§ During the last 20 years the system of financial decentralisation has made great strides in India, and every five years a 424 revision takes place in the financial relations between the central and the provincial Governments. This quinquennial alteration took place in the year 1897, and as the division of expenditure and income arrived at between the two authorities has excited much local interest and criticism, I will in a few sentences explain the principle of the system. By far the greater part of the revenue is collected by the officers of the provincial Governments, and a very large portion of the civil expenditure is under their control. It is, therefore, highly desirable that the provincial Governments should have a direct interest in the effective collection of the one and in the economical administration of the other. With this view, the Government of India enters into agreements with the provincial Governments, usually for five years at a time, under which the latter receive certain proportions of the main sources of revenue, together with nearly all the departmental receipts, and bear the responsibility of the whole or a fixed proportion of the charges under most of the heads. The probable position of the several local governments is then carefully examined, and a specific sum in each case (adjusted for convenience under the head of land revenue) is either added to or deducted from the amount of the provincial revenues. In the quinquennial settlements made with the provincial Governments in 1892 they were allowed as the net amount of expenditure Rx.13,066,500. In the new settlements this is raised to Rx.14,355,900, excluding Upper Burma, which is now for the first time provincialised. Including it, the total is Rx.15,628,900. The expenditure being thus determined, revenue is assigned to each local government accordingly. But the circumstances of the several Provinces have further to be considered, with the view of seeing whether on the one hand, owing to the state of their balances, it is necessary to give them an addition to their revenue or a special grant at the commencement of a new settlement; or whether, on the other hand, their finances admit of the withdrawal of some part of the increase that has occurred under the provincialised heads of revenue, so as to give a share of the improvement to the general finances. In the former class on this occasion comes the Central Provinces, Lower Burma, 425 Assam, the Punjab, and the North-West Provinces; from none of these is money withdrawn, and in some cases additional grants are made in order to replenish the balance. In the more flourishing provinces, however, of Bengal, Madras, and Bombay the Government of India have claimed some part of the increase, though there is much dispute both as to the amount remaining for the provincial revenues and as to its adequacy. Around the latter point a great controversy has arisen. These provinces complain bitterly of the check to progress if they are not allowed the full amount to which their revenue in the previous period had attained, and Sir Alexander Mackenzie in the Viceroy's Council last year, and Sir Arthur Havelock in his own council this year, have vigorously protested against the proportions of the revenues assigned. On the other hand, Sir James West land and the Viceroy strongly maintain the light of the provincial Government, from the commencement of the provincial system, to share, when each five years' agreement has expired, in the growth of the revenue which had been assigned to the local Governments for that period, and they point out that only by such control can any chance arise of lightening the taxpayers' burdens. The controversy raised by these settlements as very interesting, for it goes to the very root of financial devolution and the respective responsibilities and the relative importance of the work done by the two contracting parties. Upon the Imperial Government rests the primary duty of maintaining order internally and of protecting the frontiers; of the risk of war, famine, exchange, and sudden emergencies; of the responsibility of maintaining not only national solvency, but also the solvency of the provincial Governments. It is, moreover, their business, whenever they can, to remit or abolish taxation. On the provincial Governments, on the other hand, rests the duty of developing the resources of their respective provinces, and by so developing them to add to the general prosperity, comfort, and taxable power of the community at large. The number of objects associated with these purposes is ever increasing, and the expenditure involved by them ever growing. In this country we know how local expenditure has increased much more rapidly than Imperial expenditure; 426 and this is not due to inherent extravagance of the bodies controlling this expenditure, but to the inevitable result that, as civilisation and prosperity increase, so the functions of local authorises are raised to a higher standard of duty and ambition. ["Hear, hear!"] In this country, however, the great bulk, if not the whole, of this expenditure falls directly upon the ratepayers, and this acts as a natural check upon undue development of expenditure; but if the great bulk of expenditure fell, not upon local rates, but upon portions of Imperial revenues, the House will easily understand that local wants and local expenditure would develop with extraordinary rapidity. It is most desirable to extend financial decentralisation in India, and it is only by constant development of this principle that the ever-increasing burden of administration in India can be adequately met. But, on the other hand, a margin, and a large margin, of revenue must be left to the Imperial Government to meet emergencies and to reduce taxation. The present scheme is not yet settled, and still is under the consideration of the Government. I fully admit the force of the objections urged against it by the provincial Governments, but on the other hand, I have seen no scheme, nor has any been suggested to me, which is less free from objection. I hope, however, that we may be able, by carefully considering both sides of this problem, to arrive at some conclusion which will prevent in future the feeling of irritation and annoyance which undoubtedly at the present moment is experienced by several of the provincial Administrations. ["Hear, hear!"]