Who among the following was the Finance Minister of India in the Interim Government during 1946-1947 ?

1. Genesis: The Cabinet Mission Plan 1946 (basic)

By early 1946, the British Empire was exhausted from the toll of World War II and faced mounting pressure, both internationally and within India, to grant independence. In this high-stakes environment, the British Prime Minister Clement Attlee announced a high-powered mission to negotiate a peaceful and orderly transfer of power. This was the Cabinet Mission, so named because it consisted of three top-ranking members of the British Cabinet: Lord Pethick-Lawrence (Secretary of State for India and the Mission's Chairman), Sir Stafford Cripps (President of the Board of Trade), and A.V. Alexander (First Lord of the Admiralty) Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM, Chapter 24, p.470.

The Mission landed in India in March 1946 with two very specific goals in mind. First, they needed to find a way to establish an Interim Government that would manage the country’s affairs while the British were packing up. Second, they had to create a mechanism—a Constituent Assembly—through which Indians could draft their own constitution for a free India Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM, Chapter 24, p.472. Unlike previous attempts (like the 1942 Cripps Mission), the 1946 Cabinet Mission was a final, desperate attempt to preserve the unity of India while addressing the growing demand for Pakistan by the Muslim League.

During their stay, the Mission held extensive talks with leaders of the Indian National Congress and the Muslim League. However, a major deadlock emerged: the Congress wanted a strong, united India, while the Muslim League insisted on partition and the creation of Pakistan. When the two parties failed to reach a consensus, the Cabinet Mission decided to bypass the stalemate by proposing its own compromise plan in May 1946 History, class XII (Tamilnadu state board 2024 ed.), Chapter 7, p.93. This plan rejected the idea of a full-fledged Pakistan but suggested a unique three-tier federal structure to appease both sides.

While the Plan eventually faced immense challenges leading to partition, it remains a critical milestone because it directly led to the formation of the Constituent Assembly in November 1946, which eventually gave us the Constitution of India Indian Polity, M. Laxmikanth (7th ed.), Chapter 2, p.11.

Sources: Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM, Chapter 24: Post-War National Scenario, p.470-472; History, class XII (Tamilnadu state board 2024 ed.), Chapter 7: Last Phase of Indian National Movement, p.93; Indian Polity, M. Laxmikanth (7th ed.), Chapter 2: Making of the Constitution, p.11

2. Structure of the Interim Government (1946) (basic)

To understand the Interim Government of 1946, we must first view it as a "bridge"—a temporary administrative arrangement designed to transition India from British colonial rule to full independence. Formed on September 2, 1946, it was based on the proposals of the Cabinet Mission. However, it is vital to remember that this was not yet a sovereign parliament; legally, it was merely a continuation of the Viceroy’s Executive Council. While Jawaharlal Nehru was designated as the Vice-President of the Council, the British Viceroy (Lord Wavell) remained the constitutional head and retained the power to overrule the ministers Rajiv Ahir, A Brief History of Modern India, Post-War National Scenario, p.476.

The political composition of this government was born out of intense friction. Initially, the Muslim League boycotted the government, leading the Congress to form the cabinet alone. However, by October 26, 1946, the League was persuaded to join, not out of a spirit of cooperation, but to safeguard its interests from within Tamilnadu state board, History Class XII, Last Phase of Indian National Movement, p.94. This led to a peculiar situation where two political rivals were forced to share the same cabinet table, often working at cross-purposes.

The distribution of portfolios (ministries) was a major flashpoint. The Muslim League was handed the crucial Finance portfolio, held by Liaquat Ali Khan. He famously used this position to present the "Poor Man’s Budget," which proposed high taxes on industry and trade—sectors largely dominated by supporters of the Congress—thereby creating a functional deadlock within the administration NCERT, Themes in Indian History Part III, Framing the Constitution, p.341.

Member	Portfolio Held
Jawaharlal Nehru	External Affairs & Commonwealth Relations
Sardar Vallabhbhai Patel	Home, Information and Broadcasting
Liaquat Ali Khan	Finance
Dr. Rajendra Prasad	Food and Agriculture

Sources: A Brief History of Modern India (Spectrum), Post-War National Scenario, p.476; History, class XII (Tamilnadu state board 2024 ed.), Last Phase of Indian National Movement, p.94; Themes in Indian History Part III (NCERT), Framing the Constitution, p.341; Indian Polity (M. Laxmikanth), Historical Background, p.10

3. Entry of the Muslim League (October 1946) (intermediate)

Following the Direct Action Day and the subsequent communal violence, the political atmosphere in India was extremely volatile. When the Interim Government was first formed on September 2, 1946, it was led by Jawaharlal Nehru and composed almost entirely of Congress members because the Muslim League had initially boycotted the process Themes in Indian History Part III, History Class XII (NCERT 2025 ed.), Framing the Constitution, p.341. However, Lord Wavell continued negotiations, fearing that an all-Congress government would further alienate the Muslim population and escalate civil unrest.

By October 1946, the Muslim League shifted its strategy. Realizing that staying outside the government allowed the Congress to consolidate power and influence the transition process, the League decided to join the cabinet on October 26, 1946 History, Class XII (Tamilnadu State Board 2024 ed.), Last Phase of Indian National Movement, p.94. Five League nominees were inducted, including Liaquat Ali Khan, I.I. Chundrigar, A.R. Nishtar, Ghazanfar Ali Khan, and Jogendra Nath Mandal. Crucially, the League did not join to cooperate; their goal was to prove that two separate nations were the only solution by creating a "deadlock from within."

The most significant point of friction was the Finance Portfolio, which was held by Liaquat Ali Khan. By controlling the purse strings, the League was able to stall or veto the proposals of other departments led by Congress ministers. A prime example of this "war of portfolios" was the 1947 budget, often called the 'Poor Man's Budget'. It proposed heavy taxes on industry and trade—sectors where the Congress drew its primary financial support—thereby forcing the Congress to choose between its socialist rhetoric and its merchant-class backers. This persistent internal conflict eventually convinced many leaders, including Sardar Patel, that a unified administration was becoming impossible.

Sources: Themes in Indian History Part III, History CLASS XII (NCERT 2025 ed.), Framing the Constitution, p.341; History, class XII (Tamilnadu state board 2024 ed.), Last Phase of Indian National Movement, p.94

4. Connected Concept: The Constituent Assembly (intermediate)

Concept: Connected Concept: The Constituent Assembly

5. Evolution: First Cabinet of Independent India (1947) (exam-level)

On August 15, 1947, India did not just witness a change of flags; it saw a fundamental shift in executive authority. The Interim Government, which had been functioning since September 1946 under British oversight, evolved into the First Cabinet of Independent India. While the Interim Government was a bridge, the 1947 Cabinet was a sovereign body. Jawaharlal Nehru was sworn in as the first Prime Minister by Lord Mountbatten, who stayed on as the first Governor-General of the Dominion of India Laxmikanth, M. Indian Polity, Historical Background, p.9.

Nehru’s first cabinet was remarkably inclusive, often described as a "Cabinet of Talents." Despite the Congress having an overwhelming majority, Nehru and Sardar Patel intentionally inducted non-Congress leaders to ensure national unity during the turmoil of Partition. For instance, Dr. B.R. Ambedkar (a critic of the Congress) was appointed Minister of Law, and Shyama Prasad Mookherjee of the Hindu Mahasabha was given the Industries and Supplies portfolio Rajiv Ahir, A Brief History of Modern India, Challenges Before the New-born Nation, p.592. This diversity was crucial for drafting the Constitution and managing the immediate crisis of the new nation.

One of the most significant changes occurred in the Finance Portfolio. In the Interim Government (1946), the Finance Minister was Liaquat Ali Khan of the Muslim League, whose "Poor Man's Budget" had caused much friction. After independence and the creation of Pakistan, R.K. Shanmukham Chetty was chosen as the first Finance Minister of independent India. Other critical roles included Sardar Vallabhbhai Patel as the Deputy Prime Minister (handling Home and States) and Maulana Abul Kalam Azad as the Minister of Education Rajiv Ahir, A Brief History of Modern India, Challenges Before the New-born Nation, p.591.

Sources: Laxmikanth, M. Indian Polity, Historical Background, p.9; Rajiv Ahir, A Brief History of Modern India, Challenges Before the New-born Nation, p.591-592

6. Finance Portfolio: Liaquat Ali Khan & the 'Poor Man's Budget' (exam-level)

As the sun began to set on British rule, the Interim Government was formed on September 2, 1946, to bridge the gap until full independence. While the Indian National Congress initially took charge, the Muslim League eventually joined the cabinet on October 26, 1946 Rajiv Ahir, A Brief History of Modern India, p.476. In a strategic move, the Congress allowed the League to hold the Finance Portfolio, assuming the technicalities of economics would limit their influence. However, this backfired; as Finance Minister, Liaquat Ali Khan held the 'purse strings' and used his power to obstruct the functioning of other Congress-led departments, effectively paralyzing the government Tamilnadu State Board, History Class XII, p.94.

The defining moment of this tenure was the presentation of the 'Poor Man's Budget' in March 1947. Ostensibly designed with socialist ideals, Liaquat Ali Khan proposed heavy taxes on industry and trade, alongside the creation of a commission to investigate the tax evasion of 150 major business houses Tamilnadu State Board, History Class XII, p.95. While it sounded egalitarian, the political undertone was sharp: the majority of these industrialists were the primary financial backers of the Congress. By targeting them, the League wasn't just collecting revenue; they were striking at the Congress's logistical foundation.

This budget became the 'proverbial last straw.' It created an environment of administrative deadlock and deep-seated animosity, convincing many leaders—including Sardar Patel—that a unified government with the League was becoming impossible. The friction within the cabinet served as a grim preview of the administrative chaos that would follow if the country remained united but politically fractured.

Feature	The 'Poor Man's Budget' (March 1947)
Proponent	Liaquat Ali Khan (Muslim League)
Key Proposal	Heavy taxes on industry and trade; inquiry into big business houses.
Political Impact	Strained relations with Congress; targeted Congress-supporting industrialists.
Administrative Result	Proved that the Interim Government could not function cohesively.

Sources: A Brief History of Modern India (Spectrum), Post-War National Scenario, p.476-477; History Class XII (Tamilnadu State Board), Last Phase of Indian National Movement, p.94-95

7. Solving the Original PYQ (exam-level)

This question tests your ability to distinguish between the Interim Government (1946) and the First Cabinet of Independent India (1947). You have just studied how the Cabinet Mission Plan led to the formation of a transitional body to oversee the British exit. While the Congress initially formed the cabinet in September, the inclusion of the Muslim League in October 1946 changed the portfolio distribution significantly. Understanding this political maneuver is key: the League sought control over vital departments like Finance to exercise influence over the Congress-led administrative plans, a detail emphasized in Rajiv Ahir, A Brief History of Modern India (Spectrum) and NCERT Class XII, Framing the Constitution.

To arrive at the correct answer, recall the friction within the cabinet. Liaquat Ali Khan, representing the Muslim League, was assigned the Finance portfolio. He famously presented the 'Poor Man's Budget' in March 1947, which leveraged high taxation on industry and trade—a move that strategically pressured Congress leadership and highlighted the administrative deadlock of the period. By identifying the Finance Minister specifically during the 1946-1947 transition, we narrow the field to the League’s representative, making (C) Liaquat Ali Khan the correct choice. As noted in Tamilnadu State Board History Class XII, this appointment was a pivotal moment in the lead-up to Partition.

UPSC often uses chronological overlaps to create traps for students. For instance, R. K. Shanmukham Chetty is a common distractor; he was the first Finance Minister of independent India (appointed after August 15, 1947), not the Interim Government. Similarly, John Mathai served as the Minister for Railways and Transport in the Interim Government and only became Finance Minister later in 1948. Finally, Chintamanrao (C.D.) Deshmukh, while a brilliant economist, served as the first Indian Governor of the RBI and did not become Finance Minister until 1950. Distinguishing these names based on the exact timeframe of 1946-1947 is the precise thinking required to clear the Prelims.