they are in a state of considerable backwardness compared with Provinces. Government of India must, therefore, undertake a systematic enquiry into this problem with a view to rendering financial and technical assistance at the earliest opportunity; it will not be enough merely to say that as a result of federal financial integration, they will be treated in the matter of grants and other forms of assistance in exactly the same way as Provinces".
190. With these as the basic conceptions, the Committee proceeded to a consideration of the practical consequences of federal financial integration. In the words of the Committee:
"Federal integration………essentially involves a two-fold process,—one of "functional partition" of the present 'composite' State Governments; and the other of 'merger' of the partitioned 'federal' portions of the State Governments (together with the revenues, assets, liabilities and functions appropriate thereto[1]), with the present Central Government in India (together with its corresponding resources), to constitute a new Government of the Union of India."[2]
Consequently—
"(a) All present and future revenues from "federal" sources and all expenditure on functions and services of a 'federal' character, together with all assets and liabilities connected therewith, must be transferred from the States to the Centre; so, too, the administration of all these Departments. And all internal trade barriers must be abolished.
(b) Subject to a measure of gradualness in certain directions as regards the full effect of its impact, federal financial integration should be complete in all respects from the outset."[3]
On the question of compensation to the States for their federal revenues and assets passing to the Centre, the Committee was equally clear. Its recommendation was as follows:—
"30. A general question which arises in this connection at the very outset and to which we have devoted much attention and we have also
↑List I of the seventh Schedule to the Constitution of India.
