In the winter months of 1936 to 1937, in elections for seats in the new provincial legislative assemblies, fifty-four per cent of the eligible voters participated. The Congress Party won 711 of 1585 total seats on the theme of opposing the Government of India Act of 1935 with the expressed intention of wrecking it. Thus, the Congress won control of the Provincial Legislative Assemblies in: the Central Provinces, the United Provinces, Assam, Bihar, Orissa, Bombay and Madras. Later in 1937, Congress ministries were formed in the North-West Frontier Province and in March 1938 in Assam. The Muslim League won 105 of 489 seats, won by Muslims.

On 18th March 1937, the All-India Congress Committee decided to accept offices in those provinces where the Congress Party held a majority in the legislature.

Throughout the period of March to June, Lord Linlithgow expressed an unwillingness for the provincial governors to annul their special or reserved powers as a form of assurance to elicit Congress entry into the provincial ministries. On June 22, his reassuring statements when combined with those of British Prime Minister Neville Chamberlain (1869-1940) in the House of Commons, won Congress acceptance and entrance on July 7 into the provincial government.

On 21st June, Lord Linlithgow made a reassuring radio broadcast, addressing British interest and encouragement for the establishment of responsible Indian government. In April, the British Government had separated the governance of Burma from the Government of India. Thenceforth, Burma reported directly to the Secretary of State for India and Burma.

The provincial elections created further problems for the British administration. In February 1938, at the Haripura session of the Congress Working Committee, the decision had been made for Congress penetration of the Indian States. Faced with considerable violence in the Orissa States, in the Deccan States and at Hyderabad, Lord Linlithgow intervened with British troops. Under some pressure, Mahatma Gandhi halted the agitation and the States returned to their prior political peace.

In the month of July, while on his mid-term leave in Britain, Lord Linlithgow won an amendment to the 1935 Act. His measure guaranteed that the excise revenue of the Indian States would not fall below the 1937-38 levels and that the marine states could not charge customs duty on goods consumed within the state. This removed the last objection and cleared the way for making a final offer of federation to the Indian States.

On 27th January 1939, the Government of India released to the Indian States the formal offer of federation with a cover letter from Lord Linlithgow and a revised Instrument of Accession. The princes were asked to decide in six months on its acceptance or rejection. In June, a committee of state ministers led by Sir Akbar Hydari (1863-1927) rejected the Instrument of Accession.