Page:White Paper on Indian States (1950).pdf/106

(a) If the result was a net profit to the state i.e., if the saving in expenditure on federal subjects exceeded the loss of federal revenues (as in the case of Vindhya Pradesh, Rajasthan, Madhya Bharat and PEPSU), the adjustment suggested was the recovery by the Centre from the State of the amount of such profit (limited to the amount of the privy purse) over a period of 10 years in diminishing amounts, viz., 100 per cent. in the first year, 90 per cent. in the second year, 80 per cent. in the third year, and so on until there would be only a 10 per cent. recovery in the 10th year and none in the eleventh year.

This recommendation has been accepted by the States concerned with the modification in the case of Madhya Bharat and Rajasthan, that the recovery would be spread over 5 years only (diminishing by 20 per cent. per annum), in view of the increasing income-tax revenue likely to accrue from these States.

(b) If the result was a net loss to the States i.e., if the loss of federal revenues exceeded the saving in expenditure on federal subjects (as in the case of Tranvancore-Cochin, Mysore, Hyderabad and Saurashtra), the adjustment suggested was that the Centre should guarantee to reimburse the whole of such loss for the first five years, and thereafter the Centre's reimbursement guarantee would be of diminishing amounts over the next five years, with no guarantee in the eleventh year. The diminution in each year, from the sixth to the tenth, would be one-fifth of the amount by which the original net loss of "federal" revenues exceeded 60 per cent. of such original net loss plus the whole of the loss of revenue from internal customs duties.

This had the result (as in the ease of Travancore) that there would be no diminution of the Central gaurantee in any case in which the net loss of "federal" revenues alone was 60 per cent. (or less) of the aggregate of such loss and the loss of internal customs duties taken together.