100 years ago: India’s demand for motor cars

1. At a Glance

• What it is: The Hindu's "100 years ago" archive column carried a report datelined London, November 12 (1926). In it, Sir Reginald Ford predicted a "great expansion in the market for motor cars in India" [1].
• The core claims:
• The Government of India would soon cut the import duty on cars by 30% [1].
• It would set up a Ministry of Transport to put the petrol tax towards road development [1].
• About 75% of cars used in India were non-British [1].

• He called for a British agent for the Indian market [1].

• Why it matters for UPSC: The report shows the colonial link between taxing motor fuel and paying for roads. That idea became law through the Indian Road Development Committee (Jayakar Committee), 1927–28 and the Central Road Fund, 1929 [2][3]. Its modern successor is the Central Road Fund Act, 2000 [5].

• It also touches GS-I economic history: imperial trade interests worried about non-British (largely American) competition in Indian markets [1].

2. Why in the News

• The trigger is an archival reprint. The Hindu's 13 November 2026 Chennai print edition (page 11) ran the 1926 dispatch in its "100 years ago" slot [1].
• Apart from that, this is a static topic with no recent policy trigger. Its value is the historical root of today's fuel-cess-for-roads system [3][5].

3. Background & Evolution

• 1926 (Nov): Sir Reginald Ford's London interview [1]:
• expected a 30% duty cut and a transport ministry linked to the petrol tax;
• put the non-British share of India's car stock at about 75%;

• wanted a British agent appointed for the Indian market.

• 1927: The Government of India set up the Road Development Committee under M.R. Jayakar [6]. The RBI also refers to it as "Jayakar (1927)" [7].

• 1928: The Report of the Indian Road Development Committee, 1927-28 was published [2].
• 1929: The Central Road Fund (CRF) was created on the committee's recommendation [3]:
• It was funded by an added excise duty on petrol, which came after the Finance Bill was passed [4].
• Provinces got grants, up to their share, for road projects approved by the Governor General in Council [4].

• Approval followed the advice of a Standing Committee on Roads [4].

• 1931: The fund's accrual rate was set at 2 paise per litre of petrol, later raised to 3.5 paise. Diesel was not levied [3].

• 1934: The Indian Roads Congress (IRC) was established. The Jayakar Committee had recommended holding road conferences at regular intervals [6].
• 1988: A parliamentary resolution replaced the old arrangement. It set aside at least 5% of the basic price of petrol and diesel for the fund. The earlier rate had stayed unchanged until then [3].
• 2000: The Central Road Fund Act, 2000 now governs the cess on petrol and high-speed diesel (HSD) [5].

4. Core Static Facts

Item	Fact
Source of the 1926 forecast	Sir Reginald Ford, interview in London, 12 Nov [1]
Duty cut forecast	30% reduction in import duty on cars [1]
Institutional proposal	Ministry of Transport to put the petrol tax towards roads [1]
Market share	About 75% of cars in India were non-British [1]
Trade ask	A British agent for the Indian market [1]
Road committee	Indian Road Development Committee, 1927–28 [2]
Chairman	M.R. Jayakar (PIB); listed as "M. E. Jayakar" in the IndianCulture catalogue [6][2]
Fund created	Central Road Fund, 1929 [3]
Revenue base (1929)	Additional excise on petrol [4]
Early rate	2 paise/litre from 1931, later 3.5 paise; diesel exempt [3]
Grant approval	Governor General in Council, advised by the Standing Committee on Roads [4]
Offshoot body	Indian Roads Congress, 1934 [6]
1988 change	At least 5% of the basic price of petrol and diesel [3]
Current law	Central Road Fund Act, 2000: cess on petrol and HSD [5]
Current ministry	Ministry of Road Transport & Highways (hosts IRC events) [6]

5. Multi-Dimensional Analysis

Economic

• Ford expected lower import duty to widen car demand. This shows the tension between revenue tariffs and market expansion in the 1920s [1].
• Earmarking fuel tax for roads created a dedicated revenue source. It began in 1929 and was made statutory in 2000 [3][4][5].
• The levy rate stayed frozen from the 1930s until 1988, so its real value fell steadily [3].

Historical / Colonial political economy

• With about 75% of cars non-British, British industry pushed for a dedicated agent to win back the market [1].
• Colonial India's import market was contested between British and non-British suppliers [1].
• The Indian Tariff Bill was examined by a Joint Select Committee of the Legislative Assembly in 1927 [8].

Administrative / Federal

• The CRF was a centre-to-province grant system. The Governor General in Council approved projects on the advice of a standing committee [4].
• This was an early form of tied central transfers, comparable to today's centrally sponsored funding [4].

Governance / Institutional

• The Jayakar Committee led to lasting bodies: the CRF in 1929 and the IRC in 1934 [3][6].
• Debates in the legislature (Council of State, 1927 and 1929) show how the measure passed through the central legislature [4][9].

Environmental (contemporary link)

• The fuel cess model links road financing to fossil-fuel use, covering petrol and HSD under the 2000 Act [5].
• This raises a question for policy: how will road funding work as electric vehicles replace fuel-burning cars and the fuel tax base shrinks? This is an analytical inference, not a sourced fact.

6. Recent Developments (last 12–18 months)

• The searches did not return specific dated events from 2025–26 on this topic.
• The only confirmed hook is the archival reprint dated 13 Nov 2026 [1].
• PIB has reported the Union Minister of Road Transport & Highways addressing an IRC International Seminar, which shows the 1934 body is still active [6].

7. Prelims Hooks

• The Indian Road Development Committee (1927–28) was chaired by M.R. Jayakar [6][2].
• The Central Road Fund was created in 1929 on the Jayakar Committee's recommendations [3].
• The 1929 CRF was funded by an additional excise duty on petrol [4].
• CRF accrual was 2 paise/litre of petrol (1931), later 3.5 paise. Diesel was not levied at first [3].
• The CRF rate stayed unchanged until 1988 [3].
• The 1988 parliamentary resolution set aside at least 5% of the basic price of petrol and diesel [3].
• The Central Road Fund Act, 2000 governs the cess on petrol and HSD [5].
• The Indian Roads Congress was set up in 1934 and is the oldest apex road body. It grew out of the Jayakar Committee's call for regular road conferences [6].
• Colonial-era CRF grants were approved by the Governor General in Council, advised by a Standing Committee on Roads [4].
• In 1926, Sir Reginald Ford said about 75% of cars in India were non-British [1].
• He forecast a 30% cut in car import duty and a Ministry of Transport linked to the petrol tax [1].

8. Whose Interest the 1926 Forecast Really Served

• Ford spoke for British carmakers, not Indian road users
• His forecast came with a business demand: a British agent to sell in the Indian market [1].
• The reason was market share. About 75% of cars in India were not British [1].

• The aim was to win the market back, not to give Indians cheaper or better transport.

• A duty cut by itself would not have helped British firms

• An import duty (a tax on goods brought in from abroad) applies to all foreign cars.
• A 30% cut [1] makes American cars cheaper too, and they already led the market.

• That is why the cut was paired with a push for a British sales agent. Lower duty only grows the market. Someone still has to win the sales.

• Petrol tax money for roads also helped car sellers

• More roads mean more people can use cars, so more cars get sold.
• So the plan to put the petrol tax into roads [1] helped both the government and the car trade.
• Use this link in a GS-I answer on colonial infrastructure. It is an example of public money building a market that foreign firms supplied.

9. Why the Road Cess Does Not Always Reach the Roads

• A fixed rupee rate loses value every year
• From 1931 the levy was a fixed 2 paise per litre, later 3.5 paise [3].
• It stayed the same until 1988 [3]. Prices rose, so the same paise bought less road each year.

• The 1988 change fixed this by linking the levy to a share of the price: at least 5% of the basic price of petrol and diesel [3]. When the price goes up, the fund goes up too.

• The money collected is not fully moved into the fund

• The Central Road Fund sits in the Public Account (government accounts that hold money kept for a set purpose, separate from general spending).
• The CAG (Comptroller and Auditor General, the auditor of government accounts) checked 2010-11 to 2016-17. Road cess collected was ₹2,43,081.78 crore. Only ₹1,94,951.07 crore went into the fund. That is a short transfer of ₹48,130.71 crore [12].
• In 2018-19, ₹13,000 crore was wrongly put into the Railway Safety Fund and ₹3,680 crore into 'Other Funds' by the Ministry of Power [13].
• Another ₹10,880 crore was kept out of the fund because its accounting rules were "not finalised". It was spent as general budget support (ordinary spending, not tied to roads) [13].

• ₹10,157 crore was neither transferred nor used for the purpose it was collected for [13].

• Why this matters

• Earmarking means "this tax is only for roads". It works only if the money actually reaches the fund.
• If the Finance Ministry can spend the money elsewhere, the cess becomes an ordinary tax with a road label on it.

10. Why the States Object to the Road Cess

• A cess is not shared with states
• Under Article 270, central taxes go into a divisible pool (the share of tax that the Centre splits with states, as the Finance Commission recommends).
• Cesses and surcharges are kept out of this pool [14].

• So every rupee raised as road cess, and not as normal excise duty, stays with the Centre.

• The share outside the pool has been growing

• Cesses and surcharges were about 10–15% of the Centre's gross tax revenue (all taxes the Centre collects) during 2011–20 [15].
• This was estimated to rise to 24% in 2020-21 [15].

• Fuel is a big part of this, because the road and infrastructure cess sits on petrol and HSD [5].

• The 1929 model and the problem today

• The Central Road Fund began as grants to provinces for projects the Centre approved [4]. Even then, the Centre chose the roads.
• States build and maintain most roads. But the money comes back as tied grants (money given only for a named use), not as their own share of the tax.
• This is why states ask the Finance Commission to cap cesses or bring them into the divisible pool.

11. The Case for Keeping a Separate Road Fund

• The strongest argument for earmarking
• The person who uses the road pays for it, through fuel. This is fair: more driving means more fuel, more tax and more road wear.

• A separate fund keeps road money from being cut each year when the budget is tight. The Jayakar Committee wanted the 1929 fund for this reason, so roads would have a steady source of money [3].

• What is right about it

• Roads need steady yearly money for maintenance. A fixed-share cess gives that more reliably than yearly budget decisions.

• Where it breaks down

• The protection works only if the money stays in the fund. CAG findings show large sums kept back or sent elsewhere [12][13].

• "Fuel user pays" stops working as electric vehicles grow. They use roads but buy no petrol, so the tax base shrinks while road use does not.

• What should follow

• Ministry of Finance should move the full cess into the fund. The CAG has said the entire cess collected should go to the designated fund in the Public Account [12].
• Keep the 1988 lesson: link the levy to price, not a fixed amount. The fixed-paise rate stayed frozen for decades. The 1988 percentage rule ended that [3]. Any future road charge, for example one based on distance for EVs, should rise with costs in the same way.

12. Anchors for Answers

• Data: CAG found a short transfer of ₹48,130.71 crore of road cess to the Central Road Fund over 2010-11 to 2016-17 [12]
• Data: Cesses and surcharges were about 10–15% of the Centre's gross tax revenue in 2011–20, estimated at 24% in 2020-21 — all outside the divisible pool [15]
• Report/Committee: Indian Road Development Committee (Jayakar Committee), 1927–28 [2]; CAG Report No. 44 of 2017 and Report No. 4 of 2020 on Union Government Accounts [12][13]
• Law/Case: Article 270 (divisible pool keeps out cesses and surcharges) [14]; Central Road Fund Act, 2000 [5]
• Comparison: 1931 fixed rate (2 paise/litre, frozen till 1988) vs the 1988 rule linked to price (at least 5% of basic price) [3]

13. Mains Relevance

• GS-I (Modern Indian History): The colonial economy, infrastructure, and imperial trade policy.
• GS-III (Infrastructure: roads): Mobilising resources, earmarked cesses, and how road funding has changed.
• GS-II (Centre-State relations): Tied grants and how cesses fit into fiscal federalism.
• Possible question stems: 1. Trace the evolution of dedicated road financing in India from the Jayakar Committee (1927) to the Central Road Fund Act, 2000. Is fuel-cess earmarking sustainable as transport moves to electric vehicles? 2. "Colonial infrastructure policy served imperial commercial interests more than Indian development needs." Discuss with reference to roads and motor transport in the 1920s. 3. Examine the role of cesses and surcharges in Centre–State fiscal relations, using the Central Road Fund as an illustration.

14. Related Topics to Study Next

• Central Road and Infrastructure Fund (CRIF): This is how the CRF evolved, and PRS has reviewed its works [10].
• Indian Roads Congress: It sets road standards and codes and descends directly from the Jayakar Committee [6].
• Colonial tariff policy and the 1927 Indian Tariff Bill: Shows the trade-policy setting of the 1926 duty debate [8].
• Cesses and surcharges outside the divisible pool: Links to Finance Commission debates on vertical devolution.
• Railways vs. roads in colonial India: Useful for comparing how transport priorities shifted [11].
• Motor Vehicles Act (1939 → 1988 → 2019 amendment): The regulatory side of motorisation.
• EV transition and fuel-tax erosion: The future of road funding.

15. NCERT Concepts to Revise

• Cess (Economy): The petrol levy for roads was an earmarked tax, later the Central Road Fund Act cess.
• Tariff (Economy): Ford's forecast of a 30% import duty cut on cars is a tariff decision.
• Excise duty (Economy): The 1929 Central Road Fund was financed by an additional excise duty on petrol.
• Divisible pool (Economy): Cesses sit outside the shareable pool, which explains why earmarked road cesses matter for states.
• Fiscal federalism (Economy): Central Road Fund grants to provinces were an early example of Centre-to-state fiscal transfers.
• Tied and untied grants (Economy): Road fund grants went to provinces only for centrally approved road projects.
• Infrastructure (Economy): Roads and motor transport were colonial infrastructure shaped by imperial commercial interests.
• Road transport (Geography): The note traces how India financed and organised its road network from the 1920s.
• Import (Economy): Ford's argument centres on imported cars and the mostly non-British share of the market.
• Centre-state relations (Polity): The Central Road Fund shows how financial ties between Centre and provinces or states work.
• Finance Commission (Polity): Cess and surcharge revenues connect to Finance Commission debates on sharing central taxes with states.
• Vertical devolution (Economy): Earmarked cesses reduce the pool of central taxes shared with states.

16. Common Errors / Trap Areas

• Chairman's initials: PIB gives M.R. Jayakar, while the IndianCulture catalogue lists "M. E. Jayakar" [6][2]. Note both forms, but "Jayakar Committee" is the safe answer.
• Year confusion: The committee was set up in 1927, its report published in 1928, the CRF created in 1929, the 2-paise accrual dated to 1931, and the IRC formed in 1934. Sources give slightly different dates for when the CRF levy started (1929 excise vs 1931 accrual) [3][4].
• Fuel coverage: The original levy was on petrol only (diesel exempt). The 1988 change and the 2000 Act cover petrol and diesel/HSD [3][5].
• "Ministry of Transport" in 1926: This was Ford's forecast, not an event that happened [1]. Don't treat it as fact.
• Do not mix up the CRF Act, 2000 with the 1929 fund. The 1929 fund ran under executive and legislative arrangements, and the statute came only in 2000 [4][5].