THE ECONOMIC WEEKLY December 22, 1956

Federal Grants-in-Aid and Article 275 M L Bhatia

G R A N T S - I N - A I D , as the name suggests, are payments made

by a Federa l o r Cen t ra l government to the federa t ing uni ts or State governments , ei ther according to the provis ions of the cons t i tu t ion or by legislat ive decision. Gran t s - in -a i d have been used as a b l a n c i n g fac tor i n a l l po l i t i ca l systems, i n one f o r m or another, to correct the maladjus tments a r i s i ng f r o m the Al locat ion of Impor t an t and rela­t i ve ly elastic sources of revenue to the Cent ra l Government and entrust­i n g wel fare funct ions to the U n i t s . Th i s mechanism of ad jus t ing re­sources to func t ions is used af ter a l l other ba l anc ing factors have been c o m m i s s o n e d . Its specific objectives have g rea t ly var ied , l i ke r emov ing in te r - reg iona l dispari t ies in resources, encouraging uni ts to improve pa r t i cu l a r services, achiev­i n g cer ta in na t i ona l objectives and exercising some measure of Cen t r a l c o n t r o l . The evolut ion has been t o w a r d sharper def ini t ion of objectives, closer a t t en t ion to con­di t ions and re la t ive S ta te f i sca l capaci ty and more extensive ad-min i s t r a t i ve supervis ion.

Increasing Grants-in-aid The Federal g ran t s - in -a id are an

impor t an t aspect of government f in­ance guaranteed by the Cons t i tu t ion of I n d i a . The f i r s t s t a tu to ry provis ion for g ran ts - in -a id was made under Sections 142 and 150 of the Govern­ment o f I n d i a Ac t , 1935. F e l e r a i grants amounted to Rs 3.12 crores in 1937-38, Rs 2.75 crores in 1942-43 a n d Rs 19.18 crores In 1940-47. Of the t o t a l revenues of P r o v i n c i a l Governments such g ran t s f o r m e d 3.5 per cent in 1937-38 and 8 per cent in 1940-47. The absolute as we l l as re la t ive increas in g ran t s was due to the Inclusion of develop­men ta l g ran t s In the system of g ran ts - in -a id in 1946-47. These gran ts were fo r general purpose. Even when specific, g ran t s were g iven, the detai ls of a d m i n i s t r a t i o n and i t emiza t ion of schemes of ex­penditure were l e f t to the discret ion of the P r o v i n c i a l Governments . ,

A f t e r the P a r t i t i o n in 1947, the f inancial provisions of the Govern­ment of I n d i a A c t , 1965, continued to operate subject to the D i s t r i b u ­t ion of Revenue Order of M a r c h 17, 1948. The Federa l grants-fn-ald amounted to Rs 32.42 crores in

1947-48 (7½ mon ths ) ; Rs 38.26 crores in 1948-49, Rs 42.24 crores in 1949-50 a n d Rs 23.49 crores in 1950-5 1 . I n 1950-51 the g ran t s s h a r p y declined on accour t of a 3teep f a l l i n development g r an t s . S ince then the State Governments are te .njr g iven g ran t s under Ar t i c l e s 273, 275, 278 and 282 of the Republican Con s t i t u t i o n . The g ran t s under these Ar t i c l e s amounted to Rs 33.89 crores in 1951-52, Rs 36.04 crores In 1952-53, Rs 45.30 crores in 1953-54, RB 51.39 crores in 1954 -55, RS 97.65 crores in 1955-56 (Revised Est 'mates) and Rs 121.99 crores in 1953-57 (Budget E s t i m a t e s ) .

Of the t o t a l revenues of the P a r t A and P a r t B States they formed 7.4 per cent In 1951-52 and 10.7 per cent in 1954-53, This percentage is l i k e l y to be 24 in 1950-57, In addi­t ion, g ran t s were also given to the P a r t C States, m a i n l y to meet revenue deceits . They are l i ke ly to amount to Rs 7.30 crores in 1955-50 and Rs 7.94 crores in 1956-57. L u m p sum gran t s have been given to Ja-m m u and K a s h m i r State, about Rs 4 crores and Rg 3.75 crores in 1955-56 and 1950-57. Thus, t o t a l Federal g ran t s are l i k e l y to amount to Rs 133.68 crores in 1956-57.

These trends in Federal a id show that , i f no new aids are adopted and the present obl igat ions and policies are car r ied our, there w i l l be sub­s tan t i a l increases in these g ran t s - in -a i d . In view of the acceptance by Government of the goal of a socialis­tic pa t t e rn of society in I n d i a there is every poss ibi l i ty t ha t the Cent ra l aids w i l l Increase considerably to i m ­prove the l i v i n g standards of the masses in the re la t ive ly underdeve­loped States of the U n i o n .

"Article 275"

Grants - in -a id have been provided in the I n d i a n Cons t i tu t ion under Un various A r t i c l e s . Space does not per­m i t a detailed s tudy of all these A r t i c l e s . Therefore on ly one im-por tan t A r t i c l e , i . e . , A r t i c l e 275, is discussed below. This A r t i c l e i s i n ­tended to be permanent and is also, pa r t i a l ly , in the pu v iew of the Finance Commission (Ar t ic le 280). An a t t empt has been made below to examine c r i t i c a l l y the Federal a id (under Ar t i c l e 275) polices, th:-s ignif icant t rend , , and the defects in dicated by experience, to see what changes are needed.

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A r t i c l e 275 provides fo r the pay­ment of such sums as Parliament may by l aw provide as grants-in a id to such States as Parliament may determine to be in need of assistance. Di f fe ren t sums can be toed for different States, These gran ts are to be of the na­ture of capi ta l end r ecu r r ing sums as may be necessary to enable tha t State to meet the costs of such schemes of development as may be undertaken by i t w i t h the approval of the Government of I n d i a fo r the purpose of p romot ing the welfare of the Scheduled Tribes in t h a t State or ra is ing the level of c d m l n i - t r a -t i on of the Scheduled Areas there­in to tha t of the administrat ion of the rest of the areas of that State. .

In respect of Assam the second Proviso requires the payment of grants , capi ta l and recurr ing , equi­va len t to the area excess of expenditure other the revenues? d u r i n g the two years immedia te iy preceding the commencement of this Constt-t u t ' on in respect of the a d m i n i s t r a -tion of the T r i b a l Areas specfied in P a r t A of the table in pa ragraph 20 of the S ix th Schedule, and the cost of such schemes of develop­ment as may be under taken by t h a t State w i t h the approval of the Gov­ernment of India for the purpose of ra is inf the level of a d m i n i s t r a t i o n of these areas to t h a t or the adminis­t r a t i o n of the rest of the areas of t h a t State. The amounts of such grants are to be determined by on order o f the Pres iden t u n t i l p rov i -sion is made by Parliament. A f t e r a Finance Commission has been con­s t i tu ted the gran ts w i l l be made b y the President on the recommenda­tions of the Finance Commission.

Balanced Inter-State Development Under A r t i c l e 275. g ran ts - in -a id

are to be given to States as are in need of financial assistance, and these gran ts can v a r y and be dis­c r i m i n a t o r y in na tu re . Gran t s a r e p r i m a r l i y intended to correct Inter-State disparit ies in f inancial re­sources and to co-ordinate the m a i n ­tenance and expansion of the wel ­fare schemes of the State Govern-ments on a u n i f o r m nat ional level . The general power of providing g run ts in left to Parliament, but the Cons t i tu t ion lays down the specif ic

grants in the provisos to Article 275. The first proviso relates to the grants necessary for the wel-

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fa re of Scheduled Tribes and for r a i s i ng the s t andard of admin i s t r a ­t i on o f Scheduled Areas . The second proviso relates to the g ran t s to the Government of Assam fo r the development of the State T r i b a l areas.

Centre's Financial Control F r o m these provisions It can be

infer red t h a t grants under this A r t i c l e can be bo th general and specific. B u t there is much empha­sis on specific g ran ts v i z . , education, medical and heal th , unemployment relief, o ld age assistance, h ighways construct ion, chi ld and ma te rn i t y welfare, etc. These gran ts may be uncondi t ional g i v i n g fu l l free­dom to the State Governments in respect of the use of the grant. They m a y also be condi t ional i m ­posing upon the State Governments the maintenance of m i n i m u m stand­ards of efficiency, advance approval of State plans and budgets, pres­c r ib ing par t i cu la r modes of recrui t ­ment of personnel, and p rov id ing for inspection and aud i t .

The grants under this Ar t i c l e are to be given if the schemes have been under taken by a State w i t h the approval of the Government of I n d i a . No doubt Government of I n d i a cannot compel a State Gov­ernment to accept Centra l aid. But once a g i a n t has been accepted the condit ions imposed by the Centre must be observed. To the extent to w h i c h condit ions are imposed by the Centre upon a State Govern­m e n t the la t t e r relinquishes its pow­ers f rom fields in w h i c h i t had supreme a u t h o r i t y . Thus, those grants can be an impor t an t ins t ru ­ment for cent ra l f inancial con t ro l -Since the States do not have ade­quate resources to meet the obl iga­tions imposed upon them by the Cons t i tu t ion , they must no t only cscept Cent ra l a id freely but also c lamour f o r I t . The consti­t u t i ona l provisions have so much constrained the States to seek Cent ra l aid t h a t they m a y scarcely realise tha t they have surrendered their powers to manage their affairs in their o w n w a y ,

First Finance Commission The gran ts g iven to the States

under the Substantive Prov is ion of Art ic le 275(1) amounted to Rs 70 l akhs in 1951-52 and Rs 5.18 crores in 1952-53. Th i s la rge increase fo l lowed the acceptance by the Cen­t re of the recommendations of the f i rs t Finance Commiss ior . The gran ts under th is Ar t i c l e , before re­commendations of the Finance Com­mission became operative, were

being g iven to A s s a m a n d Orissa-On the recommendat ion of the F i ­nance Commission, incorporated in the Cons t i tu t ion ( D i s t r i b u t i o n of Revenues) Order, 1953, the f o l l o w i n g States were given g ran t s : Assam Rs 1 crore, Mysore Rs 40 lakhs, Orissa Rs 75 lakhs, Punjab Rs 1 2 5 crores. Saurashtra Rs 40 lakhs , Travancore-Cochin Rs 45 lakhs and West Bengal Rs 80 lakhs .

The Commission professes to have recommended these grants af ter considering- the needs of a l l the States by cer ta in standards and c r i t e r i a w h i c h were applied w i t h o u t any d i s c r imina t ion , The C o m m u ­nion gave suflicient emphasis to the magni tude of backwardness of the States and to various other pro­blems, v iz . , West Bengal was bear­i n g addi t iona l s t ra in due to the inf lux of refugees f rom East Pak i s t an ; progress in Orissa had stagnated and It had an accession of a relat ive­ly large backward t e r r i t o r y in i t s merged areas; Saurashtra had a large area and sparse popula t ion; Punjab had the influx or refugees and the problem of m a i n t a i n i n g l a w and order; Assam hud special diff i ­culties resu l t ing f r o m P a r t i t i o n and a re la t ive ly large under-developed area; and Mysore and Travancore-Oochin had l im i t ed resources. The grants recommended by the Com­mission under the Substantive por­t ion of A r t i c l e 275(1) amounted to Rs 5.05 crores.

Some Shortcomings The Commission could not formu­

late precisely the needs of I n d i v i ­dual States. In 1952, the first Five-Year P lan has been finalised, and each State was allocated cer­t a in investment programmes. There was not much dif f icul ty in assessing the fiscal requirements of the States f r o m the point of v iew of develop­ment programmes covering both the revenue and capi ta l side of the bud­get. The Commission ignored an­other very i m p o r t a n t aspect of fis­cal need t ha t it did not Keep in view, factor.? l ike famine and other na tu ­r a l calamities, w h i c h are a r ecu r r ing feature in I n d i a . As a technical body the Commission could have f o r m u ­lated some flexible f o r m u l a by w h i c h the backward States, wh ich are re la t ive ly more exposed to the vagaries of n a t u r a l calamities, could had been benefitted. Moreover, the Commission recommended the grants la rge ly on the basis of the f inan­cial position of the States as dis­closed by their ac tual revenue and expenditure, w i t h only m i n o r correc­t ions . I t m a y be pointed out t ha t i t wou ld be difficult , i f not i m ­

possible, to ascertain the real fiscal needs of the States f r o m their pub­lished budgets on Revenue Accoun t . The budgets of the State Govern­ments are, somewhat complex docu­ments and are not easily i n t e l l i ­g ib le . They conceal more t h a n they reveal. The presentation of the budget varies f r o m State to State . Some i tems of expenditure included under Revenue Account in one State may be seen under Capi ta l Account in another . The Commis­sion did not take care to make these documents comparable . Since grants were given to the States on the basis of comparat ive fiscal needs, wi thout m a k i n g the budgetary posi­t ion comparable and w i t h o u t t a k i n g into consideration the cap i ta l bud­get, the recommendations of the Commission were to t h a t extent anomalous.

Grants for Primary Education The Commission also recommend­

ed specific grant;-, for the promot ion o f p r i m a r y education. I n order to measure the f inancial needs of different States for p r i m a r y educa­t ion , the Commission collected the percentage of chi ldren between the ages of 6 and 11 who were actual ly a t tending schools. On the basis of the populat ion of the State, the number of chi ldren in this age group, and chi ldren in this age-group a t tending school, the Commission found that the percentage of ch i ld ­ren a t tending schools varied sharply, f rom 10.6 per cent in Kajas than and P E P S U to 98 .8 per cent in Travancore - Cochin

The Commission made a modest beginning, and recommended t ha t the eight States, where a large lee­w a y had to be made up, should be given grants to advance the cause of p r ima ry education. I t recom­mended tha t in each of the next four y e a r s sums r i s ing f rom Rs 150 lakhs in 1953-54 to Rs 300 lakhs in 1950-57 should be d is t r ibuted among the e ight .States in propor­t ion to the number of ch i ldren of school-going age not a t t end ing school at that t ime. The grants were ar­ranged on an ascending seek to assist the States in p l ann ing for thei r proper u t i l i sa t ion . The grants shown in the Table (See p 1511) were provided to tfee States under D i s t r i bu t ion of Revenues Order. 1953, para 5(1) b and the States were free to util ise them, in any manner, for the purpose of p r imary education.

Neglected Factors In recommending those grants the

Commission kept in view the num~

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ber of ch i ld ren of school-going age no t a t tending school Th is factor , o f course , i s i m p o r t a n t f o r deter-m i n i n g the quan tum of grants-in-a i d . B u t there are other i m p o r t an t determinants , such as, sparsi ty of populat ion in a State, efforts of the State Governments fo r the ad­vancement of p r i m a r y education, etc, w h i c h should have been g iven due considerat ion. Subject to the ava i l ab i l i t y of data cer ta in c r i t e r i a l ike an increase in the number of p r i m a r y schools and chi ldren at­tending schools d u r i n g the past f ive years, the conversion of o rd ina ry p r i m a r y schools in to basic schools, the efforts made to Improve the faci l i t ies for the t r a i n i n g of p r i ­m a r y school teachers and measures adopted for avoidance of wps laga in regard to p r i m a r y education should h i v e been given proper weigh t . To give gran ts based upon one factor, is unfust, especially co the States w h i c h have put in large efforts to promote p r i m a r y educa­t i o n . Fur the r , some minimum per­centage of the school going children a n d a t t end ing the schools shou ld have been la id down as a s tandard c r l t e r i o n .

A Paradox A haphazard t r ea tment of the

question by not g i v i n g any g r a n t to any State h a v i n g a percentage more t h a n 29.3, does not seem adv i ­sable. Acco rd ing to the Commis­sion's recommendations, fo r exam­ple, in 1956-57, B i h a r w i t h 29.3 per cent of chi ldren in the age groups of 6-11 years a t t end ing schools is to receive a sura of Rs 83 lakhs , whereas U t t a r Pradesh w i t h 34 per cent of such ch i ld -ren is not to receive a s in­gle penny. Does th is mean t h a t U t t a r P r ade rh being s l igh t ly better than B i h a r in this respect should a l ­together be ignored f o r the period 1953-57, covered by the recommenda­t ions of the Finance Commission? I t t o quite possible' t h a t B i h a r w i t h Cent ra l g ran ts m i g h t have i m ­proved its posit ion, ra ther bettered

its position, even in the Second year of the receipt of such grants. All these impl ica t ions should be g iven proper considerat ion by a technical body l i k e the Finance Commission.

Welfare of Scheduled Tribes The gran ts under the Substant ive

Provis ion of A r t i c l e 275(1) were on ascending scale and their amounts increased every year . The g ran t s d u r i n g 1953-57 were: Rs. 6.65 crores in 1953-54, Rs 7.05 crores in 1954-55, Rs 7.55 crores in 1955-56 ( R . E . ) and Rs 8.05 crores in 1953-57 ( B . E . ) . The gran ts under pro­visos to Artie"e 275(1) are to meet the costs of such schemes of deve­lopment as m a y be under taken by the State w i t h the approva l of the Un ion Government fo r the purpose or p r o m o t i n g the welfare of Sche­duled Tribes in tha t State or r a i s ing the level of admin i s t r a t i on of the Scheduled area.

According to the Census of 1951, the number of Scheduled Castes people was 5.13 crorea and Sche­duled Tribes 1-91 crores. Accord ­i n g to an est imate o f the C r i m i n a l Tr ibes A c t E n q u i r y Commit tee (1950), the ex -Cr imina l Tr ibes n u m ­bered 22.7 lakhs in P a r t A States and in some P a r t B and P a r t C States the i r numbers were large Since independence an a t t empt has been made to promote the welfare of these sections, f o r m i n g about 20 per cent of the t o t a l populat ion of I n d i a . The Cons t i tu t ion lays down ample safeguards to amel iorate the i r condi t ion and protect the i r in ter ­ests. Seats fo r these classes have been reserved In the Pa r l i amen t and State Legis la tures . A special pro­vis ion has been made to reserve pos t s for t h e m .

Directive Principles One of the Di rec t ive Principles of

State Po l icy lays down tha t ' 'the State shal l promote w i t h special care the educational and economic interests of weaker sections of the people, and, in particular, of the Scheduled Castes and Scheduled

Tribes, and sha l l protect t hem f rom social injustice and a l l fo rms of ex-p lo i t a t lon" . Under the Cons t i tu t ion the States are p r i m a r i l y responsi­ble f o r thei r we l fa re . B u t the Un ion Government is to extend its executive power, under A r t i c l e 339. to the States in respect of the prepa-r a t on and execution of Welfare schemes fo r the Scheduled Tr ibes in the States and under the provisos to A r t i c l e 275 i t is to give g r an t s in -a id to the States on approved schemes for p romo t ing the i r w e l ­fa re . The Government o f I n d i a have been g i v i n g grants f o r the Scheduled Castes and the B a c k w a r d Classes since 1945, and for ex-Cr i -m i n a l Tribes since 1953.

The g ran t s under provisos to A r ­t icle 275(1) amounted to Rs 1-58 crores in .1951-52, Rs 1.59 crores in 1952-53, Rs 2.25 crores in 1953-54, Rs 3.46 crores in 1951-55, Rs 4.73 crores in 1955-56 ( R . E . ) and Rs 6.06 crores in 1956-57 ( R . E . ) . E x ­cept fo r the State of UP , P E P S U and Travancore-Cochin, a l l o ther States of I n d i a are receiving gran ts under this head, whereas in 1950-51 Assam was the on ly State receiving such g r an t s . More than 50 per­cent of the grants under this head are being paid to Assnm and Orissa. Though under th is head grant's are given for specific purposes the States are free to finalise the de­ta i l s i n the manner they t h i n k f i t and thereby these g ran t s are un-cond i t iona l .

Administrative Changes Needed

The grants - in-a id , under A r t i c l e 275, In a l l , amounted to Rs 2.28 crores in 1951-52, Rs 6.77 crores in 1952-53. Rs 9.90 crores in 1953-54, Rs 10.51 crores In 1954-55, Rs 12.28 crores in 1955-56 ( R . E . ) and Rs 14.11 crores in 1956-57 ( B , E . ) . They fo rmed 7 per cent in 1951-52 and 11.7 per cent in 1956-57 of the to t a l Federa l grants-in-a i d . They have increased more m absolute t e rms than in re la t ive terms because in a developing economy the Un ion Government, under A r t i c l e 282, is increasingly ass is t ing the States in f inancing Plan ou t lays . Thus, Federal , grants in I n d i a have increased both in depth and in raag-nitude. There is need at present to develop sat isfactory administra-t ion whereby the" Union Govern­ment, is osoured that i ts f i n d s are being wisely economically and efficiently expended.

I t is expected t h a t an efficient admin i s t ra t ion w i l l not only improve the performance of f e d e r a l grants-in-a id bu t it w i l l also improve the