The Fiscal System

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Abstract
This chapter first describes the evolution of the fiscal structure, and in particular the gradual move to fiscal federalism and to greater Indian fiscal autonomy. The revenue structure the British inherited was typical of most traditional agrarian economies. The government raised much of its revenue from non-tax sources, such as the forests and the profits of the government opium monopoly. The most important tax was the land revenue. In 1858-59, the land revenue alone accounted for half the government's total tax and non-tax revenues; opium, salt and the customs were the other main sources. Public revenue did not change very much as a proportion of national income, reflecting the difficulties of raising taxes and the government's conservatism over public borrowing. The chapter also discusses some issues of macro-economic policy, such as war finance, and the attempt to balance budgets during the great depression, an extreme example of the orthodoxy that characterized the government's fiscal policy throughout the period.

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