constituent assembly of india debates (proceedings)- volume vii

to 1946-47are set out in Appendix II. In considering the working of the existing arrangements during the
last decade, the most important point to note is that war broke out soon after the Government of India
Act, 1935, came into operation.
18. During the war, all Provinces except Bengal and Assam had surplus budgets. Revenue receipts
increased several times, mainly on account of wartime conditions and also because the Provinces levied a
number of new taxes and increased the rates of existing ones; there were remarkable increases in
receipts under Provincial, i.e., Liquor and Drugs, Excises, and in the Provincial share of Income-tax. Most
Provinces were under Section 93 administration. All development work was stopped. The Provinces are
now faced with a heavy program me of expenditure without any corresponding increase in revenue. On
the contrary, even apart from voluntary abandonment of revenue as in the case of Liquor Excises, the
revenue is likely to go down much below wartime levels. Land revenue, both in the permanently and
temporarily settled provinces, is not likely to expand. State purchases of zamindaries will not bring any
return for years to come. In ryotwari Provinces, remissions are likely to be more liberal than before, and
there is thus little prospect of an increase in land revenue. Receipts from stamps and registration fees
are not likely to increase much, while forest revenue will perhaps dwindle on account of large scale
felling during the war. Receipts from sales tax, entertainment tax may not fall, thought they will be
below the war-time peak for some time to come.
19. During the war and after, most of the Provincial Governments have practically exhausted the
entire field of taxation reserved for them. Moreover, Provincial Governments have to share the Provincial
field with Local Bodies, and on that account too, need adequate resources. A substantial transfer of
revenues from the Center to the Provinces, therefore, seems inevitable, if essential and overdue
programmes of social service and economic development have to be undertaken.
20. At this stage, we would refer to the adoption, by most Provincial Governments, of a prohibitionist
policy; and of the inevitable loss of substantial revenue by all of them. Obviously, it is for the provinces
to find alternative provincial resources from which to recoup the loss; and incase, it any case, it would
not be practicable for provinces to expect sufficient assistance from the Center for this purpose, at any
rate for many years. The point that we wish to emphasise is that it will be for the provincial Government
to balance the urgency of schemes of development against the advisability of social reforms like
prohibition, and that in any case, they must not embark on schemes, whether of reform or development,
depending merely on the possibility of obtaining assistance automatically from the Centre.
21. To turn now to the Centre, it has been working on deficit budgets. The large surpluses that were
expected sometime ago have not been, and are not likely to be realised, mainly because of the food
shortage, the refugee problem and other causes arising out of the partition of the country, particularly,
continued heavy expenditure on Defence. These are, however, temporary problems, and we consider
that the financial position of the Centre is essentially sound. As these temporary problems are solved,
the budgetary position of the Centre will necessarily get better. There is scope for improvement in the
administration of Central taxes, and particularly of taxes on income. In respect of taxes on income, it
should be possible for the Centre not only to collect more in future in the ordinary course every year, but
to secure for the exchequer, by legislative changes, if necessary, the large sums that are believed to
have been successfully kept back from the Government in recent years. We do not, however, expect any
appreciable change under Customs and Excise; and we do not expect Railway contributions on anything
like the scale during the war. Even after the temporary problems referred to above have been solved,
expenditure on Defence and Foreign Affairs would still be substantial. The Defence Services will probably
be reorganised and re-equipped, and it is not possible to foresee what would be the scale of expenditure
for properly equipped defence services even on a peace-time basis. There is little prospect on the other
hand of reduction in the service of the national debt but there is, however, scope for reduction in the
existing civil expenditure.