When India achieved independence in 1947, the country inherited a patchwork of princely states, colonial enclaves, and foreign-administered territories. The journey to integrate these territories into a single Union was not only a political and administrative challenge but also a complex legal and financial task.
To ensure that governance, justice, and finance worked seamlessly in the newly merged areas, Parliament enacted laws such as the Acquired Territories (Merger) Act, 1960, and several reorganization statutes. These laws laid the foundation for extending the Indian legal system, financial administration, and welfare mechanisms to people who were, until recently, under different regimes.
Let’s explore how India navigated this monumental task.
🌍 Understanding the Context: Why Financial and Legal Integration Was Crucial
When new territories were merged with India—like Pondicherry (now Puducherry), Goa, Daman and Diu, and others—these regions had distinct:
- Legal systems (based on French, Portuguese, or princely state laws),
- Administrative structures, and
- Monetary and fiscal policies.
Without a uniform system, governance would have been chaotic. Thus, the Indian government prioritized:
- Unifying the legal framework so courts could operate under Indian law.
- Streamlining financial administration, including taxation, budgeting, and accounting, under Indian standards.
- Safeguarding the rights of local residents while gradually transitioning them into India’s democratic and economic framework.
⚖️ Legal Administration: Bringing the Rule of Law to New Territories
The first step after any merger was to ensure that justice delivery matched the rest of India. This meant:
1. Extension of Indian Laws
Parliament used Article 240 and other constitutional powers to extend Indian laws to merged territories. Gradually, the Indian Penal Code (IPC), the Code of Criminal Procedure (CrPC), and civil laws were introduced.
For instance:
- In Goa, Portuguese Civil Code (1867) remained in force for certain personal matters, while Indian laws governed criminal and administrative issues.
- In Puducherry, the French Civil Code continued for marriage, divorce, and inheritance, maintaining local legal identity within Indian sovereignty.
This hybrid approach allowed for smooth transition without social disruption.
2. Judicial Integration
Indian courts established District and Sessions Courts in merged territories. Over time, these courts came under the jurisdiction of the High Courts of neighboring states.
For example:
- Goa, Daman and Diu came under the Bombay High Court.
- Puducherry fell under the Madras High Court’s jurisdiction.
This ensured access to justice consistent with the Indian Constitution while respecting local legal traditions.
đź’° Financial Administration: Unifying the Economic System
Alongside legal unification, the financial system of merged territories required major reforms.
1. Introduction of the Indian Rupee
One of the earliest steps post-merger was replacing foreign currencies (like the French Franc or Portuguese Escudo) with the Indian Rupee (INR). This established monetary stability and integrated these territories into India’s economic network.
2. Integration into Indian Taxation System
The merged territories were gradually brought under the Indian Income Tax Act, Customs Act, and Excise laws. Initially, the Central Government allowed transitional exemptions to help local traders adjust to new tax rates.
In Goa, for example, import-export duties were harmonized to match Indian standards, facilitating smooth trade across borders.
3. Budgeting and Accounting Reforms
Each newly merged territory received a separate Union Territory Budget managed under the Ministry of Home Affairs and Ministry of Finance.
These budgets ensured:
- Local development funds for infrastructure, education, and healthcare.
- Proper auditing by the Comptroller and Auditor General (CAG).
- Gradual financial autonomy through elected assemblies (as seen in Puducherry).
This centralized yet flexible system balanced accountability with local empowerment.
🏗️ Building Local Governance: From Colonial Councils to Indian Institutions
Many merged territories earlier had colonial councils or local administrative bodies. These were restructured to match the Indian Panchayati Raj and Union Territory governance model.
For instance:
- In Puducherry, the Legislative Assembly was reconstituted under the Government of Union Territories Act, 1963.
- In Goa, democratic institutions like municipalities and panchayats were established to promote people’s participation in governance.
This shift empowered residents to take part in decision-making, local budgeting, and legal oversight, strengthening democratic culture in these regions.
📚 Case Study 1: Financial Integration of Goa (1961–1987)
After the liberation of Goa from Portuguese rule in 1961, it was administered as a Union Territory along with Daman and Diu.
Key Steps Taken:
- Currency Transition: Portuguese Escudo replaced by Indian Rupee within months.
- Legal Transition: Indian criminal and administrative laws introduced; certain civil laws retained.
- Financial Oversight: Goa received central grants for infrastructure, schools, and ports.
- Democratic Empowerment: By 1987, Goa attained full statehood, marking successful integration.
Result:
Goa’s per capita income rose steadily, tourism flourished, and the region became a model for balancing modernization with heritage.
📚 Case Study 2: Pondicherry (Puducherry) – A French Legacy within Indian Federalism
The French settlements of Pondicherry, Karaikal, Mahe, and Yanam joined India in 1954 (de facto) and legally in 1962.
Financial and Legal Measures:
- The Indian government maintained French civil laws in family matters.
- Gradual fiscal integration introduced Indian taxation, customs, and rupee-based trade.
- Puducherry’s Assembly was empowered under the Union Territories Act, 1963.
Outcome:
Puducherry successfully balanced French heritage and Indian governance — a testament to India’s pluralistic approach to integration.
🧩 Balancing Uniformity with Diversity
One of the most impressive aspects of India’s integration policy was respect for local identity. The Constitution provided flexibility under Articles 239–241 to customize governance structures for different Union Territories.
This meant the government could tailor financial and legal policies without disrupting social and cultural norms.
For example:
- Local languages and traditions were preserved in administration.
- Personal laws (like French or Portuguese civil codes) continued under judicial supervision.
This balanced approach ensured unity without uniformity, aligning with India’s constitutional spirit.
đź’Ľ Challenges Faced in Financial and Legal Integration
While the process was largely successful, it wasn’t without challenges:
- Legal Conflicts: Overlaps between old colonial laws and Indian statutes led to disputes in courts.
- Administrative Delays: Aligning tax and revenue systems required time and training.
- Public Adaptation: Locals took time to understand new bureaucratic and financial procedures.
However, through public education, transparent administration, and central assistance, these challenges were gradually overcome.
🧠Lessons Learned from the Integration Experience
India’s merger and administration of new territories demonstrate that law and finance are the pillars of national unity. The process showcased:
- Flexibility in governance – adapting central laws to local conditions.
- Constitutional foresight – using special provisions to accommodate diversity.
- Public participation – involving residents in democratic governance.
These lessons continue to guide India’s approach to regional autonomy and cooperative federalism.
đź’¬ FAQs: Financial and Legal Administration in Merged Territories
Q1. Why was it important to integrate financial systems after merging territories?
To ensure uniform taxation, currency stability, and fiscal discipline across India, preventing economic isolation of newly merged regions.
Q2. Are the old French or Portuguese laws still applicable anywhere in India?
Yes. In Puducherry and Goa, certain civil laws—like marriage and inheritance—continue to follow the old codes, coexisting with Indian laws.
Q3. Who oversees financial accountability in merged territories?
The Comptroller and Auditor General (CAG) ensures that Union Territory finances are audited according to Indian standards.
Q4. Can merged territories have their own budgets?
Yes. Union Territories like Puducherry present separate budgets approved by the Indian Parliament, allowing localized financial planning.
Q5. How do Indian courts handle cases involving colonial-era laws?
Courts interpret old laws in light of the Indian Constitution and may uphold them if they don’t violate fundamental rights.
🌟 Conclusion
The financial and legal administration of merged territories stands as one of India’s greatest governance achievements. It highlights how the country upheld constitutional integrity, economic uniformity, and cultural respect simultaneously.
Through careful legislation, transparent administration, and inclusive policies, India transformed former colonial enclaves into vibrant, democratic regions fully integrated with the Union — yet proud of their distinct heritage.
As India continues to evolve, these lessons remind us that true unity is achieved not through imposition but through inclusion — a principle deeply rooted in our Constitution and democratic ethos.