# The Evolution of Provincial Finance in British India/Introduction

A student of Indian Finance has two chief sources of information and guidance open to him. One is the Annual Budget Statement, and the other is the annual volume of Finance and Revenue Accounts. Though separately issued, the two are really companion volumes inasmuch as the Financial Statement forms, so to speak, an exhaustive explanatory memorandum of the annual financial transactions, the details of which are recorded in the volume of Finance and Revenue Accounts.
Helpful as these sources are, they are not without their puzzles. A reference to the latest volume of Finance and Revenue Accounts will show that the accounts therein are classified under four different categories:—(1) Imperial, (2) Provincial, (3) Incorporated Local, and (4) Excluded Local. But this is by no means uniformly so. For instance, a volume of the same series before 1870 will not be found to contain the accounts called "Provincial" nor will the accounts styled "Local" be found in any volume prior to 1863. Similarly, any volume of the Financial Statements before 1870 will be found to divide the financial transactions covered therein into—Imperial and Local only. But a volume of the same series after 1908 curiously ​enough groups the accounts not under Imperial and Local but under (1) Imperial, and (2) Provincial, while the Financial Statements after 1921 cover only the Imperial Transactions. Nothing is more confusing to a beginner than the entrance of the new, and the exit of the old, categories of accounts. The natural question that he will ask is, how did these different categories evolve, and how are they related to one another?
In the present study an endeavour is made to explain the rise and growth of one of them, namely, the "Provincial." But in order that there may be no difficulty in following the argument it is deemed advisable to preface this study with an outline defining its subject-matter and indicating the interrelations of the parts into which it is divided. To facilitate a thorough understanding of the subject the study is divided into four parts, each one dealing with the Origin, Development and Organization of Provincial Finance and the final form in which it ​was cast by the constitutional changes of 1919. In Part I a somewhat thorny, untrodden and yet necessary ground has been covered in order to give a complete idea of the origin of Provincial Finance. While due homage is paid to the adage which requires students of the present to study the past, nothing more than the past of the present has been dealt with. In Chapter I, Part I, an attempt is made to present a picture of the system of Finance as it existed before the inauguration of the Provincial finance and to state the causes that called for a change in its organization. In Chapter II a rival system of Finance proposed during the period of reconstruction is brought to light and shown why it tailed of general acceptance. Chapter III is devoted to the discussion of a plan which was a compromise between the existing system and its rival, and the circumstances which forced its reception.
Having explained the Origin in Part I, the Development of Provincial Finance is made the subject of Part II. How far the arrangement followed in Part I is helpful must in the absence of anything to compare with it be left to the opinion of the reader. In regard to Part II, however, it is to be noted that the arrangement is different from what is adopted in the only fragmentary sketch published on the subject of Provincial Finance in 1887 by the late Justice Ranade. As will be seen from a perusal of Part II, one of the features of Provincial Finance was that the revenues and charges incorporated into the Provincial Budgets were revised every fifth year Justice Ranade in his pamphlet, which simply covers the ground traversed in Part II of this study, and hat too up to 1882 only, has taken this feature as ​a norm by which, to mark off the different stages in the growth of Provincial Finance from one to another. Consequently, each quinquennial period to him becomes a stage, and in his hands the history of Provincial Finance falls into as many stages as the quinquenniums into which it can be divided. It may, however, be submitted that if every revision had changed the fundamentals of Provincial Finance, such an arrangement would not have been illogical. But as a matter of fact, Provincial Finance did not change its hue at every revision. What the revisions did was to temper the wind to the shorn lamb. If the history of the development of Provincial Finance is to be divided into stages according to the changes in the fundamental basis thereof, then emphasis has to be laid on features altogether different in character. Writers on the theory of Public Finance seem to conceive the subject as though it were primarily a matter of equity in taxation and economy in expenditure. But to a Chancellor of the Exchequer finance is eminently practical with a problem to solve, namely, how to bring about an equilibrium in the Budget. If we scan the history of Provincial Finance in British India with a view to discover the method of meeting the problem of equilibrium in Provincial Budgets and the changes introduced in it from time to time, we shall find that Provincial Finance has evolved through three distinct stages, each with its own mode of supply, namely, Assignments, Assigned Revenues, and Shared Revenues. Consequently, instead of following the mechanical plan of Justice Ranade, it is believed to be more logical and instructive to divide the stages in the growth of Provincial Finance ​according to the method of supply to the Provincial Governments adopted by the Government of India. Consequently, Part II, which deals with the Development of Provincial Finance, is divided into three Chapters: (1) Budget by Assignment, (2) Budget hy Assigned Revenues, and (3) Budget by Shared Revenues.
This discussion of the Origin and Development of Provincial Finance is followed in Part III by an examination of its Organization. Chapter VII in Part III is devoted to the analysis of the hitherto neglected rules of limitations on the financial powers of Provincial Governments primarily to bring out the fact that Provincial Finance was not independent in its organization. The analysis of the true position of Provincial Finance is, however, reserved for Chapter VIII, in which the conclusion is fortified by a reference to the character of these limitations, that, notwithstanding the high-sounding appellation of Provincial Finance, there were neither provincial revenues nor provincial services as separate from Imperial revenues and Imperial services, so that instead of being federal in its organization the system remained essentially imperial. Chapter IX discusses how far it was possible to enlarge the scope of Provincial Finance without jeopardy to the constitutional responsibilities of the Government of India under the old law.
Part IV is a discussion of the changes introduced into the mechanism of Provincial Finance by the Reforms Act of 1919. Chapter X of this Part is devoted to the analysis of the causes which led to these changes. In Chapter XI a full description of the changes effected by the new law is given, ​while Chapter XII forms a critique of the new regime.
In view of the fact that students of Indian Finance ordinarily content themselves with the phrase "Decentralization of Finance," to indicate Provincial Finance, a word of explanation in justification of what may rather be called the too cumbersome title of this study. No student of Indian Finance, who is sufficiently acquainted with the branching off of the system in different directions, will fail to mark the inadequacy of the phrase Decentralization of Finance to mean Provincial Finance. If there were in the Indian system only the Provincial Decentralization there would have been no necessity to labour for a new title. As a matter of fact, the starting points of decentralization are by no means the same, and the systems evolved through it are quite different in character. For instance, the centre of decentralization and the systems evolved by the policy of decentralization brought into operation in 1855 were different from the centre and the systems evolved therefrom by the policy of decentralization initiated in 1870. Again, the centre which is gradually being decentralized since 1892, be it noted, is different from those affected by the decentralization of 1855 or 1870. To put it more clearly, the decentralization of 1855 was the decentralization of Indian Finance resulting in—
(I) the separation of Local from Imperial Finance.
The decentralization of 1870 was the decentralization of Imperial Finance resulting in—
(II) the separation of Provincial from Imperial Finance.
​And the decentralization commencing from 1882 is the decentralization of Provincial Finance resulting in—
(III) the separation of Local from Provincial Finance.
Obviously then, "Decentralization of Finance" far from being indicative of Provincial Finance, is a general name for this variegated and multifarious process of decentralization described above, and it cannot but be confusing to use as a title to the study of one line of decentralization a phrase which can be generically applied to all the three lines of decentralization distinguished above. In order, therefore, that this study may not be taken to pertain to a line of decentralization other than the one it purports to investigate, it has been thought proper to designate it "The Evolution of Provincial Finance in British India" with a sub-title, "A Study in the Provincial Decentralization of Imperial Finance," where the words Provincial and Imperial must be read with the emphasis due to them. How careless the phraseology often is may be instanced by the fact that Justice Ranade's pamphlet referred to above is styled "Decentralization of Provincial Finance." Although it deals with the development of Provincial Finance, it is likely to be passed over by the student, for its title implies that its subject-matter must be the growth of Local Finance. If Justice Ranade had been conscious of the varieties of decentralization, he would have probably realized that the title of his pamphlet was false to its contents.