• Up to the passing of the Charter Act of 1833, princes enjoyed significant autonomy in financial matters.

• The Charter Act of 1833 led to financial centralization, stating that no government could grant new offices, salaries, or allowances without the prior approval of the Governor-General.

• Despite the passing of the Acts of 1853 and 1858, Indian finance remained centralized under the Government of India, with provinces having no authority over provincial revenues.

• Provinces were merely managing agents for the Government of India, with all decisions on taxation, collection, and expenditure dictated from the headquarters.

• The provinces had no control over tax collection, and all matters were decided by the central government.

• Sir William Hunter described that, at the end of each year, local governments would present their expenditure estimates to the Governor-General-in-Council, who would approve the budget based on the expected revenue from all of India.

• According to Strachey, the entire revenue from all provinces was treated as a single fund, and the Governor-General-in-Council alone authorized any expenditure.

• Provincial governments had no discretion in sanctioning new charges and could not carry out improvements without approval from the Supreme Government.

• Local governments could make administrative changes or alter land revenue assessments but could not spend money without formal approval.

• Even small expenditures, like £20 for road repairs or wages for servants, required formal reporting and approval from the Government of India.

• Critics noted that the distribution of public income became chaotic, resembling a scramble where the most aggressive had the advantage, with little focus on reason.

• This system led to minimal local stimulus for economic growth or improvement, reducing the interest in developing public revenues.

• It was widely acknowledged that the system was faulty and needed reform.

• Efforts by General Dickens and Mr. Laing did not improve the situation.

• In 1867, Strachey prepared a scheme to revise the system, and based on this, Lord Mayo initiated the first step towards decentralization.

Mayo’s Resolution (1870)

• The Resolution of 1870 transferred control of several heads of expenditure to Provincial Governments, including Jails, Registration, Police, Education, Medical Services, Printing, Roads, Miscellaneous Public Improvements, and Civil Buildings.

• Provincial governments were given the revenue from these areas along with a fixed annual Imperial Grant.

• Any deficit was to be met by local taxation or by reducing expenditure.

• If any portion of the allocated funds remained unspent by the end of the year, it would not lapse to the Central Government but remain with the Provincial Government.

• Provincial Governments were allowed to create new appointments, provided the salary did not exceed Rs. 250 a month, and funds could be met from the assigned grants.

• Lord Mayo’s government hoped the Resolution would promote care and economy, bring certainty into the fiscal system, and foster more harmony between the Supreme and Provincial Governments.

• The operation of the Resolution was expected to provide opportunities for the development of self-Government, strengthen municipal institutions, and encourage greater association between natives and Europeans in administration.

• A key defect in the system was that Imperial Grants were based on the expenditure levels of 1870-71, with no effort made to address existing inequalities or provide grants based on actual needs.

• Dr. Gian Chand noted that provinces with lower levels of expenditure due to either access to the Central Government or their underdeveloped state were penalized for economy, unassertiveness, or backwardness.

• R. C. Dutt criticized the reform for increasing the overall tax burden, with provinces imposing new land taxes to augment their revenues, which increased the State’s demand on the soil.

• This increase went against the spirit of the Permanent Settlement in Bengal and violated the rules of limiting assessment to half the rental as per the 1855 and 1864 reforms.

• However, it was pointed out that separating Central from Local taxation was common in modern states.

• The system under Lord Mayo led to significant economy and efficiency.

• According to Roberts, Lord Mayo found a serious deficit and left a substantial surplus, and improved the reliability of financial estimates, accounts, and statistics, making them punctual and full.