(iv) that, to the extent that the loss of revenue from those assets . . . . is likely to cause sudden dislocation of the finances of any State, the problem will be one of necessary financial adjustments on revenue account between such State and the Centre, i.e., should form part of the over-all problem of the financial consequences of the integration to be dealt with under item (4) of our Terms of Reference."
(3) Finally, as regards transitional financial adjustments required on revenue account and the need for gradualness in the process of financial integration, so as to avoid any sudden dislocation of the finances of the States, the Committee recommended as follows [paragraph 2(c) of Part II of its Report]:—
"(i) the abolition of internal customs duties in one or two States may be spread over three to five years; in all other States these duties should be abolished as soon as financial integration becomes effective;
(ii) the rates of Income-tax in States should be raised to the level of Indian rates in two or three stages;
(iii) the administrative transfer of certain 'federal'
functions and services to the Centre may be effected gradually;
(iv) the transfer of the net 'burden' of financial integration to the States (or the Centre) must be gradual; it should take the form of appropriate financial adjustments between the Centre and the States, extending over such transitional period,—ten years, or fifteen,—as may be provided in Article 258[1] of the Draft Constitution; and these adjustments should be so devised as to cause no sudden dislocation of the finances of States or of the Centre at the commencement of financial integration, or during (or at close of) the transition period.
The foregoing recommendations and the action taken thereon are explained in the succeeding paragraphs.
↑Article 278 of the Constitution as finally adopted.
