With the beginning of attempts for the introduction of the proposed Federal Constitution, the important question of the distribution of revenues between the Central Government and the Provincial Governments was considered by the India Statutory Commission (Layton Report), by a subcommittee of the Federal Structure Committee under the chairmanship of Lord Peel, and by a Federal Finance Committee with Lord Eustace Percy as its Chairman. The Government of India Act, 1935, provided a composite financial arrangement, based on the findings of the above-mentioned bodies. A classification was made of the sources of revenue as Federal and Provincial in separate lists. The following taxes were to be levied and collected by the Federal Government: (i) Duties in respect of succession to property other than agricultural land, (ii) Stamp duties in respect of bills of exchange, cheques, promissory notes, bills of lading, letters of credit, policies of insurance, proxies and receipts, (iii) Terminal taxes on goods or passengers carried by railway and air, (iv) Taxes on railway fares and freights, (v) Taxes on income, excluding corporation taxes (that is, a tax on the profits of companies), (vi) Salt excise and export duties.
The net proceeds of some of these duties and taxes, such as the income tax, duties on jute export, etc., were to be distributed, under certain conditions, among the Provinces and the Federal States within which these had been collected. The Federal Legislature was, however, competent to levy a surcharge on these duties and taxes and to appropriate the proceeds for Federal purposes. The Secretary of State appointed a financial expert, Sir Otto Niemeyer, to determine the terms of the financial settlement between the Central and Provincial Governments. His report, published in April, 1936, was accepted and its main recommendations were: (i) To enable all the Provinces to possess adequate financial resources on the inauguration of the new Constitution on Ist April, 1937, certain Provinces to be given cash subventions, (ii) some Provinces should be granted relief in the form of cancellation of debts incurred prior to I st April, 1936, (iii) twelve and a half per cent of the jute tax should be distributed among the jute-growing Provinces, and (iv) subject to certain conditions, half of the income tax should be assigned to the Provinces beginning from five years after the inauguration of Provincial Autonomy. This scheme did not satisfactorily solve the fundamental problem of Indian finance by giving adequate funds to the Provinces for their relief or added strength. In order to secure financial stability, the Reserve Bank Act was passed in 1934 and the Bank began operations in 1935.
Land revenue is the main source of revenue of the Provinces. It is partly in the nature of a rent and partly a tax. In recent times attempts had been made to being it under the effective control of the Legislature, and with the inauguration of Provincial Autonomy the new Legislatures in the Provinces paid much attention towards revising land revenue administration. The Socialists demanded the abolition of the Zamindari system, and some new Governments in the Provinces also want to enforce it.
Communications and Public Works
Railways
Under the new Guarantee System (1879-1900), most of the railways were acquired or purchased by the State on the expiry of the respective periods of contract with the companies concerned. But the management was left to the companies, subject to Government control, exercised through the Railway Board, which was created in 1905. The fourteen years before the First World War were marked by a rapid extension of railways and a beginning of railway profits. But during the period 1914-1921,there was a set back, partly due to wartime pressure on them and partly due to the decrease of the annual programme of capital expenditure.
After the introduction of the reforms of 1919, a Committee was appointed, with the late Sir William Acworth as its Chairman, to investigate into the working of the railways and recommend a suitable policy for their further development. The Committee recommended an expenditure of 150 crores of rupees every five years on improving the railways; and its majority report definitely favoured State management of the railways and construction of new lines by State agency. The Committee also recommended the creation of a new department of communications, reorganization of railway boards, establishment of a Railway Rates Tribunal, and separation of the railway budget from the general budget. It should be noted that lndian public opinion has always been opposed to company management of railways, not only because their profits thereby went out of India but also because the companies were considered to be unsympathetic towards Indian national interests.
Though the Government of India did not definitely accept the recommendation of the majority report regarding the ending of company management, yet under the pressure of Indian opinion it ultimately took under its direct management the East Indian Railway (1st January, 1925), the Great Indian Peninsular Railway (30th June, 1925), the Burma Railways (1st January, 1929) and the Southern Punjab Railway (1st January, 1930). The Government began to undertake all new construction of railways. The Railway Board was also reorganized. As constituted in 1936, it had the Chief Commissioner as President, the Financial Commissioner and three other members. The Rates Advisory Committee was created in 1926, and the Central Publicity Bureau of the Railway Board was started on Ist April, 1927. In accordance with the recommendation of the Acworth Committee, railway finance was separated from the general Budget from 1925.
Roads
Progressive decentralization, and the growth of local self – government, have afforded considerable stimulus to road development. More attention has also been recently paid to the need for co-ordination of rail-road transport, and this question was discussed in 1933 by a specially convened Road-Rail Conference at Simla. A special Road Development Committee was appointed in 1927 to consider the road problems of India. In accordance with its recommendations, the import and excise duties on motor spirit were increased from four to six annas per gallon in March, 1929, the additional duty being earmarked for expenditure on road development; the Standing Committee of the Indian Legislature on Roads was created in the following April; and the All-India Road Conferences began to be convened from time to time.
Water Transport
The importance of Water Transport has decreased in modern times, owing to the construction of railways. The water transport of India falls into two divisions: Inland water transport, facilitated by the river systems of Northern India, and Marine transport along India’s extensive coastline. In 1918 the Industrial Commission emphasised the need of coordinating railway and waterway administrations in order to relieve railway congestion and meet the requirements of small-scale transport. For several reasons, the position of India’s shipping and ship-building industries had become unsatisfactory. The need of developing an Indian Mercantile Marine was keenly felt, and, on the recommendation of the Marine Mercantile Committee (1923), the Government provided a training ship, the I.M.M. T.S. Dufferin, for Indian cadets.
