30. The revised estimate of expenditure in 1927-28 is practically the same as the budget in spite of an increase in the payments of bounties from 5 to 15 lakhs and of an addition of over 7 lakhs under Aviation for the mooring mast. at Karachi. This result was rendered possible by a reduction in the expenditure on India House from 8 to 3 lakhs and smaller savings in various other directions.

31. Next year's expenditure is expected to show an increase of over 41 lakhs notwithstanding the facts that the bounty figure will represent only a small residue of a lakh and that the special item of aviation expenditure referred to in paragraph 30 will disappear. For, besides the annual increments, etc., which are mainly responsible for the increase, we have a rise from 31 to 17 lakhs in the outlay on India House, an expenditure of 2 lakhs on the Dum-Dum Aerodrome, financial assistance of about 1 lakhs to Aeroplane Clubs, not to speak of numerous other small items of new expenditure detailed in the volume of Demands for Grants. About 11 lakhs of the increase is, how. ever, nominal, being the result of the change in the method of accounting described in paragraph 34 below.

32. The estimates of receipts under this group largely depend upon the transactions connected with the securities in the Paper Currency Reserve and are subject to wide fluctuations. The revised estimate of expenditure includes 6 lakhs for the acquisition of a site for a new currency office at Lahore but, even so, it is much larger than it should have been mainly owing to advance deliveries of currency note forms from England which will practically cease from next year when the Currency Note Printing Press at Nasik Road will commence working. Next year's expenditure is lower for the same reason although it includes 4 lakhs for the Electrolytic Silver Refinery at Bombay.

33. The only variation of importance is in the budget estimate of expenditure for next year where the increase is practically all accounted for by the larger expenditure on the prison at Mach in Baluchistan, viz., 12 lakhs against 1 lakh in 1927-28.

34. In the current year, the expenditure falls short of the original estimate due to larger recoveries on account of stationery supplied to, and printing work done for, the Provincial Governments and the Army Department. Next year's figures are swollen on both sides as a result of the alteration, which will come into force on the 1st April 1928, in the method of adjustment of certain recoveries which will appear as receipts instead of as deductions from expenditure. The most important example of this is the recoveries from the Provinces on account of stationery and printing, aggregating 22 lakhs. Allowing for such readjustments, the expenditure in the coming year is smaller than it would otherwise have been, because of an increase of 8 lakhs in the receipts from the Posts and Telegraphs Department on account of pensionary liability (vide paragraph 19) which, however, will continue to be adjusted as a deduction from expenditure.

PROVINCIAL CONTRIBUTIONS AND MISCELLANEOUS ADJUSTMENTS BETWEEN CENTRAL AND PROVINCIAL GOVERNMENTS.

35. The revised estimate for the current year on both sides represents recoveries from, and payments to, Provincial Governments in connection with the readjustment of the value of the stocks of non-postal stamps held on the 1st April 1921 and of later supplies from Home which had not been correctly charged at the time.

36. The following table brings out the whole position as regards permanent remissions of Provincial contributions which will be completely and finally extinguished in 1928-29 :

37. The temporary remissions hitherto granted are also summarised below for convenience of reference :

In effect, the remission has been permanent for Bengal from 1922-23 and

for all the other Provinces from 1927-28.

38. The receipt in India in 1927-28 represents the transfer from the Revenue Reserve Fund which will show a credit balance of 1,26.90 lakhs at the close of the year (vide paragraphs 2 and 3), while the receipts in England in both years represent India's share of the Dawes annuities which, however, will be appropriated for the reduction or avoidance of debt (vide paragraph 27).

39. The revised estimate of expenditure includes two adjustments, one of 8.91 lakhs on account of certain expenditure incurred in Persia during the war and another of 6.96 lakhs in respect of certain claims made by His Majesty's Government for vessels requisitioned during the same period for the carriage of commercial cargo.

EXCHANGE.

40. From the 1st April 1920 to the 31st March 1927, the accounts were prepared on the basis of the rate of 28. per rupee for the conversion of rupee transactions into sterling and vice versa. The sterling value of the rupee, however, stood at a lower level in recent years. In consequence of this variation from the 28. rate, large sums were brought to account as credits or debits on account of exchange in respect of transactions involving remittances of funds to and from the Secretary of State. These were purely book-keeping transactions. Under that system, there was an accounts gain by exchange when the Home remittances through the market were less than the amounts required by the Secretary of State for his aggregate net disbursements owing to the latter having been financed partly from other sources, e.g., a sterling loan floated in London. Similarly there was an accounts 'loss' when the remittances were greater in order to meet the demands of trade. These 'gains' and 'losses' fluctuated within very wide limits as will

41. The procedure for the allocation of exchange gains and losses was as follows. All exchange gains and losses arising in respect of remittance transactions were recorded in the first instance under a suspense head; the portion attributable to the revenue and capital accounts in respect of outlay incurred in England was calculated every month on the basis of the average of the daily telegraphic transfer rates from Calcutta on London and transferred to these accounts, and the portion relating to the expenditure of Provincial Governments was similarly debited to the Provincial Governments concerned; and it was considered with reference to the circumstances of each year whether the balance remaining under the suspense head after these transfers were made should be written off to revenue or kept in suspense against the possibility of opposite results in succeeding years.

42. The entire procedure outlined above will need reconsideration as a result of the fixation of exchange at 1s. 6d. the rupee with effect from the 1st April 1927. For the purposes of the present estimates, the old procedure has been maintained but 1s. 6d. has been taken in place of the old 28. rate. In the current year, however, the average rate is expected to work out at 1s. 5d. But the variation between this rate and the statutory and normal accounts rate of 1s. 6d. being small, the gains and losses are comparatively inappreciable. The budget estimate for the ensuing year assumes an average rate of 1s. 6d. and, therefore, no gains or losses. The estimate for 1927-28 is as follows: