Page:White Paper on Indian States (1950).pdf/100



"Fundamentally, it is not a case of the present Government of "British India" purchasing the Railways of "Indian States" as a commercial investment for the benefit of "British India". What is involved is a process of pooling together the "federal" resources of the people of the States with the "federal" resources of the people of "British India"; the result is a merger of the "federal" resources of the people of India as a whole,—that is, of the States and of "British India" alike—for administration, in the interests of all, by a new Central Government of the Union of India whose "power and authority" (together with the wherewithal for their exercise), are derived from all the Units. In the circumstances no question of payment of "compensation" can obviously arise.

"We consider, therefore that except for certain necessary financial adjustments (concerning the equitable apportionment of the States' liabilities between them and the Centre) no "compensation" as such should be paid tor any assets passing to the Centre as a result of the integration of the federal finances of the States with those of the rest of India.

"31. We are equally clear that no similar question of "compensation" arises in connection with the integration of such "federal" revenues of the States as Customs duties on foreign trade, Central Excise Duties, Income-tax and the like.

"We recognise, of course, that the integration of all "federal" revenues of States with those of the Centre will give rise to maladjustments in their financial position; and the remedy for this lies in ascertaining the precise extent of the net over-all dislocation likely to be caused, and then providing necessary financial (revenue) adjustments between the Centre and the States, over such transitional period as may be permitted by the Union Constitution……… so as to avoid such dislocation."

191. These constituted the governing principles of federal financial integration when the matter was approached from the point of view