GOVERNMENT OF INDIA ACT, 1935 AND GOVERNMENT OF BURMA ACT, 1935.

HC Deb 12 June 1936 vol 313 cc539-611

11.6 a.m.

The UNDER-SECRETARY of STATE for INDIA (Mr. Butler)

I beg to move, That an humble Address be presented to His Majesty, in pursuance of the provisions of Section 309 of the Government of India Act, 1935, praying that the Government of India (Commencement and Transitory Provisions) Order, 1936, be made in the form of the draft laid before Parliament. The House has for some time been considering various Orders in Council in connection with the Government of India Act which was passed in the last Parliament. To-day we have before us five Orders under the said Act, and I suggest that it will be for the convenience of the House if we consider the two Commencement Orders for India and Burma, and the Distribution of Revenues Order for India together. I think that it will be convenient if we take this course first of all, and then perhaps in a later discussion consider the Corrupt Practices Orders for India and Burma. There is not much new material in the latter, since they cover the existing rules on the subject. The reason I think it will be convenient to discuss the first three Orders together is because Provincial autonomy in India and the separation of Burma are to start contemporaneously under the terms of the Act. The reason it will be convenient to discuss the Commencement Orders with the Distribution of Revenues Order is because the starting of Provincial autonomy depends upon the decision which will be taken about the distribution of resources and the conclusion come to after the survey that we originally promised the House would be made, that the distribution of resources between the Centre and the Provinces would be such as to make it possible to start Provincial autonomy.

The report of Sir Otto Niemeyer, which in fact constitutes the survey which we promised the House, was laid about six weeks ago, so that there has been a considerable opportunity for studying it. At this stage it will be appropriate if I tell the House how fortunate we think we were in securing the services of Sir Otto Niemeyer. He may be said to have been really one who had to fulfil the task of a Paris and a Solomon at the same time. He could not well avoid throwing down the apple of discord, but he had to divide the baby between 11 Provinces and keep the head for the Centre. He has fulfilled this extremely difficult task with some success. His experience, as the House knows, is very considerable. He has already made surveys of the financial position of Australia, Brazil and the Argentine. He has been chairman of the Financial Committee of the League, and is a director of the Bank for International Settlements. We have been fortunate to secure one who has had such signal experience of public finance, and, at the same time, the special experience of British finance. I think that the House will attach great importance to one who can speak with such particular authority, and who has had the highest qualifications for examining and comparing the many Budgets which were submitted to him. I should like to express, on behalf of the Government and of the House, our gratitude to him for the clarity and the efficiency with which he has conducted his task. As I have already stated, the House has had an opportunity to consider very carefully the report which he has put before us.

The Orders upon this report implementing the main findings of it were laid before Whitsun, and these Orders are before ton. Members to-day, together with a memorandum of the views of all the Provinces, of the Government of India, and of my Noble Friend in answer to the Government of India. My Noble Friend thought it advisable and proper to publish openly and clearly the criticisms of the Provinces and of the Government of India, and so the House can feel that the whole of the material is clearly and openly before it upon which it can make up its mind. If anyone feels that there is a critical tone in the Provincial views, and that all the correspondents were hoping to be beneficiaries, and no doubt stated their views in such a manner as might ultimately result in a greater benefit to themselves, it is also interesting to notice that no Province says that Provincial autonomy should be delayed for financial reasons. That is the opinion of the Government of India and of my Noble Friend, who accepts Sir Otto Niemeyer's conclusions, which may be summed up at the end of paragraph 18 of his report, which, as I have said, was laid before the House some six weeks ago. He says: From the financial point of view, I conclude that His Majesty's Government may safely propose to Parliament that Part III of the Government of India Act, 1935, should be brought into operation a year hence. That view is accepted by my Noble Friend and the Government of India, and, with the approval of the Government of India and of this House, the date, therefore, for the introduction of Provincial autonomy has been set out in the Provincial Orders as the 1st April, 1937.

Before I explain in some detail the reasons for this decision—and I shall attempt to set out the whole case as clearly as I can—I should like to give the scope of the Orders before us. These Orders bring into operation on that date, if the House approves them today, the whole of the 1936 Act, except Part II, which relates to the Indian Federation, and also the constitution of the Federal Railway Authority and the Federal Court. Separate Orders for the constitution of these two bodies will be laid in due course before hon. Members for their approval, and the acceptance of the latter, at any rate, will be necessary very soon after the Provinces have been established, and the Order will be laid for its establishment at a not very distant date. It is important that the Commencement Orders should be approved reasonably soon. There is much preliminary work to be done in connection with the elections. The sort of timetable we have in mind is that the general election should be held approximately eight months hence if Provincial autonomy is to start on 1st April, and it is necessary to have the approval of Parliament to these Orders in order to enable certain machinery in connection with the electoral roll, and so forth, to be undertaken. It is also important since Parliament has already decided to establish responsible Government in the Provinces. This Order merely implements that decision.

Whatever their individual views may be, Indians of all creeds and all parties are expecting the new Constitution and are making their preparations accordingly. If hopes are not to be belied, it would be advisable for the House to approve the Orders and pull this first lever setting in motion the machinery which will set up responsible governments in the Provinces. It is also legitimate in view of the intense preparation which has gone to the making of this plan. When Provincial autonomy comes into force on the date that we suggest, it will be approximately 10 years since the Statutory Commission first set out to undertake its task in India. It will, therefore, be just about 10 years from the date when they started their work that this, their main recommendation, will be put into force.

A decade is little in the life of a great continent like India, but it seems a great deal to those who have been working all that time to bring about this particular result. A decade may seem a little, and it is interesting to reflect that it is only a span of a man's life since Disraeli brought the control of the government of India under Parliament and the Crown, in 1858. Since then Parliament has steadily passed a series of measures leading up to this particular delegation of Imperial authority which, in view of the number of people it affects, may be classed as perhaps the most important in the annals of Imperialism. It is a plan on which there is a wide measure of agreement partly due to the care with which the matter has been considered, partly due to the imprimatur of the Statutory Commission, and partly due to that continuity of policy to which I have referred. It is a decision which the Government, and I believe Parliament, have taken in strength, and it will give strength to those units who are now to enjoy a Parliamentary system given because we ourselves consider it to be the best.

At the same time that we propose to establish responsible Governments in the Provinces, under the Burma Commencement Order, Burma, is to become a separate unit within the British Commonwealth. This decision was also taken in the Government of India Act, and the Order which now lies before the House for approval implements that decision. It is to be hoped that Burma, whose special character was recognised by hon. Members during the passage of the Government of India Act by the fact that special treatment was suggested for her, will find that her special character will develop and expand as she develops her own constitutional position, which has been set up for her in this Order. As Under-Secretary of State for Burma I would wish her a happy and successful future, and I feel sure that the House will join me in wishing her well.

Hon. Members may wish to be reassured as to the financial position of Burma. I should not like to leave any matter un-considered. The ordinary revenue and expenditure position of Burma may be taken to be satisfactory. The Application Committee, which was suggested originally by the Tribunal presided over by my right hon. Friend the Member for Sparkbrook (Mr. Amery), is at present considering the profit that is likely to accrue to Burma from her separation. Her position is very satisfactory in that her ordinary revenue and expenditure position is satisfactory, and at the same time she may expect a substantial sum, over two crores, resulting to her from the separation. With regard to the details of the Commencement Orders, which I shall consider first, the Burma Commencement Order follows in principle the India Commencement Order, but with one or two differences, due to special circumstances. For climatic reasons, and because the Bur-mans harvest their rice crop during the winter months, the Burma election must be held, if it is to be representative of true election, in the autumn of 1936.

Mr. MUFF

1936?

Mr. BUTLER

Yes, 1936. The Burma Legislature must also meet, for similar reasons, in either February or March, otherwise, for the reasons that I have described, it will be impossible to hold a session of the Legislature at Rangoon, the capital of the country, until July, except at very great inconvenience. That would mean that the new Legislature would not meet until approximately nine months after it had been elected. Therefore, for Budget purposes, in the Burma Commencement Order provision is taken for the present Executive—including as it will by that time certain Ministers in charge of transferred departments, who will be chosen from the majority party—being allowed to lay the Budget in March before the Legislature for the ensuing year, on the understanding that the Budget will operate after 1st April, which will be the date of the inauguration of the separation of Burma. As there is a large range of new problems in collection with the Government of Burma, which amalgamates the central form of government with the provincial form, it is suggested that certain limited types of legislation should be permitted, enabling the machinery of the new Constitution for the year after 1st April next to be brought into being.

In the case of India, if hon. Members have studied the Commencement Order they will have seen that the Legislature will be elected in March, and the Budget can be got through before, say, July and the Governor is given power to make provision for the intervening period. For the rest, the technical provisions of these Commencement Orders are set out in the Memorandum which my Noble Friend laid before Parliament, which takes paragraph by paragraph the points of the Commencement Orders and sets out almost entirely the technical issues at stake in introducing the commencement of transitory provisions for the new Constitution. I think I have touched on the main provisions of the India and Burma Commencement Orders which will be of interest to the House, apart from those mentioned in the Memorandum.

In regard to the Distribution of Revenues Order, let me try to examine its contents and give reasons for the decision which my Noble Friend has taken that it is legitimate to introduce Provincial autonomy from 1st April of next year. The House will remember that this financial question is not a new problem. The Joint Select Committee said that from the financial point of view there was already in existence in British India a federal system of finance, quite apart from the problem of the entry of the States. This is a problem which has in the past created, and I daresay in the future will create, problems, and it is a question of great complexity. The father of my right hon. Friend the Member for Epping (Mr. Churchill) once referred to "those damned dots." Those who have studied lakhs and crores might apply a similar epithet to the many noughts and commas of the figures used in presenting an Indian Budget. There have been several inquiries to deal with this problem.

Without wearying the House with history, I would remind hon. Members that the general plan of finance was set out in the Act of 1936, but three main decisions were left to a future date. The first two relate to the immediate problem, and the third to the future. The first two problems left over for decision, which are before the House to-day, are which Provinces need assistance and what proportion of the jute export duty should be allocated to those Provinces in which jute is produced. Those are the two problems immediately before us. The third problem is what proportion of the proceeds of Income Tax should be allocated to the Provinces, what should be the manner of distribution of the Provincial share and what should be the periods over which it should be surrendered by the Centre?

Let me take the first two problems, and make the matter as clear as I can. In any case the Provinces would have needed some support whether there was any new constitution or not. That is an important point to remember. A revision of the Meston settlement, which has prevailed hitherto in India, would have been necessary, at any rate, as it affects some of the Provinces. In the new constitution we have undertaken that there shall be a survey of the arrangements, as set out in the Schedule to the Distribution of Revenues Order. Hon. Members will there see the assistance which is to be granted to certain Provinces on the recommendation of the Niemeyer Report. In the case of the United Provinces, Sir Otto Niemeyer suggested that they should receive 25 lakhs, which they get by a direct grant. There are, however, two other methods by which Sir Otto Niemeyer suggested the Provinces should obtain assistance. One is by the cancellation of debt between the Provinces and the Centre, and the other by granting a proportion of the jute export duty, as is suggested in the Distribution of Revenues Order. If we add these two considerations to the suggestions in the Schedule to the Order we find that Assam will get approximately 15½ lakhs from debt remission and 2 lakhs from the jute duty, that is, a total sum amounting to rather more than what Sir Otto Niemeyer suggests. The North West Frontier will get almost exactly what he recommends; Orissa will also get almost exactly what he recommends by a grant and by a remission of duty.

There are three other Provinces besides those mentioned in the Schedule which will receive the assistance which Sir Otto Niemeyer designed for them, not by special grants, but by the cancellation of debt and a proportion of the jute duty. The Central Provinces will receive assistance simply by a cancellation of debt. Bengal will receive 75 lakhs, which Sir Otto Niemeyer suggested she should receive, by a cancellation of debt amounting to 33 lakhs and a proportion of the jute duty of 12½ per cent, over and above the 50 per cent. she already receives to the amount of 42 lakhs, which will bring her up to 75 lakhs, which Sir Otto Niemeyer suggested she should receive. In this way all the Provinces to which Sir Otto Niemeyer refers in his report will receive certain sums either by direct grant or a direct grant together with the cancellation of debt or a proportion of the jute duty.

Mr. CHURCHILL

Cancellation of debt means that a Province will no longer pay interest on the debt?

Mr. BUTLER

That is a correct interpretation. Cancellation of debt means, of course, that a Province will be free from interest on debt. In this way the Provinces will receive the approximate sums which Sir Otto Niemeyer suggests they should receive. My Noble Friend in his despatch gave the Government of India an assurance that the necessary action will be taken in connection with the cancellation of debt by administrative action, that this assistance to certain Provinces will be provided in his way, and I give an assurance to the House that such action will be taken by my Noble Friend and the Government of India. There is one detail that I should mention in order to make the picture complete. Certain other Provinces, Madras and the Punjab, will incidentally obtain some small immediate relief from the plan of decentralisation of Provincial balances and consolidation of Provincial debts, which will be undertaken as an administrative question by the Government of India. Reference is made to this in the Niemeyer Report. These arrangements are necessitated by the fact that the Provinces will be receiving financial autonomy and the Government of India will no longer be their banker.

My Noble Friend has paid careful attention to the many provincial points which have been put forward in the correspondence between the Provinces and the Government of India. He has decided to accept the plan of Sir Otto Niemeyer as fair. We have been in touch with him, and he assures us that no new considerations have been brought forward which cause him to alter his original recommendations. We, therefore, submit the plan as a whole to the House for its approval. The House will notice that all Provinces want more, and that they all go for each other. It was never anticipated that every Province should receive a grant. My right hon. Friend the Member for Chelsea (Sir S. Hoare) and those who were responsible for the Goverment's case when the Act was going through Parliament, never gave the idea that every Province would receive a grant. The phrase used was that the Provinces should start on an even keel, but there was no undertaking given that the waters would be still or that the keel would not dip up and down. The object was to give the Provinces a fair start.

The third consideration is that any additional money which is given to the Provinces would have to come from the Centre and would proportionately weaken the Centre, a thing which His Majesty's Government simply cannot allow. The Government of India draw attention to the fact that the total Provincial payment would amount to one crore now and more later on, and we do not think the Centre should be asked to face this additional burden in view of the importance of central finance to Indian credit. Moreover, the Centre has already this year helped with subventions Sind and Orissa, and with certain overheads to the jute producing Provinces. The Centre must now meet two crores additional per annum and lose approximately 2¾ crores on the separation of Burma. I would remind the House that this is almost exactly the same figure as that given in February of last year by my right hon. Friend who sits beside me, the only difference being that the extra amount for Sind and Orissa has already been included in the Central Budget and that there is a slight extra amount for Sind.

The Government consider that the Centre can reasonably be expected to meet this burden in view of the careful consideration given to this problem by Sir Otto Niemeyer. I would remind the House that for the first year the two crores which are needed for the additional grants have already been provided for in the Revenue Reserve Fund and that the extra money required by the loss of Burma will, we anticipate, be covered by a rise in the yield of the main sources of revenue and by anticipated savings in debt charges. I will give the House one instance of the yield of a main item of revenue. The Income Tax, for example, has risen steadily in yield for the last four years, and if similar rates are taken for each year in question, it has shown a substantial rise of about three-quarters of a crore in each of the years under consideration. Other of the heads similarly reflect recuperative powers, and I believe that there will be a substantial saving from debt charges. As for the future, we consider that the further reduction in interest payments—for example, interest on savings bank deposits—and an improvement in revenue should cover the sums necessary.

The third consideration, with which I will conclude the facts I am putting before the House, concerns the Income Tax, which, I said, deals with the future. Sir Otto Niemeyer was asked to report on the possibility of transferring a proportion of the Income Tax. The Government approve that the Centre shall transfer 50 per cent. of the taxes on income, as defined in the Act, to the Provinces after the first five-year period, and that a total distribution of 50 per cent. shall be achieved by gradual degrees between the end of the fifth year and the tenth year. This money will go to the Provinces before the fifth year only if the divisible receipts from Income Tax exceed 13 crores together with any sums which, according to a formula worked out 10 years ago by the Government of India, the railways pay to the Centre finances. Apart from a possible increase in Income Tax, there is a chance that in the first five-year period, if the railway position improves, a sum may be granted from this source to the Provinces, in addition to the grants which are set out in these papers.

There has been some confusion of thought that success in the early years must depend on a problematical improvement of railway finances. This neglects two considerations. The plan does not depend on the finances of the railways, but the chance of giving the Provinces some money earlier will be increased if the railway finances improve. In connection with this, I would remind the House that the Indian railway system is stronger, I think, than almost any other. It has a capital approaching £600,000,000, and both my Noble Friend and the Government of India intend to do all they can in the months that are ahead to enable the railways to revert to their old practice of paying contributions to the central fisc. If the services do not improve, I would finally remind the House that under Section 138 of the Government of India Act it is possible for the Governor-General to suspend or delay distribution of Income Tax if it is thought that there is likely to be any danger to the central finances.

I have covered the main problems which were left for the consideration of the House and the main problems which are dealt with in the Papers before the House. The Niemeyer Report, upon which these Orders are based, has laid down a scheme of finance for the distribution of revenues between the Centre and the Provinces which has the advantage that it has been framed in a period of comparative adversity, when none of the difficulties is likely to be overlooked, and also at a time when we can envisage a possible amelioration of the situation and continued improvement in the finances of India. It has been framed after anxious and careful consideration, with consultation of all the interests concerned and with a full realisation of the hard financial facts and circumstances of the day. I feel sure the Provinces will start on their independent career mindful of that wise saying of Polonius: Costly thy habit as thy purse can buy But not expressed in fancy; rich not gaudy. while those of us who have smarted under their criticism may console ourselves with his sage adage: Give every man thine ear, but few thy voice; Take each man's censure but reserve thy judgment. We are confident that the House to-day will approve the judgment which we have been at such pains to draw up.

11.43 a.m.

Mr. MORGAN JONES

The hon. Gentleman has to-day addressed the House in a new capacity. I understand that he combines the role of Under-Secretary of State for India with that of Under-Secretary of State for Burma. I gathered that he was addressing to the Indian people the advice of Polonius: Give every man thine ear, but few thy voice. I wonder how the Under-Secretary of State for India will deal with the Under-secretary of State for Burma.

Mr. CHURCHILL

The case is similar to that of Pooh Bah.

Mr. JONES

I dare say the Under-secretary of State for India will listen with patience to the Under-Secretary of State for Burma, and I can only hope that on occasions when fierce controversies arise those two personalities will be able to live in peace and amicability together. The hon. Gentleman told us in the course of the most interesting speech which he delivered that the subject we are discussing to-day is one which is a natural consequence of some 10 years of discussion. He reminded us that the India Commission embarked upon its labours some 10 years ago. Since then there has been a good deal of discussion, collaboration and contention over this problem. We on our side have taken our modest part in the discussions and we do not this morning seek to imply in any way that we depart from the action we have consistently taken on this matter throughout he discussions of this House. But I think we cannot contest the point made by the hon. Gentleman that these Orders ought to be approved as early as is reasonably possible. Parliament has decided that this machine of government shall be set up in India. We are not called upon to discuss that decision to-day, but Parliament having so decided, it is right and proper that that machinery should be set in motion as speedily as possible. Necessarily there is much to be done and as the hon. Gentleman says we are to-day only pulling the first lever which will set the machinery in motion. It is, no doubt, true that in India there is considerable anticipation concerning this new Constitution, and therefore, as I say, it is only fair that we should approach the matter without any delay.

At the basis of this discussion—and I take it we are discussing these three Orders together—is the question of the Distribution of Revenues. I would go even further and say that, in the long run, it is on the Distribution of Revenues that the success or failure of the experiment itself, as between the Central and Provincial Governments, will depend. In that connection we are greatly assisted by the very enlightening report which has been presented to us by Sir Otto Niemeyer. Sir Otto has had a very extensive experience of public finance in various parts of the world, and he has had special experience in regard to British finance, and whatever he has to say on these matters must necessarily carry great weight. I do not mind confessing to the House that I am in considerable difficulty in connection with this matter. There are, so to speak, two contentions on this financial issue. There is the view advanced by Sir Otto Niemeyer in his report and, on the other side, there is the view advanced by the Provinces and in some respects even by the Central Government. I am a layman in these matters, and I find it exceedingly difficult to arrive at a conclusion as to where the truth lies, as between Sir Otto's analysis of the situation and his prognostication of the future and the view of the Central and Provincial Governments in India.

In the circumstances I think it is not unfair for me to take the view that I must be guided mainly by the report of the Special Commissioner who examined the subject on the spot. Generally, therefore, I am compelled, in the absence of more precise information than I possess, to base my conclusions on the recommendations of the Niemeyer Report. In that report, I notice that Sir Otto has addressed himself to two or three main considerations. He has had to consider both the present financial position and the prospective financial position of the Provinces and to arrive at an answer to this question: "What special assistance, if any, may be needed by the Provinces?" Having examined that proposition, he naturally had to examine the further question of how far the Central Government can assist the Provinces where such assistance may be needed. That is, of course, in regard to the present and the immediate future but then, over and beyond that consideration, there is the further question of how far at some future date the Central Government may be able to place further revenues or resources at the disposal of the Provincial Governments. It is clear that the answers to those questions turn very largely upon the amount of the proceeds of the taxes upon income.

There are one or two reflections in the report which give one some measure of courage and consolation in looking at the future of the new Indian Government. Sir Otto Niemeyer rightly recalls that India, like other parts of the world, has passed through a severe economic depression, but in spite of that fact he is able to assure us that the worst of that depression, in his judgment, seems to have passed and that an appreciable degree of recovery is already evident in the financial situation. There is one element in the situation, however, to which I think we ought to draw attention. Indeed Sir Otto takes particular care to draw attention to it in his report. Perhaps when we reach the Order dealing with railways at some future date, we may be able to examine this matter in greater detail, but there is a somewhat ominous passage on page 18 of the report in relation to the railways. I know that the matter is referred to in the dispatch of the Government of India, but I would ask the attention of hon. Members to this passage in the report: The position of the railways is frankly disquieting. It is not enough to contemplate that in five years time the railways may merely cease to be in deficit. Such a result would also tend to prejudice or delay the relief which the Provinces are entitled, to expect. I believe that both the early establishment of effective co-ordination between various modes of transport and the thorough-going overhaul of railway expenditure in itself, are vital elements in the whole Provincial problem. That is a very important passage. I do not know what the view of the Government upon it may be, but, from a mere glance, it does not seem comforting to me. As Sir Otto properly points out, this question has its relation to the future stability of the Provincial Governments. I think we ought to know from the Government their view on that passage in the report. There are one or two other reflections in the report on which I wish to comment. On page 5, Sir Otto says: The question of immediately pressing concern was to devise measures to increase or maintain the revenue and to reduce expenditure. The right hon. Gentleman the Member for Epping (Mr. Churchill) will probably be somewhat amused to hear me make the point which I am about to make. He may display some measure of glee over it, but I make it none the less. I have never denied that in my view, when Provincial government does come into being, there must necessarily arise a demand from the Provinces for attention to certain local problems, and the justification of the experiment will in large measure be determined by the amount of attention that these new Governments will give to the crucial problem, in India, of how to tackle poverty and its evils. It is inevitable that when these Provincial Governments begin to operate they will want to apply themselves to certain social problems. If Sir Otto's contention be accepted and there is to be a reduction of expenditure, I ask, Upon what is such reduction possible?

Clearly, we are in the presence of something which is very disturbing and disquieting. I dare say that it will be possible for an appeal to be made to these Governments not to be too prolific in the matter of expenditure in the early years, but let us understand the position as I see it. The ordinary people in India will expect the Provincial Governments to deliver the goods, and they can only deliver the goods if they can spend some money. If, in the first few years, there is no money to spend upon social problems, the disappointment in India will be most profound and the reaction upon this experiment will be rather bigger than I care to contemplate, because at the beginning of this self-government it is imperative, in my judgment, that disappointment should not be generated through circumstances of this kind. Therefore, I venture to make the observation that it is a little menacing to have a suggestion like this made in Sir Otto Niemeyer's report.

At the same time, I would like to say that there; may be certain directions, perhaps, in which the Provincial Governments, under the impulse of this new feeling that they are governing themselves and in the enjoyment of self-government, may want to give some outward and visible sign of this new situation. Let me give an illustration of the sort of thing I mean. I hope that none of these Provincial Governments, for instance, will go in for establishing elaborate and costly central departments. I venture to believe that in Delhi itself there has been, on the part of the Central Government, far too elaborate an expenditure upon the central buildings, and I hope that that example will not be followed. Naturally, we must expect them to find some money for the purpose of the Provincial centres of Government, but let them postpone the establishment of permanent buildings of a more elaborate character and more in accord with the dignity of the Provinces until a more appropriate date. That is a kind of expenditure which might well be postponed, but expenditure upon health, upon education, upon the social services cannot, in my judgment, be postponed, and if it is postponed, then the consequences may be very disastrous indeed upon the psychology of the Indian people themselves.

Now let me turn to another point. The hon. Gentleman referred to the fact that there had been some controversy generated as between the Neimeyer point of view and the Provincial point of view as to whether each separate Province is getting its proper share out of the pool. I noticed that an hon. Member below the Gangway opposite underlined that observation of the hon. Gentleman's with some glee. It is a natural thing to develop. There is a certain amount of money, and each Province naturally, at the outset, seeks to secure for itself as large a part of it as possible. That is inevitable. If there were a million pounds to be distributed in the distressed areas of this country, naturally each Member representing a distressed area, as has happened here, would want as favourable an amount for his area as he can get. So with the Provinces, and none of us need deplore that these Provinces have tried to earmark, each for themselves, as much out of the pool as they can conveniently get.

But, after all, I think, Sir Otto Niemeyer's observation that it is impossible to secure uniformity is just. That is unavoidable. There are different standards of attainment already as between one Province and another. Some are more advanced than others, some have different standards of excellence from others, and I think, therefore, it is inevitable that differences should exist as between the provision for one Province and the provision for another. As to what the allocation should be, I frankly confess I do not know. The Provinces say one thing, Sir Otto Niemeyer says another, and all I can say is that, on the best study I can give to this problem at this remote distance from India, I think that Sir Otto Niemeyer has arrived at a very equitable distribution. Beyond that I simply cannot go one step.

Sir JOHN WARDLAW-MILNE

As nobody is satisfied, you are probably right.

Mr. JONES

Yes; it is not a bad rule to go by, that when everybody is dissatisfied, there is some measure of satisfaction for all. Sir Otto says, at the bottom of the page: … it is both fair and inevitable that a certain measure of correction should be applied, even if it means that Provinces which have been able to attain higher standards of administration should now to some slight extent have to progress more slowly. It is a pity that a Province which has arrived at some larger measure of advance than other Provinces should, on account of the present situation, have to go slowly, and I can only, for my part, hope that if this position is inevitable and the consequences to which I have referred are also inevitable, the time may speedily come when the Provinces which have higher standards of administration in mind may be able to realise them to the utmost possible limit. I have tried to indicate broadly what our reactions to these proposals are. I repeat that we are in great difficulty, because naturally we have no sources of information at our disposal. We have merely the analysis of the situation as given by Sir Otto Niemeyer and the criticisms of his analysis as given by the authorities in India to guide us. In these circumstances, I admit that I am compelled, in the absence of better knowledge, to accept the suggestion made in the report of Sir Otto Niemeyer and embodied in the Orders which the Under-Secretary has moved to-day. May I endorse what the hon. Gentleman said in the concluding passage of his speech? He said earlier that we were to-day pulling the lever. No one knows what the consequences may be, but, whatever our views were about the Government proposals last year, and whatever our reservations concerning the wisdom or unwisdom of some of the proposals here, we all desire that the scheme now being embarked upon will be attended by the fullest measure of success and happiness for the Indian people.

12.7 p.m.

Mr. GRAHAM WHITE

The House is asked to consider two transactions which are of great historical importance. The first of them is the separation of Burma from India. There has been a suggestion to-day that the separation, so far as it refers to the appointment of a Secretary of State for Burma and an Under-Secretary of State, represented in this House by my hon. Friend, is a transaction of a symbolic character. Be that as it may, it is far from being a symbolic transaction so far as the Burmans are concerned; it is a matter of profound importance to them and to the future of their country. I associate myself with the words of the Under-Secretary when he said that he believed that Parliament as a whole would wish them luck in starting on this new control and in this historical development of their country. The other transaction which we are asked to consider to-day, and which I think might be described as being revolutionary, is the reversal of the policy of the control of finance and the relationships of the Provincial Governments to the Central Government in India which, have been in force for something like 150 years, ever since the passing of the regulation Act, and which has given India over that period a degree of unity in administration and economy which it never enjoyed before.

We accept the proposals before the House as being the best means of giving effect to the wishes of Parliament within the limits imposed by the existing revenues and any revenues that we can foresee will be available in the immediate future. Of course, there are other proposals which might have been made. In fact, we know that there are as many proposals as there are provinces in India. The present proposals, however, rest upon the authoritative advice of Sir Otto Niemeyer, which is fortified by the immense amount of labour and examination which has been going on for the last 10 years. I associate myself also with what has been said about the public services rendered by Sir Otto Niemeyer in this matter. It would not detract in any way from the merit of his services if we remembered that he was not working in an untilled field. Previously there was the committee presided over by Lord Peel, the committee of the Noble Lord the Member for Hastings (Lord E. Percy), the Statutory Commission, and the vast amount of work which has been done by those whose every-day business it is to give close and constant attention to these matters.

Like my hon. Friends above the Gangway, we have to rely upon the judgment of Sir Otto Niemeyer in these matters, fortified, as we know it is, by the long development, and by the research and consideration given by Parliament and by bodies which have acted by virtue of the request of Parliament. It is true that there must be difficulties to be overcome in the important changes which are now proposed. Those who have read the observations of the Provincial Governments on these matters will realise what some of those difficulties are. It is clear to anyone who considers the matter with an impartial mind that it is impossible to propose any settlement out of the existing revenues which would satisfy everybody. It may be no consolation to those who have been aggrieved in this matter that they are in exactly the same position as almost every other Government in the world. I cannot call to mind any Government which has as much money as it would wish in order to deal with the various matters over which it has control. That is certainly true of India and its Provinces. I see no reason, however, for taking a gloomy view of India's finances. They will compare favourably, so far as they are comparable, with those of other Governments. The revenues are not increasing, it is true, at a very rapid rate, but they are expanding steadily. The dangers to the revenues, in so far as they are affected by concerns which are within the control of the Indian Government, apart from world conditions, are well known. They have been pointed out by more than one authority—such dangers as the development in India of the law of diminishing returns in connection with the Customs revenue. These are matters which the Federal Government of the future will have, to take into careful consideration, and there is no reason why they should not overcome the difficulties.

Like my hon. Friend the Member for Caerphilly (Mr. Morgan Jones), I cannot but feel profoundly disturbed as I read the comments, not only in Sir Otto Niemeyer's report, but in the document issued by the Government of India, on the position of the railways. They are referred to more than once, but they are not referred to in any detail, and the impression left upon the mind of anybody reading those observations would be that there was something wrong with the financial administration of the railways. It is obvious that the railways are bound to play a most important part in the future development of India. They are probably the most important economic factor in the life of the country. There is something like £450,000,000 employed in them and some of them have important reserves of one kind or another. It is of the utmost importance that, if there is anything lacking in the financial control, or in the system of accountancy, or in any aspect of Indian railway life, it should be dealt with at the earliest possible moment. I find it difficult to believe that there is in India any lack of expert opinion which could be devoted to the solution of these difficulties. If there should be any difficulty of that kind, if there is any assistance which can be given to India from outside, I hope it will be given. It would lead to some strange results in the long run, or in the short run, if the Central Government were found to be distributing revenues to the Provinces derived not on the sound basis of revenue collection, but on some ill-balanced system in the railways themselves.

I think that India and the Provinces of India should be able to look forward with every confidence to the development of their transport system. Those of us who sat in this House in the last Parliament remember the enormous amount of Parliamentary time which had to be given to an attempt to remedy the confusion into which our transport system in this country had fallen owing to the unco-ordinated and competing interests. These difficulties are common to all railways in the world, but they have never developed to the same extent in India as in this country. I can foresee very grave danger in the future development in India if there were, in fact, a conflict of interests between the Provinces and the Federal Government in the matter of control of roads and railways; but it seems to me that India has now got an opportunity of profiting from the experience in this country. The proposals of Sir Otto Niemeyer are wise. The Provinces and the Central Government have a common incentive in seeing that the whole transport system is developed, not in the interests of the Central Government only, but in the interests of the country as a whole.

I remember in the early days of the Round Table Conference a friend of mine who was a delegate saying that Indians wished to have an opportunity, if necessary, of learning from their own mistakes in the same way as we did. That may be a satisfactory process, but it is perhaps more satisfactory if we can learn from the mistakes of other people. With regard to the question of the future development of the railways and roads of India, the Indians have the advantage that they can draw upon the great fund of experience and practice which we have had in this country.

We rely upon the vast amount of experience and study which have been devoted to the finances of India. We accept these proposals, if not as the ultimate, at all events as the penultimate stage of the establishment of provincial autonomy. There is one matter that is the cause of some anxiety and that is the relation of this to the establishment of a Federal Government. My hon. Friend the Under-secretary of State did not say anything on that point, and he was not called upon to do so to-day; but we should all like to know whether everything is proceeding towards the establishment of the Federal Government. It is quite clear that if there is a prolonged period of transition, however wisely the transitional arrangements may be carried out, it must be a period in which there will be difficulties and uncertainties. Parliament having made up its mind that India should enjoy this new Constitution, we hope that everything will be done to see that it comes into operation as a whole at the earliest possible moment.

12.20 p.m.

Mr. LENNOX-BOYD

I would like to reassure the hon. Member for Caerphilly (Mr. Morgan Jones) with reference to the closing paragraph of his very effective speech, that those of us who have been in the past and still are gravely disturbed as to what we think may ensue in India in the coming years, join with him and every section in this House in recognising that by a majority decision this House has come to certain conclusions, and that it is the duty of every patriotic element in the State to do all that is possible to facilitate the smooth discharge of the constitutional work in India, and to give every encouragement to those on whom responsibility is to rest in future. I would like also to join with the hon. Member in congratulating my hon. Friend the Under-Secretary for India on the very charming and effective manner in which he introduced these draft Statutory Rules and Orders. We are still gravely disturbed, but we take some small comfort from the fact that the administration of the India Office is in the hands of my hon. Friend who, alike from family association and personal qualifications, is peculiarly fitted to exercise some control over the destinies of the greatest Eastern Empire that history can show. I personally was very interested in the steps he outlined by which provincial autonomy will come into operation in 1937—on 1st April, All Fool's Day, which I very much hope will not turn out to be a significant and sinister choice. I was interested in the quotations he gave, the very sensible quotations, the advice of Polonius to Laertes to cut his coat according to the cloth. As this Constitution is going to involve considerable loans by the Central Government to the Provinces I hope the further words of Polonius will not apply: For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. It was said quite rightly in the past in the speech of the Finance Member of the Government of India, I think two years age, that financial questions in India and England tended to be discussed in an atmosphere of unreality, and I venture to suggest that even the report of so formidable a financial pundit as Sir Otto Niemeyer does tend to lose sight of one or two of the grim realities with which India in future will be confronted. The Secretary of State said, when speaking of the Provincial Distribution: There is fair reason to believe in its feasibility. "Fair reason to believe." We are about to undertake the greatest constitutional change in history, a change involving the fortunes of 350,000,000 people, most of them poor and illiterate peasants, and the most that can be said for the vital financial essentials involved in the change is that there is a fair reason to believe they may turn out to be feasible. That does not appear to me a very substantial argument on which to base the case for a gamble of this magnitude. The Government of India have been perfectly frank, and I think we can join with the Under-Secretary in recognising that we owe a debt to the Government for giving us the observations of the Provincial Governments and the Government of India on the Financial Memorandum of Sir Otto Niemeyer. The Government of India are perfectly frank. They say the figures of the financial cost are in excess of anything which the Government of India have hitherto contemplated.

Facts and figures were adduced to us during the interminable debates on the Government of India Bill, and we were all told that we drew too gloomy prognostications of what was to happen in India's financial future, that we were being very unwise in indulging in unecessary jeremiads. We were told that the Noble Lord the Member for Hastings (Lord E. Percy) had drawn up a report drawing attention to the prospect of a swelling in the revenues of the railways, to an increase of many crores; that all we had to do was to wait until this year, when everything would be all right and there would be plenty of money to hand out to the Provinces. The Government of India put forward certain figures, and we were advised to accept them, because we were told that roughly they represented the charge which would lie on the Central Government of India; but now that it is about to carry out this preliminary stage in this gigantic constitutional change, and figures have to be put nakedly before the House, we find they are considerably in excess of anything that was contemplated before.

I believe it is true, as the Under-secretary said, that by reason partly of a drop in the grants-in-aid and the loss of revenue in Burma the Central Government will have to find after the financial year 1936–37 an increase of about £3,500,000 in fresh revenues. There are two observations I should like to make on that point: Firstly, what prospect is there that owing to the antagonism in the Congress party to the whole of this Constitution they will enable a situation to develop in India by which a normal increase in revenue can reasonably be expected. Figures were advanced on the Second Reading of the Government of India Bill, which were not to my knowledge denied, suggesting that some £49,000,000 out of the £58,000,000 required for the Central Government of India would not be within the province of the elected members to vote down. I ventured to suggest that it was unlikely that they would facilitate the collection of these vast revenues over the spending of which they would have no control. Even more sinister things have happened since. For instance, the repudiation of the Ottawa Agreements makes one wonder seriously what prospect we have of being able to count on the working of that spirit of partnership that is an essential preliminary to the successful working of democratic Government; and when the new President of Congress made a speech last February I was even more concerned. The Under-Secretary told us that all sections in India are awaiting the new Constitution and are making their plans accordingly. Some of them are making plans which sound very unpleasant from our point of view. The President of Congress said: Our primary object in creating deadlocks in the Provinces and making the new constitution difficult of functioning is to kill federation. He is President of Congress, President of the biggest political body in India. With all we have given in the past to show our good will, with the Government of India Bill on the Statute Book, what prospect is there, if he makes a speech of that kind, that we can count on him looking to his obligations to be a partner, and to enable a swelling revenue to become possible? We cannot count for certain on good will among a large section of the people. Where, then, is the money to come from? It has been suggested that it can come from customs and from the railway. In regard to customs, the Government of India have observations to make in this very White Paper. They say: The general level of the Indian tariff is now so high that the maintenance of the aggregate yield has become a somewhat precarious task. I should have thought that those people, and in particular the party represented in this House by my hon. Friend the Member for Birkenhead, East (Mr. White), who constantly draw attention to the burdens of high tariffs on the very poor of this country, would be mindful of the effect on the poor of India of a tariff which is so high as to call for a comment of that kind. There can be no increase of the burdens on the labouring masses of India by an increase in the tariff level. I venture to ask how is it possible that a revenue system based in the main on import duties can possibly be adapted to a policy of economic nationalism and the curtailment of imports.

If the money is not to come from Customs, is it to come from the railways? My hon. Friend said that the railways were in splendid fettle, or words to that effect. They have a deficit this year of £2,575,000. They are meeting it out of the very handy depreciation fund, but if these deficits go on, in three years' time there will not be a depreciation fund on which to call; and the Indian railway member himself has drawn the most gloomy picture of possibilities in the future. Sir Otto in his report puts it in very simple and rather reassuring language: An important item of previous Central Budgets and forecasts, the net revenue from the railways, from which the Percy Committee in 1932 anticipated a future receipt of five crores per annum, has not yet resumed its place in the resources of the Centre. "Resumed its place." That is a very reassuring way of putting it; but the whole thing turns on whether it is going to resume its proper place. We are entitled to some more substantial arguments in favour of the contention that conditions are now ripe for the change. The Indian railway member has said: If our Central revenues are faced with the prospect of having to finance an un-remunerative system of railways, our capacity to contribute towards the resources of the Provinces will be correspondingly reduced. And yet, as everybody knows, the allocation of 50 per cent. of Income Tax to the Provinces is in part conditioned by the increase in the revenue of the railways. Where is the money to come from? Is it to come from a curtailment of those social services which every Member of this House must wish to see improved? Is it not much more likely that the argument will be advanced that too much is spent on the defence of India and will not the reduction of £8,000,000 in the last few years on India's essential defence services be followed up by demands from the Congress party for further reductions still?

Mr. MORGAN JONES

I think the hon. Member must have overlooked a passage on page 17 of the Report: The general scheme of Indian taxation (Central and Provincial) operates to relieve the wealthier commercial classes to an extent which is unusual in taxation schemes, and there would be no justifiable ground of complaint if a slight correction of this anomaly were maintained.

Mr. LENNOX-BOYD

I fully accept that, and I think that is true, and one of the arguments we have put forward is that the wealthy sections were anxious for the constitutional change in order still further to depress those people who have looked to us with certainty in the past. As I have said, I think it is likely that demands will be put forward for further reductions in the amounts devoted to the essential service of defence. What is going to be our answer if that demand is put forward, particularly at a time when problems of Imperial defence are assuming a growing magnitude every day? Again there has been no reference so far in this Debate to those surcharges the continuance of which, in the view of the President of the Bengal Chamber of Commerce, vitiates the contention that the Budget is on a sound basis; and not half enough reference to the position in regard to the grants-in-aid to which the Provinces are looking and which can only be financed out of a general improvement in trade. There has been no reference, further, to the actual cost of the reforms themselves. It may be a small item but still it is a noticeable item, but it is dismissed in a footnote to page 7 of the Niemeyer Report. There has been no reference to the possibility of demands on the revenues of India for wars or, what is more likely, local troubles, or to those many indirect taxes which must be reduced if the lot of the Indian peasant is to be improved. Arithmetically Sir Otto Niemeyer has done a very skilful piece of work. He has divided up the existing revenue in a manner which, as it commands dissent from every section, is no doubt as good a method as could well have been devised. But the problem is deeper than that. As the Indian "Statesman" said, it is not enough to indulge in a successful arithmetical division, the thing is to find the revenue, and they draw the conclusion: There is not money enough to meet the demand, and so no formula for dividing up what is available will give general satisfaction. For all these reasons I do wish that it had been possible that this section of the House to which I belong in reference to this question could hold up the institution of Provincial autonomy until the financial situation of India has considerably improved.

12.35 p.m.

Sir WALTER SMILES

We have been considering the Niemeyer report, a lot of which seems to have been written in an optimistic way. Previous reports about Indian finances have usually been written from New Delhi, a place which, as the hon. Member for Caerphilly (Mr. Morgan Jones) has said, was built in a most extravagant way. When the various committees which go out to India go to New Delhi, they seem to lose somewhat of their sense of proportion. They look at figures through rose-coloured spectacles. They see the expenditure diminish and the revenue magically increase. For example, in respect of the railways, it was estimated that there would be a profit of five crores; I think the; last public figures show a deficit of three and a-half crores. The great expenditure upon New Delhi and various other places will be no help to the backbone of the country, which is the hardworking agricultural peasant. This top-heavy administration is not the fault of Sir Otto Niemeyer, but is due to circumstances over which he had no control. He has been wise in giving no reason for the conclusions at which he arrived; he merely gave his verdict without giving the reasons for it. He also had to give a verdict without complete data being available, as the legislation in future may not improve the finances.

There are various Provinces in India where there is a permanent settlement of land, which means that the rent that goes to the Government has not been increased for more than 100 years, although the value of the land has increased 400 or 500 per cent. One of the questions which has to be decided is whether this permanent settlement is to be continued or not. Another law at present in force in India is that there is no Income Tax upon agricultural incomes. It appears that under the new Constitution there will probably be Income Tax on agricultural incomes, and from that source, at any rate, some increase can be expected. The Meston settlement, to which the Under-Secretary referred, was unfair. Madras came out extremely well and Bengal extremely badly. It has been said in this House that Madras was working the Montagu-Chelmsford reforms very well, and that in Bengal there was a great deal of terrorism and dissatisfaction. I put it to the Under-Secretary that a lot of the terrorism and dissatisfaction was due to the lack of money in the Province of Bengal, and that Madras worked the reforms was due to the fact that they came out extremely well financially under the late Meston settlement.

Sir Otto Niemeyer's report has remedied most of the obvious injustices between the Provinces, but I think it is optimistic as to the export duty on jute. We have only to look at the lorries going about this country. Five or six years ago we used to see cement being carried in them in jute bags, but to-day the cement is carried in paper bags, which means a great economy to the builders, who throw away the paper bags at once and do not have to return them or count them. That fact will make a great deal of difference to the agriculturists in Bengal or Assam, and especially to the poor cultivators of jute there. The estimates of Sir Otto Niemeyer, in which he expects to be able to give 62½ per cent. of the export duty on jute to those Provinces that produce it, is extremely optimistic. There is another thing about which Sir Otto Niemeyer had to estimate in the air. The future of Sind depends upon the Lloyd barrage, but what about the water rates in these various places that are irrigated? They depend upon the whims of the Provincial councils, and if these decide to reduce their water rates, how will the Provinces concerned be able to balance their budgets?

Sir Otto Niemeyer gives 50 per cent. of Income Tax to the Provinces. It would have been much wiser if he had given every Province the right to put an enhanced duty or a Provincial surcharge on salt. There has been a great deal of discussion about salt in the Congress. We had those marches of Mr. Gandhi to the coast, where he manufactured salt. The fact remains that if the Provinces had the right of enhancing the duty on salt, it would give them the opportunity of putting their finances in proper order. The Agricultural Commission's report points out that although the cow is the sacred animal in India, India produces the most useless and worst animals in the world. It also points out that in the Naga Hills of Assam the cattle are very few, but also are much better. A well-known authority has pointed out that the cost of salt in the Naga Hills is very high, due to the difficulties of transport, but if the price of salt went up in India, it would have a very great effect for good upon all the cattle in India, because the cultivators would get rid of the useless cattle—this very thing that the present Viceroy has started to do.

All these Provinces are already considering extravagant expenditure. Orissa, which is almost a new Province and almost a pauper Province, is talking about a high court. Litigation is the national sport of India, but it would be a bad thing for any Province to start at once upon having a high court. My old Province of Assam is also anxious to have a high court. It will do a great deal of good to the barristers in Assam and may do a great deal of harm to the people. Assam is also considering a university. They started a scheme for it, which had to be checked by the Calcutta University because there was no money available for it. When we remember some of the resolutions that have been passed by universities here in which they have said that on no occasion whatever would they fight for their King and country, it is doubtful whether a university in a Province in India would be very much good to the people. They had much better spend their money on compulsory primary education.

Naturally, every Province thinks it is receiving too little money. I would ask the Under-Secretary of State to tell us what is the actual financial responsibility of Provincial Governors. It is laid down that the Governor-General in the Centre has a very definite responsibility for the financial conduct of the Centre, but I do not know whether it is also a special responsibility of Governors of Provinces to see that the same care is exercised there. I am doubtful whether some of the Provinces may not run into debt, and make their last state worse than their first, I would like to see Sir Otto Niemeyer lay down that subventions from the Centre could not be given unless there were a definite financial balance available in the Provincial exchequer at the end of the financial year. Some of the subventions given are arrived at in a curious way. Although Assam has been given more money, I recall that the Central Government used to give a grant for the Assam Rifles of 12 lakhs out of 15 lakhs. In future they are going to give only 10 lakhs out of 15 lakhs, although they point out that Assam is one of the poorer Provinces.

We are glad to see that the Provinces are to be financially responsible in the future. Those of us who have served on these provincial councils know the wild, irresponsible voting that takes place on occasion, when Members are without real responsibility.

I come now to the question of the finances at the Centre, which are obviously the most important part of the whole matter. I think it will be generally conceded that India will not be able to borrow as cheaply five years from now as she can at present. With regard to military expenditure, of which my hon. Friend opposite has just spoken, when we see a country like Germany spending, as the right hon. Gentleman the Member for Epping (Mr. Churchill) has said, £800,000,000 in one year for approximately 60,000,000 or 70,000,000 people, we must regard the military expenditure of India, which is only £32,000,000 this year for nearly 400,000,000 people, as being extremely small. But military expenditure does not really depend upon the wishes of the country that has to spend the money. If Japan or Russia should arm at the rate at which Germany is arming, and if any complications occurred between those two countries, it is absolutely certain that the military expenditure of India must be increased. A few years ago, in 1928, it was £41,000,000. It has now been reduced to £32,000,000, and the Inchcape Committee only advised a reduction to £37,000,000. I am informed that a tremendous lot of the military stores of the Indian Army are obsolete and out of date, and urgently require renewal.

Reference has also been made to the deficit on the railways. I wonder whether this deficit has occurred since the policy was introduced of doing away with the Anglo-Indians who worked on these railways. There is no doubt that railway travel in India without a ticket has been reduced to a fine art. It is possible for a man to travel from Madras right up to the North-West at a cost of only about one rupee, instead of about 30 rupees. People take a ticket to the next station and stay on the train until they are kicked off. When they are kicked off, they walk to the next station and again take a ticket for only one station ahead, and wait till they are kicked off once more. I have been told that in this country it is not considered very bad taste to defraud a railway company, but in India it is looked upon as a sport. I suggest that this is not a matter for administration at the top or getting people from this country to teach the railway managers in India how to manage their railways. They only need more Anglo-Indian ticket inspectors, and the finances of the railways will improve. If every passenger in India paid his proper fare, it is not a deficit of 3½ crores that might be expected, but probably a profit of about 10 crores. There is no doubt that there is tremendous motor competition. I left India in 1930, and returned last year for a short time, and, even taking what I saw myself, where there was only one motor omnibus running before, there are at least 10 running to-day. The Road Fund in India has definitely improved the roads, but there is no doubt that that has led to great financial losses by the railways.

The finances of the Provinces depend, of course, upon revenue from land in those places which have not a permanent settlement, and also on revenue from excise. The finances of Bihar are improving, owing to the fact that more liquor is being drunk, but it is not everyone in this House who would like to see the finances of a province depend upon that. The finances of Assam have decreased, as a result of the deficit on opium. Everybody in this House wishes to see the consumption of opium decreased. People are talking about the establishment of new industries. In the Irish Free State, Mr. de Valera, when he refused to pay the Land Annuities, established a new industry—the smuggling of cattle across the border into Ulster; and, just in the same way, while the League of Nations and the Governments of India and Assam have tried to decrease the consumption of opium by registering every opium eater, they have at the same time started a new industry, for the contraband smuggling of opium is tremendous in the Province of Assam, and I, for one, would like to see Federation come in because then we should have a Government at the Centre in Delhi who could put their hand upon this contraband smuggling of opium from the native States of India, where it is grown, and where the Government of India have absolutely no check upon it now. I asked the present First Lord of the Admiralty, when he was Secretary of State for India, some questions about this opium smuggling. It is very obvious that at the present moment the Government of India do not control it, and cannot control it; and, until Federation come in, the finances of Assam will suffer very great loss, while at the same time there will be no decrease in the quantity of opium consumed.

My hon. Friend opposite mentioned the Ottawa Agreement. At the present moment we are waiting anxiously for the report of the Indian Tariff Committee, to hear whether they will advise a reduction of the duties on Lancashire cotton goods. Some of us, in view of the motion that was moved at Delhi for the denunciation of the Ottawa Agreement, feel gravely concerned. I sincerely hope that we shall not have a trade war between India and this country similar to that which we have had with the Irish Free State. It may be that, in the new bargain which is to be made with the President of the Board of Trade, there will be heavy duties on Indian manganese, tea, hides, oilseeds, and so on, as a bargaining factor to secure a reduction of some of their duties on goods exported from this country, including Lancashire cotton goods. A trade war of that kind would do no good to either country; it would be very much better if we all came together and made an agreement for low tariffs. But the denunciation of the Ottawa Agreement makes such a pleasant policy doubtful.

With regard to the question of the division of Income Tax, I think that Sir Otto Niemeyer has given very fair advice. It is not possible to compute how the Income Tax is earned in various Provinces. Most of the companies are registered in Calcutta, Bombay, Madras, or possibly Cawnpore. For example, tea companies in Assam are almost all registered in Calcutta, and the Income Tax from those companies is paid in Calcutta and collected in the Province of Bengal, whereas all the work is done in another Province altogether. I think that Sir Otto Niemeyer has given very wise advice in the way that he has divided up this Income Tax on a percentage basis. Of course, no Province is satisfied. The Noble Lord the Secretary of State for India advises everyone to be patient. Polonius has been mentioned already, and I would add some further words of his: The friends thou hast, and their adoption tried, Grapple them to thy soul with hoops of steel. In giving these subventions, we are trying to pull these Provinces to the Centre with hoops of gold, and I think that that, after all, is the best and most practical way of keeping the whole Federation together.

12.55 p.m.

Sir ALAN ANDERSON

My hon. Friend has mentioned evasion of payment of fares as one reason for the railways not paying. I have been a railway director for some time and before the War we took over another line, and our inspectors reported to us that, as far as they could make out, no one ever paid his fare on that line. Of course, it is one of the essential points of difficulty in financing a country to make its railways pay, and I do not think even Sir Otto Niemeyer can look into the future and say what political and commercial considerations will be established, or whether the railways will be made to pay. I should suppose railways are needed in this country and they ought to be made to pay. They are even more needed in a country of such vast space as India, and it will be the duty of the Government of India to make such arrangements that the railways shall pay. I should not have intervened on such a very special and technical subject, not being an Anglo-Indian myself, except that, when recently the organised commerce of this country wished to give evidence about the Indian Constitution, they briefed me to speak for them. So, perhaps, I may present to the House what I believe are now their views, and certainly were their views at that time. They were not at all united in the beginning that it was wise for us to progress rapidly on the lines on which we have progressed, but they were absolutely at one, having got to the point at which we had then arrived, that we must go on. I have made such inquiries as I could and I find that they are still, and even more, of that opinion, and that is my opinion. In great operations of peace or war, whichever way you choose with sufficient decision and courage, you may force your way through. Without them you may fail but, if you start in one way and change over to another, you are bound to come down.

In the view of the organised commerce of this country and of India—because we took as far as we could the opinions of Anglo-Indians—it is necessary to proceed along the lines on which we have started. This is an essential step to which we have got. Many of the doubts on this occasion about this division of finance are really centred on the other point, whether we wish to give India the self-government that is contained in the Constitution; but we have settled that. Is there anything in this division of finance suggested by Sir Otto Niemeyer which ought to make us pause in our considered progress? I myself cannot see it. The extra cost of the Provincial Governments was estimated at 75 lakhs, which is about 1 per cent. of the total provincial Budgets—that was, I believe, given before the committee sitting on the Constitution—a comparatively small thing in the extra cost of government. The inherent problem of making all the Governments pay, of course, exists already. Provincial Governments may make mistakes but, after all, the whole intention of the Indian Constitution is to give them the opportunity of making their own mistakes. I hope they will do the opposite. I hope they will make great successes and will raise the standard of their people and make them greater consumers of our goods, and that generally the country will progress. Of course, they may make mistakes, but that is inherent in the whole policy. It is no use being in the least afraid of continuing because they may conceivably make mistakes.

The only other point to which I would refer is the award. It is perfectly impossible for me to give any opinion about it except that, if everyone objects to an award, it may be taken that it is very good. Sir Otto Niemeyer, who has been moving about the world doing good work for us for many years, will soon find that there is no country, certainly no Province in India, in which he would be a welcome guest.

1.2 p.m.

Sir J. WARDLAW-MILNE

There was one remark of my hon. Friend below me, who has been such a strong and genuine opponent of the Measure that we passed last year, with which I very much agree, and that was when he ended his speech by saying how much better it would be if we could postpone the inauguration of Provincial autonomy, indeed, I suppose he would say, all reforms in India, until we were perfectly certain as to the financial future of the country, and that all these reforms could be well afforded. That is a statement with which all of us would agree but it is, as I think he fully recognised, not practical politics to put it forward. We should never achieve that position in India or anywhere else. We should always feel that, while we waited for that day to come, there was a future day when we should be still more certain. Dealing with it as a practical measure, we must face the position as it is put before us, not only in the interesting and valuable report of Sir Otto Niemeyer, but in the various statements that have been put before the House in the last few years from the Government of India. The world has passed through a period of great depression, but we have in front of us a prospect of improvement, and we are entitled to expect it. A very small improvement would more than make up for the expense of this new departure in government and, in fact, would make the whole cost of the new scheme a very small factor in the revenues of India. I do not, therefore, think that, from the point of view of expense, we are entitled to criticise the proposed date for inaugurating Provincial autonomy.

There is, however, a much more difficult problem, and that is the division of the available money in the way of grants. I made my interjection when the hon. Gentleman was speaking from the Labour benches of set purpose. It seems to me that it really is the case that this is a report which satisfies nobody. It is clear that every Province in India thinks that it ought to have more money, and it is almost inconceivable that any one of us making out a case for any one of those Provinces would not be quite as strong as they are in saying that it should have a larger share of what is available. But the fact remains that, when nobody is satisfied, you may take it as a fairly general statement that the division probably has been made as well as any impartial person could make it. I do not at all take the view that one can be satisfied in regard to some of these divisions, and I think that some of us who know certain Provinces will feel that they ought to have a greater share. That is inevitable in a settlement of this kind.

I want to mention another point in connection with what has been said regarding the future of the railway revenues. I do not pretend to speak with expert knowledge, though I have some knowledge of the subject. I think that the position regarding the future of railway revenues in India is a distinctly disquieting one for two reasons. In the first place, because the amount of labour required on the railways is very large. It is true that a great deal of it is comparatively poorly paid, but it is very large, and the reason why it requires to be exceptionally large is because it is very inexpert. But the main difficulty is the difficulty we have had here of the competition between road traffic and rail traffic. Although the Government of India has devoted a great deal of time to it, as has almost every country in the world, and it is a subject upon which numerous commissions have sat, no satisfactory solution has yet been found. The difficulties of that problem are in some respects different in India from those which exist in this country.

There is not only the question of the short traffic difficulty of competition between road and rail, but also the competition which will arise from the building of long trunk roads. These are problems which India will have to face, and, frankly, until that problem is settled, the future of the Indian railway revenues is distinctly doubtful and possibly will be considerably affected. We find in India the position in which, in the past, there have been considerable tracks which could only be traversed by rail. There were no traffic roads. There is a natural demand for the building of these roads, and it is difficult to say to what extent that natural expansion, which must come, will in future affect the railway revenues. As the railways in India will be still more State railways in the future, it is a matter which may have a great effect on the revenues of India at the Centre. I do not think that anyone can honestly say that they can forecast in any way how this matter can be settled, but if there is anything that can be said in the House to-day that will assist the Government to press on towards the settlement of one of the most difficult internal traffic questions that any Government could face, I think we shall have done no harm in having raised the point again.

I am not, like many others, perfectly happy about the future revenues of India. Nobody can be. It should be impossible for anybody to take up that attitude. It was said in the old days that the Budget of India was a gamble in rain. While it is not a gamble in rain to the same extent to-day as it was a few years ago, largely because of the work of the Governments of the past in irrigation and so on, undoubtedly it is still a gamble in the sense that India is almost entirely an exporting country and her revenues are very largely dependent upon the conditions of trade throughout the world, and in particular in the countries which consume her very valuable exports. Anyone who studies the facts and figures of the last few years is entitled to say that there is every sign of an expanding revenue, and certainly there are sufficient signs to justify our bringing into operation within a very short period this system of government to which the House of Commons and Parliament have already given their assent.

1.12 p.m.

Sir REGINALD CRADDOCK

The Under-Secretary has submitted to the House the Draft Orders with his usual lucidity and good temper. To me it seems, however, that he is a regular Mark Tapley in that he believes only in being cheerful when there is nothing to be cheerful about. My hon. Friend the Under-Secretary has been extemely pleased, hopeful and sanguine about these Orders. I cannot see any great joy or satisfaction in either the report of the Government of India or the local governments' requests. The hon. Member for Caerphilly (Mr. Morgan Jones) has already made one quotation from the Government of India's report, which, indeed, was reproduced by the Secretary of State, and it seems rather remarkable that the Government of India themselves should have to say that they were very disappointed that they did not get two-thirds of the Income Tax left to the Central Government permanently, instead of one-half. They are disappointed that the jute duty has been increased by Sir Otto Niemeyer, and they say: However, recognising that the Report is in the nature of a quasi-arbitral award, the Government of India content themselves with saying that they hope and have fair reason to believe that Sir Otto's programme is feasible. That certainly is very faint approval or satisfaction. You cannot say that we have even good reason to he satisfied, because in leaving it at merely "fair reason," it does not look as though they have great confidence in the future. There are clauses in the dispatch of the Government of India which show that their anxieties are very much greater. For instance, they say in regard to the railways: Unless their solvency on the basis of a full commercial accounting system can be restored, and that before very long, the latter stages of the programme envisaged by Sir Otto Niemeyer will be quite impossible of execution. Sir Otto Niemeyer hoped that the charges for Income Tax and Super-tax, which still remain, would be continued, but the Government of India did not agree with him.

Notice taken that 40 Members were not present; House counted, and 40 Members being present—

Sir R. CRADDOCK

The Government of India, in expressing their disagreement with Sir Otto Niemeyer, said: In any case, whether the surcharges are retained permanently or only temporarily, it seems to us indubitable that in recommending a settlement so generous to the Provinces, Sir Otto has rendered it difficult in the next 10 years for the Government of India either to increase its exiguous provision for sinking fund to a reasonable figure or to reduce those indirect taxes which are an undue burden either upon enterprise or upon the consumer, except in cases where such acton would be clearly advantageous to the revenue. Indeed, unless prosperity returns at a quicker pace than now seems likely, both the present Government of India and its Federal successors will find their freedom of action in the financial sphere uncomfortably limited. There can be no doubt that the balance of the central revenue left with the Government of India leaves no margin for expenditure on the Army and Defence, and for the continuance of other central services. There is no margin for any emergencies that may occur, such as a general failure of the monsoon, which affect not merely the central revenues, but which have a repercussion throughout the whole of the provincial sphere of taxation by reducing the purchasing power of the country. I do not think that the House can properly appreciate, and I do not think that Sir Otto Niemeyer properly appreciates, what the purchasing power of the country depends on, and how far that purchasing power affects the various revenues. Sir Otto Niemeyer formed the impression that India was very lightly taxed. That is far from being the case. The late Lord Cromer laid it down as an axiom that in the government of oriental countries the taxation required to be extremely low. That applies to India. Very few people realise how the taxes press upon the common people of India now.

If I am not so hopeful as some others about the rapid recovery of India, it is because my experience in that country as an administrator has shown me how very much the whole prosperity of the country is affected by the prices which agricultural products can demand. There are 71 per cent. of the population who are pure agriculturists, and only 10 or 11 per cent. of the population are engaged in industries. Of that 10 or 11 per cent., only about one-ninth or one-tenth is engaged in organisation, that is, in the factories, on the railways and so forth. Therefore, the industrial prosperity of India, although it does have an effect, has a very small effect as compared with the condition of agriculture. The result of that has been that land revenue, which is the main asset of every Provincial Government, has declined and entirely lost its buoyancy.

In all the 40 years of my service in India the prices of agricultural produce were steadily rising. When the various land settlement schemes fell due to be made from time to time, every 20 or 30 years, in one district and another, the revenues continued steadily to rise, but suddenly in 1930 down came the prices of agricultural produce and at once the peasants lost more than half and in some cases two-thirds of the money value of their crop. It was most disastrous. In many Provinces revenue had to be remitted and in all Provinces there was a disastrous effect on the other revenues, Excise, forests and so on, which depend upon the purchasing power of the people. It is therefore not likely that prices will reach the point that they had reached when the last land settlements were made. The chance of land revenue being a steady and buoyant source of income and rising steadily as the years go by, has gone for ever. Land revenue will, if anything, tend to decline slightly as settlements are renewed or remissions have to be granted because of the impoverishment of the people. Excise has fallen over India generally and very largely in some Provinces. Excise is not likely to recover in a hurry. There may be some improvement here and there but it will not rise to the old pitch for a long time. Excise being a transferred subject there were several Provinces in which they wanted to try their hands at prohibition and they reduced the number of crops by an enormous proportion and increased the duties on liquor to a very high figure. The result was a large fall in Excise revenue and a large increase in illicit distillation and the sending of people to gaol, aborigines and others, who were found distilling liquor. You could not expect an aborigine to walk ten miles there and back to the nearest shop where he could buy an expensive bottle of illicit liquor, and only one bottle at a time, when he could make it in his jungle hut.

These sources of revenue have not the power of expansion they once had. The revenue from opium has more or less vanished, and the Excise Duty on opium consumption has gone down. I have already referred to the fact that the Government of India are feeling uncomfortable about the narrowness of their resources and have quoted their remarks concerning the small sinking fund and their gloomy prognostications as to the future. In considering all these heads, land revenue, Excise, Customs and everything else, the whole thing depends on the purchasing power of the vast masses of the peasants. This can only be recovered by measures which we cannot directly take in this House, namely, an improvement in world prices of various agricultural products. There has been some slight improvement, but they are not yet anywhere near the prices of 1929, and in 1930 they were below the prices of Agricultural products when I went out to India in 1884. This means that in several Provinces special measures have had to be taken to revive the depressed areas. Under the Niemeyer report only about £700,000 is spread over the whole of the sub-Continent. The fact that the Government of India cannot Afford more than this shows what a very tight squeeze it was for Sir Otto Niemeyer to get these finances into some sort of order and allow the Provinces to start on what has been called an even keel.

The plan has not been received by Provincial governments without some feelings of jealousy of one Province towards another. This is what would happen naturally, and I do not pay much attention to it, but there are very specific reasons, and serious reasons, given by some Governors of Provinces, which seem to suggest that the rejection by the Government of India of these complaints, none of which are really frivolous or trifling, will make the Provinces feel that their representations have received only a very scant hearing. Take the Government of Bombay. The Governor of Bombay makes himself responsible for this statement: The net results of the recommendations, as far as the Bombay Presidency is concerned, are that the Province is left with no expanding sort of revenue until such time as a share in the Income Tax proceeds is received; is faced with the additional expenditure which must follow the introduction of Provincial autonomy and the prospect of being compelled to restore a con- siderable amount of retrenchment which will swallow up the bulk of the relief accruing from the separation of Sind; and will be forced to abandon any hopes of expansion in such directions as education, public health, agriculture, animal husbandry, and the like. It will create dissatisfaction, and perhaps may imperil the initial success of this reform if Provincial Governments are told that they cannot expect to receive any money while their expenditure is increasing. That is what Bombay says. Other Provinces have similar complaints. The Punjab and the United Provinces have made representations which cannot be set aside with a comfortable smile. The Governor of the Punjab says: The Punjab will get the nominal immediate benefit of 1.7 lakhs. That is all they get, and they are far behind other Provinces. The Governor also refers to the political danger. He says: From the political point of view the effects will be deplorable. The present scheme if accepted will leave a permanent sense of injustice in the Punjab which will be accentuated by the fact that the Punjab alone gets no benefit whatever, while in contrast another Province gets advantages out of all proportion to those given to any of the older Provinces. I think that the Punjab has a real grievance which will be reflected in the attitude of politicians and Ministers when the time comes for them to take office. The United Provinces also have a complaint. The land revenue of the United Provinces was formerly the largest in the whole of India—over six crores—and they have had to remit during last year no less than one crore and 12 lakhs, between one-fifth and one-sixth of their total resources, a serious decline in the Provincial resources. They point out that the temporary relief given, namely, 25 lakhs each year for five years, fails to cover their expenditure, and that they will be bound to start their first year's work under the new reform with a deficit of 28 lakhs.

There are two other Provinces which refer to this even keel, and they say that Sir Otto Niemeyer under-estimated some of their revenues. As I had always expected, these two new Provinces, Sind and Orissa, have cost more than was originally anticipated. The 30 lahks which used to be put down as the annual subvention in the case of Orissa, for instance, has now become 50 lahks. It will generally be found that estimates of that sort are bound to be exceeded. I am sorry that the temporary form of government given to Sind and Orissa was not continued for, say, five years until they had understood what it was to be a separate Province. I think there is a very good case for having an intermediary stage in regard to these two new Provinces.

Nobody is satisfied with the situation. The Government of India are extremely anxious about the stability of the central funds. The situation is a serious one in which to inaugurate the reforms, and the Government are in a rather difficult position. If they were to postpone the reforms there would be a political uproar, and it would be said that they had never been sincere. If, on the other hand, the reforms are introduced with finances in such a precarious position, the Provinces may say that it is an insult to them to get the finances into such a condition and then expect them to take them over. Although the time is serious, it is impossible at this stage, of course, to postpone the introduction of provincial autonomy except to the extent provided in the Order. I have always said that if these reforms work well and for the good of India I shall be extremely surprised, but I shall not feel the slightest regret, because the only thing about which I am concerned is the progress and welfare of the population of India.

1.41 p.m.

The FIRST LORD of the ADMIRALTY (Sir Samuel Hoare)

A pilgrim—I purposely do not say a prodigal son—returns to-day from a journey in foreign climes and a period in the wilderness to a territory in which he spent many months, and, indeed, years of his life in the past. To-day I feel almost tempted to sing "Auld Lang Syne." Here am I once again sitting next to my hon. Friend now transformed, as we heard earlier in the Debate, into the Under-Secretary of State for Burma, besides being Under-Secretary of State for India, listening in the course of the morning to very typical speeches from more than one of my hon. Friends. There was a very vigorous speech from the hon. Member for Mid-Bedfordshire (Mr. Lennox-Boyd) and a very informative speech from my hon. Friend the Member for the English Universities (Sir R Craddock), to whom I would give my thanks for adding to the body of my knowledge—very insignificant compared with his—the very interesting details he gave about the aborigines in certain parts of the Indian sub-Continent. No doubt before the Debate is finished we may look forward with keen anticipation to having once again one of those picturesque and flamboyant discourses from my right hon. Friend the Member for Epping (Mr. Churchill). Let me say that while the wide ocean often divides men and races, in this case I hope that it brings together my humble self and some of my hon. and right hon. Friends whom I see here to-day.

The significant fact in this debate, and indeed in the documents upon which this Debate is founded, is that no one is suggesting that the initiation of Provincial Autonomy should be delayed. There are, no doubt, criticism and discord about the nature of the proposals made both by the Government of India and by the Provincial Governments, but no one suggests that Provincial Autonomy should be delayed, or that it should not come into operation in the course of a comparatively few months. So also to-day in this House not one speech to which we have listened, whether it came from the Front Opposition Bench—from which we have once again had a helpful contribution to the Indian Debate—or whether it came from Hon. Members below the Gangway, who were so persistent in their opposition to many features of the Government of India Act—not one has suggested that Provincial Autonomy should not be brought into operation in the course of a comparatively few months. That is a very satisfactory state of affairs. I hope that public opinion in Great Britain will note it, and I hope also that public opinion in India will note it. Here there is now unanimity, as far as we can judge, in the desire to embark upon this great experiment—and let us not underrate the greatness of the Provincial Autonomy experiment—at the earliest possible date.

The other feature of these papers which struck me is connected with the actual figures in the estimates for the future. I must take a certain pride in the estimates that we see before us because they conform in almost every respect with the figures which I gave to the Joint Select Committee and more than once to the House. I need not go into the details this afternoon but, substantially, the cost of initiating Provincial Autonomy is what I estimated two, three and four years ago. If, however, there is any pride to be taken in connection with these figures it is not a personal pride on my part. They show the skill with which my advisers estimated a very obscure future.

Further, not only have the figures worked out very much as we expected but the conclusion that is based upon them here is the conclusion that I based upon them when I gave them to the Committee and subsequently to the House. I never disguised from the Committee or the House the fact that there was not going to be much to spare either for the Centre or for the Provinces; that it would be hard to balance the Central budget and the Provincial budgets; that there would be no opportunity for extravagant expenditure, but that there was just enough money to go round and make it possible to embark upon the experiment. That is the view reached by Sir Otto Niemeyer. Obviously, every Province will be asking for more and will be making as black a story as possible of its own finances. Exactly the same thing would happen in this country if it appeared that the Chancellor of the Exchequer was proposing to distribute a large sum among the local authorities. Each local authority would point to its own poverty, to the difficulty it had in balancing its budget and to its need for much more than the neighbouring local authority. That is exactly what has happened, as I understand, in the case of the Provinces in India. A Provincial administration would be in a very awkward position if it had not made the best possible case for its own Province, and if it had not pointed to its own special difficulties and its own need for increased help from the Centre.

On that account, it was especially necessary to have an impartial investigation, a non-partisan investigation, and that is the reason why an expert of acknowledged authority and impartial position like Sir Otto Niemeyer was commissioned to make an investigation. The result of his investigation is to show that, with careful economy, there is enough money for the Centre and there is enough money to start Provincial autonomy. As far as the Centre is concerned, it is as vitally important to the Provinces as it is to the Centre, that the Central finances should be in a sound position. It is upon the Central finances that two essentials depend. First, there is the credit of India. The Provinces have as much stake in maintaining sound credit for India as they have in almost anything. Secondly, there is the defence of India. It is vital that in any allocation of funds between the Centre and the Provinces, the Centre should not be weakened to such an extent that either the credit or the Defence of India should be endangered. A careful study of these figures goes to show that neither of these essentials at the Centre will be endangered by these financial proposals. Coming to the Provinces, the hon. Member for Caerphilly (Mr. Morgan Jones) seemed to imply that there would have to be a reduction of provincial expenditure. In view of certain observations of the hon. Member on that point I wish to say that no Province will be worse off by these proposals than it is now, and I think I am right in saying that practically every Province will be better off than it is now.

Mr. MORGAN JONES

My observation arose in this way. I rather gathered that Sir Otto Niemeyer indicated that that course would be essential in order to meet the situation.

Sir S. HOARE

So far as I understand Sir Otto Niemeyer's observations they amount to this—that he saw in connection with the central finances certain hopeful factors. For instance, to quote one case, there was the fact that the debt charges were tending greatly to diminish. So far as the Provinces were concerned, it was obviously necessary, in view of the figures, that there should be no encouragement to extravagance, but I do not think that Sir Otto Niemeyer went further than that. Anyhow, as far as my own view is concerned, I would say that the Provinces will have to administer their affairs economically but they will have more scope and not less scope for their social services than in the past, and I agree with the hon. Member for Caerphilly that there is urgent need for progress in the social field in every Province in India.

I would say further that, even taking into account the fact that the great mass of provincial finance depends upon the land revenue, it is not the issue that the financial resources of the Provinces are altogether inelastic. I think that fact comes out in the course of Sir Otto Niemeyer's observations. My own view, supported by Sir Otto Niemeyer's report, is that the position in the Provinces will be definitely better in the future than it has been in the past, and that, with reasonable economy, there will be scope for the Provinces in the field of social reform.

Lastly, I would like to point out to the hon. Member for Caerphilly and to hon. Members generally that a very small change in the economic situation is very soon reflected upon the finances of India. It cuts both ways, it is true. It cut very adversely about a year ago, but since then it has been cutting the other way. With the improvement in the economic condition of the world, there has been a very marked improvement in the economic condition of India and in the financial position in India, and it is satisfactory that these figures should be based, not upon a boom period, but, on the whole, upon a bad period. I think, without being unreasonably optimistic, we can endorse Sir Otto Niemeyer's view of the chances on the whole being a little bit better in the immediate years before us. If there is a change for the better, as I say, it is reflected very quickly both upon the Central and Provincial finances in India. These facts seem to me entirely to justify the general attitude which has been taken up by hon. Members in the course of this Debate, namely, that there is no reason to stop this great experiment.

Let us not under-rate the magnitude of the experiment that we are making. We are dealing, not with small local areas, but with what really amount to a series, shall I say, of great kingdoms, several of them with a population greater than the population of some of the principal Powers in Europe, each of them differing substantially from the others. Under these proposals they will have an opportunity, for the first time, upon a very extended scale, of developing their own Provincial life, developing, it may be, upon different lines from the lines adopted in other Provinces. They will have, for the first time, what amounts to full responsibility in their own domestic affairs in each Province. Let us take the opportunity to-day of wishing them every success in this great ex- periment, and let us take it as a happy augury that, so far as I can understand, there is no opposition in any part of the House to this experiment being adopted at the earliest possible date.

1.59 p.m.

Mr. CHURCHILL

Like the First Lord of the Admiralty, I was conscious of a sense of the revival of old times when I saw him sitting on the Treasury Bench and noticed some other faces well known to me gathered in other parts of the House, and when I consulted the Order Paper and observed the topics provided for our fare today, indeed, one might almost have thought oneself in the last Parliament. But although we seemed to be back in that atmosphere, in those days, my right hon. Friend has had a great many adventures since he left the comparative security of the India Office and plunged out into more stormy spheres. We have seen him occupy for a time a world position. Some of us were spectators of the most terrible accident which happened in December last, when he was thrown overboard, and now we see him returned safely from the sea, like Jonah, but with an addition to which Jonah never aspired, namely, the trident of Neptune in his hand, which he has gathered meanwhile. When all these events can happen to an individual in the compass of a year, it makes us feel how much we are the prey and the sport of the vicissitudes of destiny.

Now we have before us the first step in the policy of a Federal constitution for India. I think the hon. Gentleman the Member for Caerphilly (Mr. Morgan Jones), who spoke for the Opposition, used a phrase, perhaps accidentally, which I am bound to say to my mind had a somewhat sinister suggestion. He said, "You are pulling the lever."

Mr. MORGAN JONES

No, I quoted the Under-Secretary of State as saying that.

Mr. CHURCHILL

Oh, I see. It is curious that on both sides this same sub-conscious oppression should have manifested itself in the imagery employed. The platform is prepared, all is ready, and now we pull the lever. I think that great supporters of this policy must be a little more careful that their metaphors do not so readily reveal the inward thoughts which their minds harbour. The first lever appears to be the Niemeyer Report. I have studied that report. I know Sir Otto Niemeyer. I knew him very well at the Treasury, and you could not have a more able financier; a more commanding mind applied to the details of finance could hardly be found, and he has written his report. It is a document rich in dark and cryptic phrases. The balancing, the guarding, of every statement, the total lack of the slightest spark of enthusiasm or hearty confidence at any point, the almost extorted admission that on the whole there is no reason to pull up—these are characteristics of the Niemeyer Report. Indeed, it is a very bleak outlook which he presents to the Government of India, and an even bleaker response which is made by that Government to his report. We see the Provinces passed under review and their great financial embarrassments described. In some cases a note almost of pathos is struck.

Take paragraph 13, "Sind." The deficit for the future, say Sir Otto, may be estimated at 105 lakhs—a considerably higher figure than the estimate of the Sind Conference in 1932 (approximately 80 lakhs). Then he says: The future of Sind and of the subvention as part of Sind finances is inseparably bound up with the financial future of the Lloyd Barrage. So Lord Lloyd seems to have done some good in his work in Bombay, but Sir Otto says that in order that this result shall be obtained by the Government, it will be necessary that the Barrage scheme will be administered on lines comparable with similar schemes elsewhere and that adequate rates will be charged for the facilities it will provide. Of course, the beneficial effect of the barrage, as of the reservoirs supplied from it, is in inverse ratio to the charges which are exacted. If, however, a subvention of 105 lakhs is found from the Central Government, the question of Sind does not seem to be insoluble. I see one ray of hope in this paragraph, where it says that if a single non-recurrent grant of five lakhs can be obtained from the Central Government, there will be every possibility of celebrating the inauguration of the new Constitution by erecting a very large new jail at Shikarpur. With regard to Orissa, the Government appear to me to be taking a prudent course in following Sir Otto Niemeyer's advice to make a further advance towards the Famine Fund and to raise the total to the figure of 10 lakhs prescribed in the Orissa Order in Council.

If you look through these Provinces one by one with a jocular or a serious comment—and what is jocular is serious very often—one can point to the very great problems which lie ahead of the inauguration of provincial governments in India. We have in the many disputes of the past ranged ourselves against the principle of provincial government in India. It is true that we considered always that this attempt to make India prosperous by spending a great deal of money and by constitutional theories would not give the best results to the Indian people, and that we would have been glad if this process could have been postponed until the long-past Montagu reforms had actually proved to yield satisfactory results. But still, in the course of these debates, we always offered to the Government our support, if they had need of it, for the provincial scheme, provided that it was separated from the federal scheme. Therefore, we do not at all oppose what is being done to-day. If an experiment is to be made, the sooner it is made the better, and the sooner the results come in the better the House will be able to judge the possibility of going forward into the federal scheme. My right hon. Friend has approved himself—not immodestly in any way, for he gave credit to others—for the accuracy of the forecast of the cost of the Constitution. He said that the figure of £3,500,000 was the same figure he indicated to the House more than a year ago. The Government of India do not say that. They say in their report, paragraph 3: The figures of the initial cost are in excess of anything that the Government of India have hitherto contemplated.

Sir S. HOARE

I do not know why they said that.

Mr. CHURCHILL

My right hon. Friend, with that envious detachment familiar to him now that he is First Lord of the Admiralty, as "ruler of the King's Navee," says he does not know why they said it, but they have some reason—

Sir S. HOARE

I imagine that their reason was that they wished to be extremely cautious.

Mr. CHURCHILL

To be extremely cautious is not necessary in order to achieve that laudible aim of embarking upon mis-statements. It is not always considered the best thing to do, because they say that the figures are in excess of anything they have ever contemplated. Then they proceed to a series of slammings and bangings of the cupboard door which, taken in series, amount to a veritable bombardment. In paragraph 3 are the words: no question of increasing in any appreciable degree the total of the initial assistance recommended. In paragraph 4, they say: Inevitably these estimates are invested with great uncertainty. A little lower down: There still falls to be considered the position of the railways and the possibility of the law of diminishing returns setting in in connection with Customs revenue. As regards the railways, they say in paragraph 5: The Government of India have no hesitation in saying that, unless their solvency on the basis of a full commercial accounting system can be restored, and that before very long, the latter stages of the programme envisaged by Sir Otto Niemeyer will be quite impossible of execution. I think that it is a great thing not to be carried away by enthusiasm. The Government are quite right in keeping a strong hold on the enthusiasm which may be welling in their bosom and not allowing themselves to be put in a position in which they can be afterwards reproached for being too sanguine about the success of the scheme. As regards Customs, paragraph 6 says: The general level of the tariff is now so high that the maintenance of the aggregate yield, which is by far the most important single factor in the whole revenue position, has become a somewhat precarious task. However, after seting forth these cautionary statements, they say: They hope, and have fair reason to believe, that Sir Otto's programme is feasible. They go on to say in paragraph 8: Sir Otto has rendered it difficult in the next 10 years for the Government of India either to increase its exiguous provision for sinking fund to a reasonable figure or to reduce those indirect taxes which are an undue burden. … Indeed, unless prosperity returns at a quicker pace than now seems likely, both the present Government of India and its Federal successors will find their freedom of action in the financial sphere uncomfortably limited.'' They conclude with the statement: We wish to make it clear beyond a peradventure"— President Wilson's historic phrase— that we see no prospect whatever of being able to undertake additional burdens of this magnitude, or indeed, as we have previously tried to show, of any appreciable size at all. I do not think that anyone can feel that there is very much cause for us to be exhilarated when we read a Report of this character. It is a very serious Report, and I agree with the tenour of what was said by the hon. Gentleman who represents the Opposition. Here are these Provincial Governments now to be called into being. The elections are to be held on a franchise much wider than has been attempted before in the East. Candidates will be competing against each other in order to be elected, and it will be easy for them to promise that if they are elected they will confer all kinds of benefits in the way of improved social services upon their constituents. Even in the most highly developed political States such things have been known to occur, and it may well be that there will be an orgy of promises in all the elections which take place for the Provincial Governments. When, however, these members arrive at the local legislatures full of hope, full of desire to confer great benefits on those who return them, they will be confronted with this very unpleasant and forbidding situation which the Government of India has been at such pains to outline before them.

I foresee that there may be a most disillusioning moment when they arrive with hopes of hospitals and universities and improvements of every kind in the social services, and they find that the revenues of the Provinces show no expansion and that the succour which may be administered to them from the Centre has already been given in the fullest measure, and that beyond a peradventure it is no use coming back like Oliver Twist to ask for more. I think it will be a shock to all those fine hopes which had been excited of the great advantages of establishing a western democratic system in this large part of Asia. After all, apart from political rights, most people when they throw themselves very heartily into a political programme expect to get something out of it in the way of material well-being. That is the way the Constitution works in this country. But no such hope presents itself to the would be legislators of the Indian Provincial Assemblies. For them a course of severe economy is prescribed, a course of stern restraint and frugal moderation, and no one is more capable of inculcating that policy in the correct terminology than Sir Otto Niemeyer, whom I knew well in the old days as being animated by the most admirable forms of Treasury unsentimentality.

There you are. However, I do not propose to detain the House longer because, as my right hon. Friend the First Lord has said, there is no opposition to this step, no opposition to the establishment of Provincial Governments at the earliest opportunity. I think I speak not only for myself but for some friends with whom I worked last year when I say that we are very glad not to be responsible in any way for this course, upon which, for good or ill—I pray it may be for good—the march of Anglo-Indian affairs has been directed. So the responsibility must rest with those who have had their way, who have had the power, who have taken the action, who have framed great and far-reaching schemes. They have every means at their disposal to carry them into effect and are now in a position to sit back and await the consequences. We shall do nothing to obstruct, to hamper the carrying out of a policy which Parliament has approved and which has recieved the Royal Assent; but I would say that all that has transpired since the Niemeyer Report makes it extremely necessary that we should see very clearly where we are in the Provinces before we hurry on to the further step of a Federal Constitution.

I could not sit down without making one further remark. We have a new Viceroy in India. I think everyone feels that if anything could give them encouragement and confidence in the inauguration of this great departure in India it would be the character and personality of the eminent man who has been chosen to bear the chief responsibility. To him we do extend a measure of the utmost confidence and of encouragement from here. Great as will be the difficulties, we are certain they will have no such good chance of solution in any other hands but his. I have noticed in the public Press the note which Lord Linlithgow struck when he first arrived in India, as to the great importance of improving the yield and fertility of Indian agriculture—a note which has earned him the honourable title of "The Peasants' Viceroy," as the talk is said to go in the Indian bazaars. If the British Government with its raj will once again endeavour to manifest itself through the healing, fertilising, revivifying processes of stimulating agriculture and improving the conditions of the horribly poor toiling masses of India, if it can make two blades of grass grow where one grew before and can serve two drops of water where before there was only one—if that is the policy associated with the British raj and all his officers and lieutenants, believe me it has a far greater chance of rallying India and Indian interests to the British Crown than the most elaborate constitutional experiments which the ingenuity of constitution-mongers can devise.

2.22 p.m.

Mr. AMERY

These are indeed changing times. Many things have changed. We are in a new Parliament. My right hon. Friend who guided these Debates so long in the old Parliament now commands the King's Navy. My right hon. Friend the Member for Epping (Mr. Churchill), who took so prominent a part in combating the India Bill last Session, has now undertaken the charge of that international police force which is to blow the King's Navy out of the water if British policy should ever contradict that of Geneva. I have noticed, too, that tunes as well as times have changed. The speeches of the Front Bench are marked not so such by exuberant enthusiasm as by temperate confidence. The right hon. Member for Epping has spoken not so much in the tones that he often assumed last year, those of the prophet Jeremiah, but as one of those more restrained minor prophets, like Nahum or Habakkuk. My right hon Friend, in Voltaire's language, is, like Habakkuk, "capable of anything," and certainly he has shown himself capable to-day not only of the power of criticism and invective, but of an attitude of generous good will and rope towards a Measure as to whose consequences he entertains, rightly and naturally, grave anxiety. But his speech ended with what I can only regard as a measure of good will not only to the new Viceroy but to the people of India. That, after all, is the only message which we can give at this moment. All of us, whatever side we took in the last Parliament, must have been conscious of misgivings and doubts as to the future. Whatever way our decision was taken, it was not without a realisation of how much could be said on the other side. We can only hope now that with the good will there is to India our fears may not be realised, and that our hopes may be fulfilled, at any rate in some measure.

This first step, as to which we were all agreed, starts not unhopefully. At any rate, there is a reasonable prospect of Provincial Government being successfully carried on, and it may he that it will be as well that it is to be carried on within narrow financial limits. I do not think any of us like to give our boys too large an allowance at school in their first term, and it may be as well for the development of Provincial government in India that it should begin within apparently narrow financial limits. With the general improvement in economic conditions in the world and in India those limits may slowly be expanded and the sense of responsibility and the financial capacity of these assemblies will also, we hope, develop. The difficulties between the Central Government and the Provinces will, of course, give rise to much discussion. I shall not attempt to go into them, but will only say that my small experience of one corner of the problem, when I endeavoured for a good many weeks to try to assay where the balance of fair adjustment lay as between Burma and Contimental India, convinced me that while no reasonably fair settlement could be found which would be accepted as satisfactory by everybody, there are the elements for a fair adjustment which can subsequently be worked out. However, the only purpose for which I rose was, as one who took some part in the old Debates, to add one more contribution to the message of good will which we wish to send from this House to the Provinces on the opening of their new career and to India as a whole.

2.28 p.m.

Mr. RAIKES

Before the Under-Secretary replies to various points of detail which have arisen in the Debate, I should like to put one or two questions to him as to the possibility of increased taxation in the Provinces. My right hon. Friend the Member for Epping (Mr. Churchill) wound up with a most eloquent appeal when he referred to the present Viceroy, and I think that on all sides of the House we wish beyond all else that the Provincial Governments of India shall, under these new reforms, gain better conditions and have a fair opportunity of playing their part in promoting the welfare of that great country. I realise that Provincial autonomy must come, and has got to come soon, but so far as we can judge from the Governors' reports from the different Provinces we are faced by this difficulty. There is agricultural depression over practically the whole of India, and Provincial autonomy, in spite of the subventions from the Centre, does mean that additional expenses are being taken on. For example, we see the Government of Bombay stating in no unmeasured terms that with the present grants they will be unable to increase any of their public health services in the course of the next few years. The United Provinces indicate that they will have a deficit of somewhere about 28 lahks for the first two years and that they will be forced to retrench somewhere, and that must mean a retrenchment of services. Otherwise there would be an overtaxed population, though such overtaxation would not be necessary were these reforms coming on in more prosperous times. From Orissa we get the same criticism.

With all these criticisms from various Provinces it must be realised that it is not simply a case, as my right hon. Friend the First Lord of the Admiralty said earlier, of Provinces trying to get a little bit more than otherwise they could get. That would be true if we were in a time of comparative economic prosperity; but when there is acute agricultural depression and taxation is so high that it is admitted that further taxation is impossible, one must feel some anxiety as to whether the start of the new constitution is to be coincident with additional pressure upon the peasantry who represent the backbone of India. If that is the case there will be a danger of those in India who do not like the new constitution and who wish to destroy the British Government telling the people, when additional taxation comes, "It is simply a new trick of the British Government under their measure of so-called self-government." That is what we are afraid of on the Provincial side.

On the side of the Central Government I hope the Under-Secretary will be a little more explicit in regard to the railway question, because it creates anxiety when one finds that not only do the Central Government announce that they have to pay a great deal more than they ever expected under the new system, but that there is a possibility that the continued deficit on the railways will mean that the railway reserve central fund may be eaten up in a few years' time. That would mean that the central budget would have to contribute towards the deficit, and that demand upon it would come at a time when it would be desired to lower the Customs Duties rather than to raise them. All these points are bound to give rise to anxiety, but they were rather skated over both by the Under-Secretary and the First Lord in their speeches earlier this afternoon. Those of us who fought the original proposals for India, mainly on the ground that we feared they might mean a deterioration of the social services, willing though we were to assist the Government to make a success both of Provincial Autonomy and of the Federation feel that we have a right to some observations in regard to these anxieties, which have not so far been dispelled but which my hon. Friend can dispel if any Minister can do so.

2.34 p.m.

Mr. BUTLER

If I have the permission of the House, I shall certainly do my best to reply to the various points of detail which have been raised in debate. My right hon. Friend the First Lord of the Admiralty dealt with some of the questions of principle, and I shall therefore restrict myself, as indeed I ought, as the Under-Secretary, to points of detail. I appreciate the very generous attitude adopted by my right hon. and hon. Friends who agreed or disagreed with the passage of the Government of India Act in expressing their good will for the future of the Indian Provinces, and I appreciate the request of my hon. Friend the Member for South-East Essex (Mr. Raikes) for further assurance on one or two details, With regard to the question of the Provinces, the hon. Member for the English Universities (Sir R. Craddock) dealt at some length with provincial claims. Though it is invidious to deal with some but not with all, I will answer shortly points arising out of those which have been mentioned.

Hon. Members must remember that Bombay, as Sir Otto Niemeyer has reminded us in his report, derives considerable benefit from the separation of Sind, which had already been included in her estimate for this year. That fact provides opportunities for an easier time financially. With regard to the United Provinces, the hon. Member for South-East Essex deplored the fact that they might show a deficit. That is due to the fact that the United Provinces in the year of the depression remitted a very large sum of money for purposes of land revenue in the crisis. There is no doubt that, within five years or so, the United Provinces, which already have a high standard of administration and a high record of financial integrity, will find their position improved. This problem relates to the first five years. We considered the possibility of spacing out the subsidy in such a way that the incidence of it would be greater in the initial years and would tail off, but we have decided, as the Secretary of State said in his letter, that the beneficiary must accept the subsidy on the equal terms decided upon by Sir Otto Niemeyer. This means that the beneficiary may have some difficulty in the first year or two, but that in reality the total sum will be more than sufficient to achieve a balance, and perhaps more than a balance, at the end of the five-year period. We have envisaged the same difficulty as my hon. Friend, but we are meeting it in a different way.

Certain remarks were also made in regard to Sind and Orissa. There is no doubt, as I said in my original speech, and as was pointed out by my right hon. Friend the Member for Epping (Mr. Churchill), that there is a slight increase in the estimates in those two Provinces. I acknowledged that when I spoke, but apart from that, there is no apparent difference between the estimate given by my right hon. Friend in 1935 and the estimate now. One refreshing thing about the estimates for Sind and Orissa is that they have already been, met for this year in the Central Budget and the position is therefore more satisfactory than it might otherwise be. I think that deals with the Provinces, with the exception of the Punjab, to which my hon. Friend the Member for the English Universities referred. The Punjab will gain some slight amount on the decentralisation and consolidation of provincial taxes, but that Province has a genuine difficulty as to the Excise which they have provided in the past. My right hon. Friend has acknowledged that if it is found in the future that the Punjab case is substantiated, the matter will have to be looked into.

If we look into the matter in more detail, we see that, in every Province, care has been taken to look as far as possible into their individual difficulties. This does not take away, and I would not w ant it to take away, from the plain decision that the Provinces must grapple with the facts as they are. It is an open question whether it would not have been unwise to have adopted an optimistic point of view and to give the Provinces to think that, when they come under the rule of responsible Indian Ministers, all financial difficulties will be swept away. It is probably more healthy and sensible, and nearer the facts of the case, if the Indian Ministers, whether they wish for social reform or otherwise, have to grapple with the facts as they are. I do not therefore agree with my right hon. Friend the Member for Epping, who said that we have excited many vain hopes. I hope that in the publication of these unpleasant facts we have faced the situation as it is.

My hon. Friend the Member for South-East Essex asked me about the railways, and there have been questions about the Central finances. I will take those points together. There is some doubt about the credit of the Centre being able to bear the burden which may fall upon it in future. May I for a moment digress, and point to the extraordinary confidence which the investor places in the present finances of the Government of India? Less than a month ago, not long after the publication of the Niemeyer Report, there was issued at par a rupee loan of 12 crores, that is, £9,000,000, the rate of interest being 2¾ per cent. That was the first occasion, so far as we can trace in history, that so low a rate of interest has been charged, and that loan has been able to be issued at below 3 per cent. The loan was heavily over-subscribed in the first few minutes. That, I think, is a striking example of the attitude of the investor towards the finances of India. Besides that, my Noble Friend has given notice to repay £17,000,000 of the 5½, per cent. stock in July next, a loan bearing twice the rate of interest as the recent Indian issue. This repayment and the rates of interest prove that what we have said about the reduction of charges on such scores as this is not too optimistic, but is based upon the facts of the situation.

When you combine this with the increasing yield shown in recent years for such items of revenue as Income Tax, and when you envisage the possibility, for instance, of a very heavy revenue and excise yielding more in the future than it has yielded in the past, and reflect upon the rates of interest and the savings upon them and upon such items as savings bank deposits and so forth, which all shows a tendency to relieve the income taxpayer, hon. Members will see that there are certain grounds for optimism which perhaps I did not sketch fully enough in my opening remarks.

The railways have been very much criticised by Sir Otto Niemeyer. Railway finance is not a matter for very great optimism. For the six-year period from April, 1924, the railways paid no less than 42 crores or £31,500,000 into the credit of the Central finances. That had to stop in the depression, when the railways ceased to pay. It has to be remembered that Indian railways have great powers of responding to improvement in the economic situation of the country. They have a capital of nearly £600,000,000, and I believe that they are administered as well as any other railways in the world. My Noble Friend and the Government of India have determined to take steps, which I am not in a position to announce just yet, to see that the railways are put, if possible, on the accounting system to which Sir Otto Niemeyer refers, and in the position to begin again those same contributions to the Central fist as they did in the past.

The hon. Member for Blackburn (Sir W. Smiles) raised the question of the ticketless traveller. I am glad to say that the Member in charge of railway finances in India is already aware of it, and has himself taken the precaution of travelling third class in order to experience the joys of ticketless travelling. He has done his best to obtain experience of the sort of difficulty and leakage. Whether it be a detail, such as the ticketless traveller, or big questions, I assure hon. Members that there is every intention to pay attention to the railways of India in the future. The railways are on a very conservative basis. Large amounts are put to depreciation, and more care is taken of the railways than in any other country, I think. It is satisfactory to realise as the "Statesman" announced on 7th May last: One bright feature of the situation is not only was last year closed better than was estimated, but the present year has already begun to yield as its quota over a quarter of a crore in revenue more than last year. There are signs that the railways are responding to the improvement in economic conditions, and, from the nature of railway finance, I do not doubt that they will respond further. I can assure the House that my Noble Friend has every intention of doing all that is possible to restore them to their former position in the finances of India. I have nothing more to add except to reaffirm the fact that we have purposely put these somewhat pessimistic attitude of the Government of India and of the local governments before the House, in order that the House may feel that it has had everything before it for making its decision. I have attempted to answer some of the fears that have been aroused, and I trust that now I may join with other speakers in wishing the Provinces well, and may express the hope that we may take the remaining two Orders on the Paper after the Debate on the first one has been adjourned.

Ordered, "That the Debate be now adjourned."—[Mr. Butler.]

Debate to be resumed upon Thursday next.

Motion made, and Question proposed, That an humble Address be presented to His Majesty, in pursuance of the provisions of Section 309 of the Government of India Act, 1935, praying that the Government of India (Distribution of Revenues) Order, 1936, be made in the form of the draft laid before Parliament."—[Mr. Butler.]

Ordered, "That the Debate be now adjourned."— [Mr. Butler.]

Debate to be resumed upon Thursday next.

Motion made, and Question proposed, That an humble Address be presented to His Majesty, in pursuance of the provisions of Section 157 of the Government of Burma Act, 1935, praying that the Government of Burma (Commencement and Transitory Provisions) Order, 1936, be made in the form of the draft laid before Parliament."—[Mr. Butler.]

Ordered, "That the Debate be now adjourned."—[Mr. Butler.]

Debate to be resumed upon Thursday next.

2.50 p.m.

Mr. BUTLER

I beg to move, That an humble Address be presented to His Majesty, in pursuance of the provisions of Section 309 of the Government of India Act, 1935, praying that the Government of India (Provincial Elections (Corrupt Practices and Election Petitions) ) Order, 1936, be made in the form of the draft laid before Parliament subject, however, to the following Amendment: In paragraph 6 of the First Schedule, in line 10 of page 11, after the first 'of,' insert 'this Order or of.''' It will, perhaps, be for the convenience of the House if I give a short explanation of the two Corrupt Practices Orders, relating respectively to India and to Burma. These Orders refer to future elections in India and in Burma. At a recent date the House passed the Orders-in-Council referring to the electoral machinery for India and Burma, the method of conducting elections and so forth, matters outstanding from the original Government of India Bill. One of the Orders to which I referred at that date was the Corrupt Practices Order which is now before the House, and I will, with the permission of the House, give the following short description of the two Orders.

They reproduce the existing rules on the subject in almost every particular, but in one particular they go rather beyond the existing rules, namely, in regard to election expenses. Hitherto, the return of election expenses has depended rather on a pious hope, whereas now power is to be taken, after the first election, to require a return of election expenses. The reason for the reference to the first election is that it is impossible, without trying an election under the new Constitution, to decide the exact sums that may be spent by candidates in elections. Therefore, taking advantage of one or two inquiries that have been made on the subject, and of the experience of the Hammond Committee, it has been decided to enforce a return of election expenses after the first election.

The object of the Orders is, in the first place, to define corrupt practices. If hon. Members will turn to the First Schedule of the India Order, they will see that corrupt practices are there defined, and I think that reference to that definition is the easiest way of explaining the matter. The second objective is to specify the consequences upon candidates and voters which the commission of these practices is to entail. That is best followed by looking at the Second Schedule, where hon. Members will see the disqualifications for membership of the Provincial legislatures, while Part IV of the Order sets out the disqualifications as regards voters. I feel that these Schedules will give a sufficient explanation of the consequences upon candidates and voters which the commission of the corrupt practices set forth in the First Schedule is to entail.

The third objective is to prescribe the procedure for investigating allegations of corrupt practices. That will be done through election petitions inquired into by a body of three commissioners, and the procedure is set out in Part III of the India Order, pages 3 to 7. Among the remaining provisions of the Order which are not included under the three heads to which I have referred is Part II, which lays down that the election agent shall be the alter ego of the candidate as regards the commission of corrupt practices. I think that what I have said really covers the contents of the Order, and describes to the House the three main objectives which we have in mind. There are certain Amendments, which, however, are not of very great importance. There is an Amendment to the Burma Order, which is clerical—to leave out "any," and insert "that." In the similar provision in the India Order the words "if that person" occur, and we wish the Burma Order to follow the Indian Order. The other Amendment, to both Orders, is to fill a gap which exists in the draft Orders as they stand, in the part which relates to disqualifications for voting or for candidature in the case of a man who has committed a corrupt practice and wants to become the election agent for a candidate. These are Amendments of detail, and do not materially affect the Orders as they stand.

I should like to repeat to the House that the Orders substantially include all the existing corrupt practices rules, with the possible exception of the provisions regarding election expenses, which is rather stiffened up. Apart from that, I hope that public opinion will be as great a solvent of the difficulties with which the Corrupt Practices Order is meant to deal as the Order itself. There are two ways of dealing with corrupt practices in elections. One is by penalty, and the other is by force of public opinion. It is no doubt necessary to have both, and in these Orders is summed up the method of obtaining greater purity in elections by Order. At the same time, I am convinced that, as the Indians gain greater experience of elections, their experience will be similar to ours, in that there will be a less tendency for corrupt practices to take place in politics as the tide of an enlarged suffrage, to quote my right hon. Friend the Member for Epping (Mr. Churchill), washes the Indian electorates in the same way in which it has washed us. I am convinced that, as time goes on, the need for these Orders will be less, but that it is a wise precaution to enact them on the basis of the existing rules.

2.55 p.m.

Mr. MORGAN JONES

We shall not take very strong objection to the proposals of this order in general, but I should like to ask for a little clarification of some of these points. On page 5, paragraph 4 (1) says: Unless the Governor exercising his individual judgment dismisses a petition for non-compliance with the prescribed requirements, he shall,… I am not quite sure what the justification for this proposal really is. In discussing the Bill we always interpreted the phrase "exercising his individual judgment" as meaning that, although the Governor was not bound by the advice of his Ministers, he took it into account when exercising his individual judgment. He only acted on his own responsibility entirely when he acted in his discretion. If that is the right interpretation, what is the effect of this Clause? It is, as I see it, that, when a petition is presented by a person who deems himself to have been aggrieved by what he considers the wrong election of an opponent, the Governor has to take the advice of his Ministers. If the petition happens to be one against a supporter of the Government, does it not seem a little odd that the Governor has to seek the advice of the Government the election of whose own candidate is being called in question It is also odd that the Governor should have to determine at all whether the petition should be rejected or not, because, after all, the Governor is not a politician. He is the representative of the King and it is not desirable for him to accept the responsibility of rejecting a petition out of hand in his discretion, or in the exercise of his individual judgment. I believe the point would be reached much better if these people had to present petitions to the courts. If they only present petitions to the Governor there is not much expense, and they will be encouraged to do so, but if they had to go to court that might easily deter them. It is odd that the Governor may reject a single petition but that, if there is more than one petition presented, he must refer them to two commissioners. I am a little baffled by paragraph 8 (3), which says: The report shall be signed by all commissioners. It is possible, of course, that they unanimous, and in that case there is no difficulty about their all signing, but if they are not unanimous must they still all sign? Paragraph 9 says: If either in their report or upon any other matter there is a difference of opinion among the Commissioners, the opnion of the majority shall prevail and their report shall be expressed in terms of the views of the majority. That is understandable, but what about the signing of the report? Must the dissentient Commissioner still sign it even though he disagrees? On page 8 there is a different sort of point, and here I think there is some ground for grievance. Paragraph 4 deals with the case where a person is, in connection with an election in a commerce and industry, mining or planting constituency, disqualified for voting for any period. It says that, if a person of that sort has been so disqualified, the firm or the family nominating him shall be struck off the roll. Why in the world should a firm or a family be struck off the roll because an individual has been struck off? It seems to me rather too drastic. In regard to paragraph 7, I can understand a candidate or an agent who has been found guilty of a corrupt practice being disqualified from being a candidate, but I do not quite understand why a person who has been disqualified from being a voter should be disqualified from being an agent. He may be disqualified as a voter, not on any ground of moral obliquity at all, but merely on the ground of some failure to carry out regulations dealing with electoral returns. That may be adequate justification to preclude him from being a candidate, but I do not see why he should be shut out from being an agent. I shall be glad if we can have some justification for these changes.

3.4 p.m.

Mr. KELLY

It is difficult to understand why, if someone in a particular firm has offended, the manager or the agent of the firm, who might be 100 miles away, should be struck off. It almost looks as though, if they are employing a considerable number of people, the whole of them are to be disqualified. It is going to give an opportunity for someone who desires to reduce the roll of electors to commit an offence so as to have everyone else disqualified. Paragraph 3 (2) on page 4 deals with an election petition against a returned candidate being presented to the Governor. It appears to give the Governor authority to decide the whole matter. The curious provision in paragraph 3 (2) is that, A petitioner may, if he so desires, in addition to calling in question the election of the returned candidate, claim a declaration that he himself has been duly elected, but such a declaration shall only be claimed on one or other of the following grounds … (b) that but for votes obtained for the returned candidate by corrupt practices, the petitioner would have obtained a majority of the valid votes. I am trying to visualise how the Governor is to decide that a number of votes have been obtained by corrupt practices and to declare the petitioning candidate as having been duly elected. I hope that we shall be given an explanation of the position. There is even stranger language used in the Burma Order, and I ask for an explanation of No. 3 on page 4, where we have a person who, after the conclusion of the election, has been duly included in the electoral roll for the constituency as the nominee of a firm or corporation in the place of a person who was entitled to vote at the election. There are other points which, I trust, we may be able to raise at a later stage, but I ask for an explanation of why conditions in India should be so different from England that you require different regulations, as it does not seem to be treating these people as being capable of playing fair during an election contest.

3.7 p.m.

Mr. CHARLES WILLIAMS

I do not understand the phrase "Hindu joint family" which appears in paragraph 4 on page 8 of the Order on India. It should be clearly laid down how wide the reference should be. Very often you have a considerably larger number of generations living under the same roof in India than is the case in this country, but the meaning of "joint family" should be made clear, although the position may be well-known in India. Would all members, for example, of the Clan Campbell be contained in one joint family? I do not conclude that that is what it means. It would be very unfortunate if any of us might be disqualified for the indiscretions of our namesakes. We are dealing with a firm, family or corporation, and this would seem to disqualify on a wholesale scale. A corporation covers very wide circumstances. It is possible that you might bring in a co-operative society in these circumstances or any other known form of corporation. If we are to lay down rules of this kind we ought to be very careful not to make the phraseology so wide as to disqualify from elections a very large number of people because of the offence of one person who might be associated with them. We should not make general rules too drastic in any way, but rather approach the whole subject in the spirit which has characterised every speech today. However much We may have disagreed with these proposals in the past, we should now work in democratic association with India and not lay down too hard-and-fast rules.

3.10 p.m.

The ATTORNEY-GENERAL (Sir Donald Somervell)

I will deal with some of the points that have been raised, and my hon. Friend the Under-Secretary will deal with others. Let me deal first with points which particularly arise on the construction of this Order. The first point was raised by the hon. Member for Caerphilly (Mr. Morgan Jones) in regard to paragraph 4 (1)—the power of the Governor to exercise his individual judgment in dismissing a petition for noncompliance with the prescribed requirements. In normal cases, that is, practically speaking, a mechanical process, as defined in paragraph 6 which deals with the machinery. It is simply an examination to see if the petition is in order. It was thought right that in that examination if questions, other than those to which the answer was perfectly obvious, arose, the Minister should be associated with the Governor, but in order to meet the point which has been put by the hon. Member, should there be any question in regard to which it was felt that the Minister could not take a strictly impartial view, then the Governor has the last word. He can exercise his individual judgment, and that gives him the last word.

In regard to paragraph 3, I think the hon. Member's remarks arose out of a misconstruction of the paragraph. Every petition will have to go through the net of 4 (1). Paragraph 3 is to make sure that assuming that more than one petition has got through the net of 4 (1) they shall go to the same commissioners. It does not, however, mean that if there is more than one petition the Governor is not to exercise his individual judgment under 4 (1).

Mr. MORGAN JONES

I do not think that the answer meets my point. I gather that where there is one petition or several petitions they have to go, in the first place, before the Governor, in order to see that they have complied with the proper conditions. Suppose that one petition has been presented and it has complied with the conditions for the drafting and presentation of petitions, why is it that in that single case the Governor may or may not reject it, or may or may not send it to the commissioners, but if there is more than one he must send it to the commissioners?

The ATTORNEY-GENERAL

If one petition is presented it has to be examined by the Governor to see whether it fulfils the requirements, and it is then sent to the Commission. All that paragraph 3 deals with is the case in which in respect of an election in a constituency more petitions than one are presented and ex hypothesi they comply with the requirements. All that paragraph 4 (3) says is that where you have more than one petition in respect of an election the same Commission shall deal with the two or more petitions.

Mr. CASSELLS

May I put a question to the Attorney-General? As I understand it, under paragraph 4 (1) the Governor is only dealing with an application in respect of one petition, and he can refer the matter to trial by three persons. The Attorney-General has referred to paragraph 4 (3) which says: Where in respect of an election in a constituency more petitions than one are presented, the Governor shall refer all those petitions to the same Commissioners, who may at their discretion inquire into the petitions either separately or in one or more groups, as they think fit. Surely the only possible inference to be drawn from that is—

The ATTORNEY-GENERAL

I thought the hon. Member was asking a question?

Mr. CASSELLS

So I am. The only inference to be drawn from that is that if there are two or more petitions, the Governor has no discretion in the matter at all. The regulations are mandatory upon him to refer these petitions to the Commissioners to be appointed by him.

The ATTORNEY-GENERAL

The hon. Member has repeated the point made by the hon. Member for Caerphilly, and I am suggesting to the House that the view of the hon. Member is erroneous. I suggest that the wording of the Order is perfectly clear. Paragraph 4 (1) deals with the necessary preliminary steps which any petition has to get over. It would be absurd in certain circumstances to allow a petition to go forward without having satisfied the necessary preliminary requirements. This paragraph says: Unless the Governor, exercising his individual judgment, dismisses a petition for non-compliance with the prescribed requirements, he shall, exercising his individual judgment, appoint as Commissioners for the trial of the petition three persons. So far as paragraph 4 (3) is concerned, assuming that there is more than one petition relating to an election in a constituency and that they all succeed in satisfying the preliminary requirements, it would be absurd to say that the Governor shall refer each petition to a body of Commissioners. It would be wasteful and extremely inconvenient. Therefore, paragraph 4 (3) says that in such circumstances he shall not set up separate bodies of Commissioners but shall refer the petitions to the same body.

The hon. Gentleman the Member for Caerphilly then asked a question with regard to the signing of the report and the provision that there should be no minority report. There is a somewhat similar position in this country in the case of decisions of the Judicial Committee of the Privy Council. They are not in fact signed, but there is only one judgment delivered which represents the opinion of the majority and no one knows whether or not there is a minority. The judgment is that of the whole board and nobody knows whether it is a unanimous or majority judgment. It is not in fact signed, but the fact that it comes as a judgment of the board really produces very much the same result as the signature. The purpose of the signature is simply to authenticate the document. The fact that a Commissioner's name appears at the bottom does not indicate that it is necessarily his individual opinion, for he may have been in the minority, but for the purposes of authenticity the regulations provide that all the Commissioners shall authenticate the document as being a proper judgment coming from them, due regard being had to the fact that it need not be a unanimous judgment.

Mr. MORGAN JONES

I appreciate and agree with the provision that the majority judgment shall be the report. My difficulty arises with regard to paragraph 8 (3) where it is stated that the report shall be signed. If the minority third person is recalcitrant and says he will not sign it, the result will be there will be no report and all the expense will have been incurred unnecessarily.

The ATTORNEY-GENERAL

Surely that is something one cannot imagine happening. It must be clear to anybody who masters these Regulations that the affixing of the signature does not mean that each individual giving his signature agrees with the judgment, because the next paragraph shows clearly that there may be dissent. The reason the signature is affixed is to make it clear that the judgment is a properly authenticated judgment of all the Commissioners, the minority as well as the majority. It is to show that the judgment issues from them, and whether they agree with it or not nobody will ever know. The hon. Member for Caerphilly raised the question as to what would happen if a commissioner refused to do something he was enjoined to do. That would be the same as if a judge refused to give judgment or somebody having official duties refused to affix his seal to some document. That is a case which one cannot foresee, and if officials were recalcitrant in that way no doubt steps would have to be taken to deal with them. One cannot draw up legislation on the basis of officials in responsible positions taking such action.

The third point made by the hon. Member for Caerphilly was as to whether it was just and right that a firm should be disqualified for the corrupt practice of a nominee. One appreciates the consideration which moved the hon. Gentleman to take that point. But there is another side to the picture. When a firm appoints a nominee they should at any rate appoint a fit and proper person. Suppose they apointed a nominee who was guilty of an illegal practice and that there was not such a regulation as this. It would be very unfortunate if the firm could say, "We appointed this man; he has committed an illegal practice and he has been found out, but we are not disqualified; let us do the same with someone else." I am prepared to admit that there are arguments on both sides, but, on the whole, I think it is right that whe an illegal practice has been proved on the part of someone acting on behalf of a firm, that the firm should necessarily suffer. The hon. Member for Torquay (Mr. C. Williams) asked me what was meant by a "Hindu joint family." I do not know that I can give him a precise and exhaustive answer and I can assure him that I do not wish to go into matters concerning the extent of the Clan Campbell on the one hand or the Clan MacDonald on the other. [HON. MEMBERS: "Or the Clan Williams!"] This is a well-known expression in Hindu life. I do not know the exact extent that it may have, but it indicates a de facto unit. My hon. Friend the Under-Secretary will deal with the other points which have been raised.

3.27 p.m.

Mr. BUTLER

With the permission of the House, may I deal with some of the other questions that have been asked? The hon. Member for Caerphilly (Mr. Morgan Jones) asked why an agent who had committed a corrupt practice should be disqualified from being an agent if his offence was only technical. It was thought wiser to draw these Orders in rather strict terms and to discountenance the employment by candidates of agents who had been guilty of corrupt practices. If the hon. Member fears that an agent might be disqualified simply because he had committed some technical offence, I would point out that the Governor would have a dispensing power under paragraph 8. The hon. Member for Rochdale (Mr. Kelly) asked what were the offences under Chapter IX A of the Penal Code in Burma. I regret that I have not the Code with me, but I understand that the offences include bribery, undue influence and personation. He also referred to paragraph 4 of Part III of the Burma Order, but my hon. and learned Friend has just dealt with that point.

Mr. KELLY

There is one other point to which I referred on the India Order, namely, paragraph 3 of Part III, which seems to mean that a man with a minority vote may go to the Governor and say that another man has received votes by corrupt practices and ask that those votes should be transferred to him, in order that he may be declared elected.

Mr. BUTLER

I think the hon. Member is mistaken. This means that the Governor passes this on as something which the Commissioners have to consider. The Governor does not have summary jurisdiction to deal with this matter himself.

Ordered, "That the Debate be now adjourned."—[Mr. Butler.]

Debate to be resumed upon Thursday next.

Motion made, and Question proposed, That an humble Address be presented to His Majesty, in pursuance of the provisions of Section 157 of the Government of Burma Act, 1935, praying that the Government of Burma (Corrupt Practices and Election Petitions) Order, 1936, be made in the form of the draft laid before Parliament subject, however, to the following Amendments: In paragraph 4 of Part IV, in line 7 of page 8, leave out 'any' and insert 'that.' In paragraph 6 of the First Schedule, in line 10 of page 10, after the first 'of,' insert 'this Order or of.'"—[Mr. Butter.]

Ordered, "That the Debate be now adjourned."—[Mr. Butler.]

Debate to be resumed upon Thursday next.