into the supposition that this was essentially Provincial Finance. But nothing can be a greater blunder. What existed before 1870 was Local Finance, pure and simple, although under the supervision of the Provincial Government, in whose hands the Local Funds were essentially a kind of trust. The mere bringing together by the Provincial Governments of the receipts and charges pertaining to the Local Funds into a Local Fund Account for the whole Province can hardly be interpreted to mean the amount to be at their disposaland that is the only sense in which Provincial Finance can be a reality-any more than the bringing together of the Local Rates levied in the United Kingdom in the budget of the Chancellor of the Exchequer can give an indication of its financial position. The Local Funds were not at the disposal of the Provincial Governments, for they could not be disposed of on purposes other than those which attached to them. In this sense they constituted Local Finance and not Provincial Finance. Some people mistake it for Provincial Finance probably because the term "Local Government is used as a synonym for Provincial Government. But, while Local and Provincial Governments are often used as interchangeable terms, it must be remembered Local and Provincial Finance cannot be so used. As a matter of fact, there was a period in the history of Financial organization in India during which there was Local Finance without Local Government to be precise, and there was no Provincial Finance, even though there were Provincial Governments. It is probable that, as long as the habit of speaking of Provincial Government as Local Government continues, this confusion of ideas will not entirely vanish. While some have insisted that Provincial Finance had its being long before 1870, the Resolution of December 14, 1870, which instituted the scheme of Provincial Finance, is called "Resolution on Local Finance" as though it gave rise to Local and not Provincial Finance. Such absurdities can be avoided only by insisting upon precision of terminology.