White Paper on Indian States (1950)/Part 9/Indian States Finances Enquiry Committee

by Ministry of States, Government of India

Indian States Finances Enquiry Committee

186. The problems which thus arose for solution in the field of federal finance in relation to States and Unions were both difficult and complicated; and the Government of India felt that it would be desirable to examine them systematically, in detail. Accordingly, by a Resolution dated 22nd October 1948, the Government of India appointed a Committee of experts (hereinafter referred to as the Indian States Finances Enquiry Committee) consisting of Shri V. T. Krishnamachari (then Diwan of Jaipur) as the Chairman, and Shri S. K. Patil and Shri N. Dandeker, I.C.S., as members. The Committee's terms of reference were as follows:—

"To examine and report upon:

(1) the present structure of Public Finance in Indian States and Unions of States;

(2) the desirability and feasibility of integrating Federal Finance in Indian States and Unions of States with that of the rest of India, to the end that a uniform system of Federal Finance may be established throughout the Dominion of India;

(3) whether, and if so, the extent to which, the process of so integrating Federal Finance in the Indian States and Unions with that of the rest of India should be gradual and the manner in which it should be brought about; and the machinery required for this purpose, especially as regards the legislative groundwork and the administrative organisation necessary for the imposition, assessment and collection of federal taxes;

(4) the results of such a policy of integrating Federal Finance upon the finances of Indian States and Unions and the consequential financial adjustments and relations which should subsist between the Governments of the Indian States and Unions on the one hand and the Government of India on the other;

(5) the measures which the Committee may consider necessary and/or desirable for revising in the light of present day conditions and standards, and having regard to the requirements of modern administration, the structure of Provincial Finance and, in particular, the levels and sources of Provincial revenues in Indian States and Unions of States;

(6) any other consequential and/or cognate matters which the Committee may consider as arising out of the foregoing terms of reference."

Items (1) and (5) of the terms of reference were concerned with what may be described as "Provincial Fiance" in States and Unions. They were subsequently deleted at the Committee's instance because the field to be covered was far too wide. Moreover, the remaining terms of reference presented a compact subject, that of "federal finance", of the utmost immediate importance in view of the impending constitutional changes; the Committee considered that these alone could conveniently be dealt with within the time at its disposal.

187. The Committee commenced work in November 1948 and submitted the following unanimous Reports:

The Frst Interim Report, concerning Baroda, was submitted on 1st June 1949.

The Second Interim Report, concerning Travancore and Cochin States, was submitted on 10th June 1949.

Part I of the Final Report, setting out the man principles of federal financial integration was submitted on 9th July 1949; the subject of Income-tax (and other taxes on income) was dealt with in a self-contained "Annexure" to this Report.

Part II of the Final Report, setting out the detailed application of the main principles, and containing the financial integration "Scheme Reports" for individual States and Unions (other than Baroda, Travancore, Cochin and Hyderabad), was submitted on 22nd July 1949.

Finally, a Supplementary Report concerning Hyderabad was submitted on 31st July 1949.

The Committee did not deal with Kashmir. As regards the States merged (or likely to be merged) in "British India" under Section 290A of the Government of India Act, 1935, the principles underlying the Committee's recommendations concerning Baroda could be applied. That left only eight units: the States of Mysore and Hyderabad and the Unions of States which included, at the time, Vindhya Pradesh. Each of these was reported upon. And it is with them that this Chapter is mainly concerned, although occasionally there will be a reference to Baroda also. All of them are hereinafter referred to as "States" except when any reference to a Union o States becomes specially necessary.

After the Committee's recommendations had been examined in detail by the Government of India, personal discussions and negotiations with representatives of States were commenced on the 26th September 1949 and concluded on the 9th October 1949. The agreed results of these negotiations were recorded in each case in the form of a short "Memorandum of Agreement".