Historical evolution of federal finances in India

Abstract

The paper confirms that the provisions of fiscal federalism laid out in the Indian Constitution are connected to the legacy of the British rule in India. Applying historical analysis the author divides the period from the starting of British imperial administration in India to the enactment of Indian Constitution into five different phases on the basis of the evolution of Centre-Province financial relations. The principles of fiscal federalism in India gradually evolved from highly centralized fiscal governance during the initial period of the British rule until being manifested in the Constitution. Various parliamentary enactments, executive directions, committees and commissions as well as individual intervention contributed to this transformation. The paper further lays out the unique features of the Indian Constitution such as mutually exclusive tax domains and various mechanisms addressing fiscal imbalances due to the Government of India Act of 1935 enacted by the British Parliament. It concludes that while British authorities designed the system of fiscal administration in India after their preferences, the makers of the Indian Constitution preferred to retain the same provisions with minor variations in the Constitution of independent India