SPEECH OF SHRI C D DESHMUKH
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1951-52
Dated : February 28, 1951
I rise to present
a statement of the estimated receipts and expenditure of the Government of
India for the year 1951-52.
Review of Economic Conditions.
2. It is customary, while presenting the annual budget, to give a review of
the economic developments in the country in the year that has just ended and
following this practice I propose to take the House back briefly over the
main changes in the last twelve months.
3. This period has been one of considerable anxiety. The strain on the country’s
economy reflected in the rising level of prices and the threat of inflation
has been aggravated during the year by severe natural calamities like the
earthquake in Assam, the floods in certain parts of Bihar and Uttar Pradesh,
the failure, for the fifth year in succession of the north-east monsoon over
a large area of Madras and serious droughts in Bihar and certain other parts
of the country. Meanwhile, the slow return to normal conditions in the post-war
years all over the world- has been violently upset by the outbreak of hostilities
in Korea and the threat this holds of spreading into a wider conflict.
4. The problem of holding the prices in cheek has been one of the major preoccupations
of Government in the years following the end of the war. It to unnecessary
to dilate on the steps taken to this end in the earlier years and it will
be enough, for my present purpose, to mention the steps taken in recent months,
particularly after the devaluation of the rupee in September 1949. The House
will recall that soon after this event price cuts in certain essential commodities
were made in an effort to counter the possible effects of devaluation, and
this assisted in holding the price level for some time. In fact, the general
price index fell by 12 points from 393.3 at the end of October 1949 to 381.3
at the end of December 1949. It did not, however, prove possible to cheek
for long the upward pressure on prices generated by devaluation, and by June
1950 the gain secured during the closing months of the previous year had been
lost, the index number standing at 395.6. The outbreak of the Korean War gave
a further impetus to the rise in prices and by September the index number
had risen to 412.5. Since then it has been more or less steady, although January
has reregistered a further slight increase of nearly 2 points. This increase
in prices to, however, not peculiar to India and to a very great extent it
reflects the upward movement in prices in other countries, which supply important
categories of our imports.
5. Hon’ble Members are aware of the steps taken by Government to meet
the situation created by the upward trend in prices. With the approval of
Parliament powers were taken by the Centre to make laws for a period of one
year from the 15th August 1950 in respect of two subjects falling in the State
list, namely, trade and commerce and production, supply and distribution of
goods. The main object was to evolve a uniform policy for the whole country
in regard to production and distribution and the regulation of prices. The
Essential Supplies (Temporary Powers) Act was also amended to prescribe drastic
penalties for the hoarding of food grains. An ordinance was promulgated in
September to regulate the supply and prices of a number of essential consumer
goods, which were likely to disappear into hoards and to be black-marketed.
Government also set up a Prices Advisory Board, consisting of representatives
of trade and industry, to advise them on the fixation of prices and other
matters connected with the administration of the ordinance.
6. One result of the developments in the international situation, following
the outbreak of the Korean war, was to intensify the demand for some of the
principal exports from this country like jute goods, raw cotton, cotton waste
and raw wool. The external prices of these commodities rose very steeply and
in view of both the interests of the exchequer and the necessity for countering
inflation it was decided that this difference should be intercepted by Government
through the enhancement or levy of export duties. Export duties on jute goods
and raw cotton were accordingly enhanced while new duties were imposed on
exports of cotton waste and wool. In the rapidly changing conditions which
now obtain, Government also considered it necessary to obtain from Parliament
temporary power to enhance, if necessary, existing export duties and to levy
new duties. All these measures have had a steadying effect on prices in recent
months although, as I said earlier, it has not been possible wholly to arrest
an upward trend.
7. The level of industrial production in 1950 in a number of industries has
been encouraging though the jute, cotton textile and sugar industries have
been affected by difficulties in regard to sup, plies of raw material. The
production of cement, steel and coal has been well above the previous year's
figures while there has been a substantial drop in the production of jute
goods. cotton textiles and sugar. Owing to the virtual cessation of imports
of raw cotton from Pakistan after the devaluation of the rupee and a somewhat
sub-normal crop in the country the supply of cotton to the Indian mills has
not been adequate inspite of increased imports from other countries. The limited
supplies of raw jute received from Pakistan under the trade agreement of last
April have also not been sufficient to meet the demands of the jute mills.
Sugar production has suffered from the diversion of cane to the manufacture
of gur and khandsari sugar, which, not being subject to price control, offered
more attractive profits. The strike of mill workers in Bombay also affected
the production in the textile industry.
8. The problem of securing an adequate supply of raw materials for the two
major industries in the country, namely, cotton and jute has, as the House
is aware, been receiving constant attention and efforts are being made by
the State Governments and the Centre to increase the production of jute and
cotton without affecting the production of food. Provided the season is normal,
by March 1952, we shall have made significant strides in the direction of
practical self-sufficiency in cotton and jute. Meanwhile, in order to secure
an equitable distribution of the still insufficient available supplies of
raw jute a Central Jute Board has been set up and all purchases of raw jute
by the mills are compulsorily canalised through it. Cotton mills have been
prohibited from covering their requirements in the form of kapas and a Cotton
Advisory Board, consisting of representatives of the mill owners and the trade,
has been set up to maintain liaison between Government and the industry. In
the case of sugar, maximum prices have been fixed for gur and khandsari so
as to restrict the diversion of cane to their manufacture and sugar mills
have been encouraged to expand production by being allowed to dispose of in
the free market their surplus production over a ceiling. Government have also
appointed a high-powered Development Committee on industries to assist in
devising ways and means for stepping up industrial production to the maximum
of the installed capacity and to plan the future development of industries.
9. The House is well aware of the serious deterioration in the food situation
caused by the widespread natural calamities that overtook the country last
year. Their effect has been to increase the overall food deficit, with the
result that imports have had to be increased from the 1.5 million tons estimated
in the budget to a little over 2 million tons. It has also not been possible
to build up the small reserve of 200,000 tons contemplated in the budget.
For the coming year it is proposed to import 4 million tons of food grains
and efforts are also being made to obtain an additional 2 million tons of
wheat from the United States of America. Recently, the Grow More Food plan
has also been reoriented so as to concentrate efforts in selected areas with
an assured water supply. Additional production will also be linked with procurement
and greater emphasis laid on schemes of a permanent character like tube-wells
and land reclamation. Although Government are doing everything possible to
increase internal production and obtain the maximum quantity of food grains
from abroad in the coming year the food position in the country is not likely
to be easy.
10. For the first time since the recession in 1946 the capital market showed
some signs of revival although the developments in the international situation
during the later part of the year arrested this improvement. During the earlier
months of the year the gilt-edged market remained fairly steady and Government
took the opportunity of floating a cash-cum-conversion loan for Rs.30 crores.
The Governments of Bombay, Madras and Madhya Pradesh also took advantage of
the improved position for floating small loans of their own. Since the middle
of the year, however, prices in the securities market have receded and the
market has remained stagnant. By contrast, the equities market during the
larger part of the year under review has been steadier. In spite of the adverse
effects of the shortage of raw materials like jute and cotton and the rise
in the price of industrial raw materials after the outbreak of the Korean
war, the expansion of exports and the increasing demand for our primary products
resulting from the rearmament and stock pilling programme of Western countries
have, on the whole, had a steadying and encouraging effect on the market.
But the fact remains that the flow of available capital in the market is still
woefully short of the requirements of Government for implementing their large
development programmes and for meeting the reasonable requirements of industry
for expansion.
BALANCE OF PAYMENTS
11. While the internal economic conditions have been a matter of continuous
concern for Government, the position in regard to the balance of payments
during the year under review has been more heartening. An improvement in the
balance of payments began with the devaluation of the rupee in September 1949
and this improvement has been maintained, the process being assisted daring
recent months by the changes in the international situation following the
outbreak of hostilities in Korea. Except for a short period daring the second
quarter of 1950, when a slight seasonal fall in exports and heavy payment
for imports of raw cotton resulted in a small deficit, the overall position
has been favourable since the last quarter of 1949.
12. It will be interesting to compare the balance of payments position during
the twelve months following devaluation with the position in the corresponding
period preceding it. Our exchange receipts during the year ending September
1950 amounted to Rs.638 crores and our payments to Rs.572 crores, showing
a net surplus of Rs.66 crores. For the year ending September 1949 our receipts
were Rs.517 crores and payments Rs.766 crores resulting in a deficit of Rs.249
crores. In the 12 months following devaluation our exchange earnings have
increased by 24 per cent while our payments have dropped by 25 per cent. The
precise figures for the period after September 1950 are not yet available;
but it is clear from the rise in our sterling balances, which at the end of
January stood at Rs.843 crores against Rs.807 crores at the end of September,
that the balance is still moving in our favour.
13. This change in our balance of payments has been caused by several factors.
Firstly, as the House will recall, even before devaluation Government had
started taking special steps for stimulating exports, on the suggestion of
the Export Promotion Committee. Secondly, the devaluation of the rupee in
September 1949 raised the competitive capacity of our exports in terms of
foreign currencies and the surplus balance of payment during the succeeding
six months reflects this advantage. A further factor which has assisted in
the expansion of our export trade in recent months is the improved prospect
of international demand for commodities. Following the hostilities in Korea
and the danger of their spreading into a world war, the United States of America,
Canada and the countries of Western Europe are re-arming on a considerable
scale and have begun the stock pilling of essential raw materials. These have
raised the demand for exports of our raw materials. Our export trade has also
been assisted indirectly by these developments. The large purchases of primary
commodities by the Western countries from the countries of the Middle East
and South and South East Asia have created in these regions a larger demand
for consumer and manufactured goods like cotton textiles, exported from this
country. The effect of all these developments is reflected in the larger volume
of our exports as well as the increased prices paid for them.
14. In view of the improvement in our export position, the restrictions on
imports, which had been tightened in the middle of 1949, have been gradually
relaxed to allow of larger imports of essential commodities into the country.
The monetary ceilings for the licensing of imports of raw materials as well
as essential consumer goods like drugs and medicines were progressively increased
during 1950 and a fresh Open General Licence was issued last August to widen
the scope of imports. Changes have also been made in the licensing procedure
to minimise delays in the issue of licences and to enable importers to make
forward contracts under a system of advance licences. The improved foreign
exchange position has also enabled us to make larger allocations for the purchase
of food grains during the current half year.
15. While the position so far has been satisfactory I must sound a note of
warning in regard to certain trends which might make it difficult for us to
maintain this favourable balance in payments over a long period. Firstly,
even if the somewhat artificial demand for our primary products created by
the fear of a possible war is maintained, as it may well be for some time,
we may have difficulties in maintaining our present level of exports. Two
of the major commodities exported from this country are jute goods and cotton
textiles. Unless adequate supplies of raw jute are available to the jute mills
the present level of exports may be difficult to maintain. In the case of
cotton textiles. the large increase in exports has already begun to affect
supplies available for internal consumption. It has been found necessary to
restrict the export of coarse and medium cloth; and even in respect of fine
and super-fine cloth, the necessity for maintaining adequate supplies for
internal consumption may in the future necessitate quantitative restrictions
on exports. Secondly, there is bound to be a substantial increase in the volume
and value of our imports due to the purchase of a larger quantity of food
grains in the difficult food situation expected to persist during the next
year and the rising prices abroad of industrial raw materials and manufactured
goods. In the present rapidly changing world conditions it is difficult to
make any reliable forecast but in taking a view of the future position these
factors have to be borne in mind.
16. There is also one other fact to be remembered in this context. A continued
favourable balance of payments brought about by a sudden and large demand
for exports is not itself an unmixed blessing. The impact of the higher prices
offered for the export commodities directly affects the internal prices both
of these commodities as well as of others. From the point of view of avoiding
inflation it is necessary to intercept the large difference between the external
and internal prices for the benefit of the exchequer. As the House is aware,
increased export duties have been levied on raw cotton and jute and new duties
imposed on cotton waste and wool in the course of the year to secure this
end. The power to impose and raise export duties recently given by Parliament
together with the power to restrict imports will be used by Government to
minimise the impact of high external prices on the internal economy of the
country.
17. While I am on the subject of the country's foreign trade I should like
to draw attention to the effect on the supply position of many imported raw
materials and manufactured goods, of the recent developments in the international
situation. Many supplying countries have imposed restrictions on the export
of these materials and the tight shipping position is also likely to aggravate
the difficulties in getting supplies. It will be necessary to take steps to
secure the maximum possible allocation of these materials and to ensure their
economical and efficient use in this country. This, and the search for local
substitutes to augment the smaller supplies that may be coming forward, are
engaging the constant attention of Government.
18. One fact of our foreign exchange to which in recent years a considerable
amount of attention has been paid is the dollar position. India, being a member
of the sterling area, conforms to the general policy in respect of dollar
imports and exports agreed upon for the sterling area as a whole. At the Commonwealth
Finance Ministers Conference held in July 1949, it was decided, on the then
position of the Central reserves, that members of the sterling area should
take measures to reduce their dollar purchases to 75 per cent of their imports
in 1948. These measures, as well as the devaluation of the sterling area currencies
and the larger dollar area demand for sterling area products, reversed the
earlier trends and led to a marked increase in the gold and dollar reserves,
which were nearly doubled in 1950. India, with a dollar surplus of $79 million
against a deficit of $69 million during 1949 made a substantial contribution
to this increase. The position was reviewed at the meeting of the Commonwealth
Finance Ministers last September. It was agreed that taking changes in the
price levels into account the Central reserves were still very short of their
pre-war level and that, in the rapidly changing pattern of trading conditions,
it was still necessary to economise in the spending of dollars. It was, however,
decided that there should be no quantitative limitations on dollar purchases
but that each member country should endeavour to secure the maximum economy
possible.
19. In our own case economy in dollar expenditure has largely been made possible
by the availability of goods outside the dollar area at competitive prices.
This advantage seems to be gradually disappearing both for raw materials and
for certain important manufactured goods. Moreover, our food requirements
are now so large that a substantial portion has inevitably to be obtained
from dollar countries. For these reasons, it is probable that our dollar position
in 1951 will be less favourable than in the previous year.
20. Before I leave this subject of balance of payments I would like to refer
briefly to our sterling balances. Hon'ble Members will recall the statement
I made in this House during the last session on this subject. A new agreement
regarding future releases from the accumulated balances will be entered into
with the United Kingdom Government, when the existing agreement terminates
in June 1951. The broad outlines of this agreement have been agreed upon between
the Governments of the two countries. The new agreement will provide for an
annual release of £ 35 million during the six years 1951 to 1957, any
additional releases which are likely to be emergent, being a subject for special
consultation with the United Kingdom Government. At the end of this period
our sterling balances are likely to reach a figure which we may wish to maintain
as a normal foreign exchange and currency reserve. The conclusion of these
arrangements may well be regarded as a mutually satisfactory solution of a
problem on which so many controversies have raged in the past.
21. Hon'ble Members will recall the loans which the Government of India have
been negotiating with the International Bank for Reconstruction and Development
for some of our development schemes. Since the presentation of the last budget
we have concluded another agreement for a loan of $ 18.5 million for the purchase
of plant and machinery and the installation of a Thermal plant at Bokaro as
part of the Damodar Valley scheme. This loan will carry interest at 4 per
cent., inclusive of the Bank's commission, and will be repayable over a period
of 20 years. So far we have obtained loans amounting to $62.5 million from
the International Bank. Of these loans India has already drawn $ 34.8 million
and the repayment in respect of the Railway loan has already commenced.
22. The picture of our external trade can hardly be complete without an account
of our trade relations with Pakistan. The House is aware of the circumstances
in which, following the non-devaluation of the Pakistan rupee when other member's
of the sterling area devalued their currencies in September 1949, trade between
the two countries bad come to a virtual standstill, and it is unnecessary
for me to dilate on them. The effect pf the non-devaluation of the-Pakistan
rupee was to cause an immediate increase in the price which importers in this
country had to pay for Pakistan goods, of which the most important single
item is raw jute. A rise in the price of raw jute, at a time when the jute
mills were faced with difficulties in maintaining their markets against the
competition of substitutes, was a matter of great concern to this country.
If the prices in Pakistan had been allowed to fall to the appropriate levels
under the normal action of the forces of supply and demand, it might have
been possible for India to buy her raw jute and continuity of purchase by
India need not have been broken.
23. India's willingness to buy Pakistani goods, if they were available at
reasonable prices, was amply demonstrated by the Trade Agreement which was
signed in April 1950. Under it Indian jute mills were to be supplied raw jute
by Pakistan, to be paid for in Indian rupees at prices comparable to the prices
of Indian raw jute. These rupees were available to Pakistan for the purchase
in India of certain specified commodities like jute manufactures, cotton textiles,
cement, timber, etc. According to the latest information available to us Pakistan
supplied to India under this agreement raw jute worth Rs.14.46 crores and
has utilised the bulk of the sale proceeds in the purchase of jute and cotton
manufactures and various other goods.
24. Besides the goods which were the subject of the self-balancing arrangement,
there were certain other commodities mentioned in the agreement, like cotton
seeds, raw hides and skins, gram, betel-nuts, biris, fresh vegetables and
fruits, etc. which could move freely between the two countries without any
trade or exchange restrictions on either side. The total trade between April
1950 and September 1950, in this free sector amounted to Rs.16.8 crores, imports
being Rs.10.7 crores and exports Rs.6.1 crores.
25. The Trade Agreement negotiated last April expired in September and as,
at that time the fixation of the exchange rate of the Pakistan rupee was before
the International Monetary Fund the question of entering into a fresh agreement
was helo over. Unfortunately, the International Monetary Fund postponed a
decision on this issue with the result that trade between the two countries
again came to a standstill, except for trade confined to a few perishable
and essential commodities exported and imported freely by the two countries,
finance for which is found in the free exchange market. As the question of
the par value of the Pakistan rupee is still before the International Monetary
Fund I do not wish to say anything at this stage on this subject. But I am
sure it will be agreed in both countries that the prevailing international
situation re-emphasises the inter-dependent nature of the economies of the
two countries and that it is equally in the interest of both that the existing
stalemate in trade is ended. As the Prime Minister mentioned in the House
a few days ago we took the initiative in arranging for the resumption of trade
talks between the two countries. These talks have resulted in a satisfactory
agreement the terms of which I announced in the House last Monday.
FINANCIAL YEAR 1950-51
REVENUE
26. I shall now pass on to a brief review of the revenue and expenditure in
the current year and the estimated revenue and expenditure in the coming year.
27. The current year's budget provided for a revenue of Rs.338.59 crores and
an expenditure of Rs.337.88 crores leaving a surplus of Rs.71 lakhs. The revenue
is now estimated at Rs.387.21 crores and the expenditure at Rs.379.28 crores,
leaving a surplus of Rs.7.93, crores. Allowing for the transactions of Vindhya
Pradesh, amounting to Rs.21 crores on each side, estimates of which, the House
will remember could not be included in the original budget but were presented
subsequently last April, the revised estimates show an increase of Rs.48.62
crores in revenue and an increase of 41.4 crores in expenditure.
28. The increase in revenue is largely accounted for by the improvement in
the receipts from Customs, which are now estimated at Rs.145.31 crores against
the budget estimate of Rs.106.54 crores. This is partly due to an all round
increase in imports following the liberalisation of import allocations in
respect of certain articles and partly to the high yield from export duties
consequent on the enhancement of the duty on jute manufactures and raw cotton
and the levy of new duties on cotton waste and wool during the year. Incomer-tax
receipts, at Rs.1663/4 crores, are at about the same level as in the original
budget, the States share also remaining unchanged at Rs.473/4 crores. The
contribution from Railways this year will be Rs.39 lakhs more than the budget
figure of Rs.6. 37 crores. There is, however, a drop of Rs.2 crores in the
receipts from Union Excises, mainly in the excise duty on cotton cloth due
to a fall in production caused by the prolonged strike of textile workers
in Bombay. Although the gross revenue from the Posts and Telegraphs Department
is likely to show an improvement of Rs.29 lakhs over the budget this will
be more than offset by increases in expenditure so that there will be a short
fall of Rs.97 lakhs in the contribution from the Posts and Telegraphs Department.
Under other heads an increase of Rs.12 crores is now expected, spread over
a number of heads like currency, civil administration and opium, the bulk
of which is of a non-recurring nature.
EXPENDITURE
29. The reasons for the increases in expenditure have been explained in connection
with the supplementary demands placed before the House earlier in the session
and it is necessary for me to draw attention only to the more important variations.
Of the total increase of Rs.41.4 crores Defence Services account for Rs.11.45
crores and Civil estimates for Rs.29.95 crores. The bulk of the increase in
civil expenditure is due to additional requirements for the relief of displaced
persons from East Pakistan and increased expenditure on food subsidies. The
relief of displaced persons accounts for an increase of Rs.7.67 crores, while
subsidies on imported food grains, which were in much larger quantities than
was estimated at the time the budget was framed, account for a further Rs.7.93crores.
The expenditure on the payment of bonus for procurement of food grains is
also expected to show an increase of Rs.3.84 crores, while the supply of food
grains in Delhi State is estimated to result in a loss of Rs.2.3 crores. The
rest of the increase of Rs.8 crores is distributed over a number of items,
among which I would mention Rs.2.64 crores on prepartition payments, which
turned out to be higher than estimated mainly due to a larger carry over,
Rs.31 lakhs on the preliminary expenses connected with the forthcoming elections,
Rs.50 lakhs on repairs to national highways damaged by floods and Rs.60 lakhs
for grants to certain Part B States consequent on the finalisation of their
revenue-gap grants.
FINANCIAL YEAR 1951-52
30. For the coming year, at the existing level of taxation, I estimate the
total revenue at Rs.369.89 crores and the total expenditure at Rs.375.43 crores
leaving a deficit of Rs.5.54 crores.
REVENUE
31. On the revenue side, the receipts from Customs are placed at Rs.141.29
crores, about Rs.4 crores less than the revised estimate for the current year.
The revenue under this head depends so much on the availability of foreign
exchange and the developments in the international situation, which affect
both supplies and shipping, that it is difficult, particularly in the present
unsettled conditions, to make a precise estimate of the revenue in the coming
year. The estimate is based on the assumption that there will be no serious
shortage either in the availability of the goods which we import or in shipping
and that, on the export side, we shall be able to maintain the present level
of exports and the present level of our export duties. Union Excises are estimated
at Rs.71.63 crores and receipts of income-tax have been placed at Rs.157.05
crores against the current year's revised estimate of Rs.166.8 crores. The
fall in revenue under this head is largely due to the gradual disappearance
of collections from the excess profits tax, business profits tax and the Central
surcharge, which are no longer in force, and also to a reduction in profits
due to the strike in the textile industry this year. The divisible pool of
income tax will amount to Rs.88.96 crores of which the States' share will
be Rs.44.48 crores. In addition a sum of Rs.55 lakhs is expected to be paid
as their share of income tax to such of the Part B States as do not receive
a grant-in-aid to cover the revenue-gap caused by federal financial integration.
it is also proposed to add a sum of Rs.21/2 crores to the share of the Part
A States for any possible arrears that may be due to them in respect of previous
years, the accounts of which remain to be finally closed. The contribution
from Railways, as the House is already aware, will be Rs.7.26 crores. The
contribution from the Posts and Telegraphs Department is estimated at Rs.2
crores. The revenue under other heads is estimated at Rs.38.19 crores, the
drop of Rs.5 crores compared with the current year's revised estimates being
largely due to the elimination of certain special non-recurring items included
in the current year.
EXPENDITURE
32. The total expenditure for next year is estimated at Rs.375.43 crores of
which Defence Services will account for Rs.180.02 crores and civil expenditure
for Rs.195.41 crores.
33. Before I deal with the expenditure estimates I shall digress to explain
briefly certain changes which are being made in the presentation of the demands
to this House. In the first place, to enable Honourable Members to have more
time for the consideration of the budget, it has been decided to introduce
the procedure for a vote on account so that it is not necessary to complete
the voting of the demands and the passing of the budget by the end of the
financial year. The House will be asked to vote a month's supply pending the
detailed consideration of the demands for grants and the Finance Bill for
both of which more time will be made available than in the past. Secondly,
in accordance with certain suggestions made by the Estimates Committee, the
grants have been arranged by Ministries, the details of the demands have been
added to each demand instead of being relegated to a separate supplement and
the descriptive material in the explanatory memorandum has been further amplified
so as to make it more informative. Thirdly, grants to States for financing
their development and grow more food schemes which are now charged to capital
have been transferred, to revenue. Similarly, certain items of Defence expenditure
which are now debited to capital have also been transferred to revenue. I
shall explain the reasons for these changes when dealing with the estimates
concerned.
DEFENCE SERVICES
34. The expenditure on Defence Services next year is estimated at Rs.180.02
crores against the revised estimate of Rs.179.47 crores. In comparing the
estimate for next year with the revised estimate for the current year the
change in classification already mentioned must be taken into account. The
House will remember that a capital head outside the revenue account was opened
during the last war to accommodate certain transactions, although in the special
circumstances governing Defence expenditure, particularly in war time, no
effort was made to allocate precisely the items which should be charged to
capital as distinct from revenue. The House will ‘appreciate that the
rules of allocation, such as those based on productivity, which may regulate
the matter on the civil side cannot apply to Defence and the question of what
should be treated as capital expenditure and what should be met out of revenue
must be a matter kept open for review from time to time. In the budget for
1948-49 it was decided that expenditure on the acquisition of land, the provision
of accommodation and the acquisition of naval vessels and aircraft should
be charged to capital. I have carefully reviewed the position and I feel that
in present conditions it will be more appropriate to meet the expenditure
on the acquisition of aircraft from revenue. Aircraft, with the relatively
small working life they have, cannot possibly be put in the same category
as lands, buildings or plant and machinery and I have decided that the cost
of all aircraft purchased for Defence services should be debited to revenue
instead of to capital.
35. Of the total expenditure of Rs.180.02 crores next year, Rs.130.69 crores
will be spent on the Army, Rs.9.31 crores on the Navy, Rs.24.49 crores on
the Air Force and Rs.15.53 crores on non-effective services. Compared with
the revised estimates for the current year it will be seen that the expenditure
on the Army shows a decrease of Rs.12.88 crores which has been counterbalanced
by increased expenditure on the Navy and the Air Force. The decrease in the
Army expenditure is mainly due to the fact that the full effects of the reduction
in the strength of the Army carried out this year will be reflected in the
estimates for next year. It is also hoped to effect certain further reductions
during that year. As regards the Navy and the Air Force, it must be remembered
that these two services are in the process of being built up, and, as has
already been made clear in this House, the reduction in the Armed forces relates
solely to the Army and the expansion and development of the two other nascent
services have to go forward. The increase in the estimates for the Air Force
is also partly due to the change in classification mentioned earlier.
36. Before I pass on to deal with the civil estimates I should like to refer
to the reorganisation of the former Indian States’ forces and the problem
of economy in Defence expenditure. Good progress has been made in the reorganisation
of the States’ forces and simultaneously with the reorganisation the
strength of these forces has been reduced to fit in with the defence requirements
of the country as a whole. It has also been decided that the terms and conditions
of service of the personnel of these forces should be the same as in the rest
of the Indian Army with effect from the 1st April 1951.
37. The problem of securing economies in Defence expenditure has to he considered
in the context of the requirements for the security of the country and the
maintenance of the efficiency of the services. While these considerations
should be given due weight I am sure the House will agree that considering
the size of defence expenditure, which accounts for about half the revenues
of the Central Government, it is of the utmost importance that all avenues
for effective economy should be explored without affecting the efficiency
of the services. The problem has been kept under constant review and with
the cooperation of my colleague the Minister for Defence, various economy
measures, such as the reduction in the scales of issue, better conservation
of stores and equipment have already been or are being given effect to.
38. In addition to the provision of Rs.180.02 crores in the revenue budget
a provision of Rs.14.97 crores has been included for Defence in the capital
budget. This expenditure will be mostly incurred on works projects for the
three services and for the purchase of plant and machinery for the manufacturing
establishments.
CIVIL EXPENDITURE
39. Civil expenditure next year is estimated at Rs.195.41 crores compared
with the current year is revised estimate of Rs.199.81 crores. The actual
reduction is somewhat larger as expenditure on the payment of grants to States
for the Grow More Food and development schemes which used to be charged to
capital has been provided in the revenue budget next year. The decision to
charge the grants for development to capital was taken in the immediate post-war
period largely as a matter of budgetary convenience in the context of the
heavy deficits on revenue account in the post-war years. Grants for Grow More
Food are for short-term schemes which do not result in the creation of any
permanent assets while grants for other schemes of development do not create
for the Centre any durable assets. There is, therefore, very little justification
for charging any portion of these grants to capital and on a careful review
of the whole position I have decided that they should more appropriately be
met from revenue. Excluding the amount of Rs.8.31 crores thus transferred
to the revenue budget, the reduction in the expenditure next year as compared
with the current year amounts to Rs.12.71 crores. This decrease is almost
wholly accounted for by a reduction in the expenditure on food subsidies and
bonus on procurement. The expenditure on these next year, in accordance with
the food and procurement policy recently announced, is estimated at Rs.25.32
crores against Rs.35.07 crores this year, which includes Rs.2.3 crores on
account of the supply of food grains at concessional rates in the Delhi State.
The variations under other heads, which are explained in detail in the Explanatory
Memorandum more or less cancel out and I do not propose to weary the House
by repeating them here. Expenditure on the relief of displaced persons next
year is expected to be Rs.3.81 crores less than this year while there will
be a drop of Rs.1.89 crores in the provision for pre-partition payments. These
savings will however be more than counterbalanced by normal increases under
other heads. The budget also includes a provision of Rs.1 crore for additional
grants to States for the welfare of the scheduled tribes and the development
of scheduled areas and Rs.1 crore for possible grants to such of them as have
suffered from natural calamities like floods and earthquake this year.
40. The civil expenditure, which I have just mentioned, takes credit for economies
amounting to Rs.5.53 crores. It has not been possible to take the entire amount
of this reduction under the respective heads as final decisions in respect
of many of the proposed economy measures had not been arrived at when the
budget was being prepared. For purposes of completing the estimates, therefore,
I have taken a lump reduction of Rs.5 crores under miscellaneous expenditure.
It is my intention, before the demands for grants are finally presented to
the House in April, to distribute this provision over the respective heads.
41. In this connection, the House will be interested to know that the total
reduction which could have been possible if the recommendations of the Economy
Committee had been implemented in toto is of the order of Rs.41/2 crores.
The reduction of even Rs.51/2 crores in civil expenditure envisaged in the
budget may not at first sight appear substantial, but I must remind the House
of the somewhat limited scope available for the contraction of expenditure.
Of the gross expenditure of Rs.200.41 crores provided in the budget, nearly
a third, or Rs.63 crores, is in respect, of obligatory expenditure like interest
and debt redemption, pensions, fixed grants to States and pre-partition payments.
Expenditure on Grow More Food, food subsidies and bonus and rellef of displaced
persons account for another Rs.40 crores, which is not capable of further
reductions. There are certain self balancing items such as payments of certain
cesses to specific funds apd transfers to the road fund which account for
another Rs.5 crores. This leaves about Rs.92 crores to which the axe could
be applied. Even here, there is a substantial amount of expenditure on nation
building activities, tax collection and so on which cannot be materially reduced
without affecting the revenue or the development of the country. In taking
a view of possible economies the House must also remember that as a result
of the integration of the former Princely States considerable, but more or
less backward, areas have been brought under direct Central administration
and the provision in the budget for these areas, where so much still remains
to be done for raising the standards of administration, cannot be reduced.
In judging the results of the campaign for economy I am sure the House will
bear these facts in mind. But I can give the assurance that the quest for
economy will be continued throughout the year.
INCOME-TAX INVESTIGATION COMMISSION
42. I should like at this stage to digress and give an account of the work
of the income-tax Investigation Commission. As Hon'ble Members are aware,
the report of the Commission on the adequacy of the existing income-tax law
to prevent tax evasion and the steps necessary to remove existing defects
has been under consideration for some time. A bill embodying the accepted
re-commendations was to have been submitted to Parliament in the last budget
session but such a comprehensive measure required some time to prepare and
could be introduced only in the current session.
43. During the year under review the Commission have made further progress
in the investigation of individual cases referred to them. Out of a total
number of 1390 cases referred to them they have disposed of 337 cases, including
those settled by agreement. On the cases so far disposed by them a sum of
nearly Rs.61/2 crores is likely to be recoverable while the actual recoveries
amount to Rs.90 lakhs. Recoveries have lagged behind assessment because in
many cases extensions of time have had to be given by the Commission, taking
into account the assessee's present capacity to pay what in effect is the
tax demand of several years. The cases still pending with the Commission are
at various stages of investigation. It is therefore impossible to give an
idea of the time it would take for the completion of the work. The term of
office of the Commission is due to expire at the end of March 1951 but in
view of the large volume of work still remaining to be done steps are being
taken to get their term extended.
CAPITAL EXPENDITURE
44. The current year's budget provided for a capital expenditure of Rs.62
crores and Rs.34.8 crores for loans to the State Governments to meet their
capital requirements and for rehabilitation of displaced persons. Capital
expenditure this year is now estimated at Rs.83 crores while loans to State
Governments will amount to Rs.67 crores. Details of the capital expenditure
are given in the Explanatory Memorandum and I shall content myself with mentioning
only the more important reasons for the increase. As part of the policy of
curtailing expenditure to the maximum extent possible the provision in the
current year's budget was severely pruned and the actual requirements for
Railways and irrigation schemes proved heavier. An unforeseen payment of Rs.2.62
crores had also to be made to Pakistan, in accordance with the partition arrangements,
in connection with the payment for her subscriptions to the International
Monetary Fund and World Bank, as India retained the entire subscription paid
by undivided India before the partition. Defence capital outlay is also expected
to cost about Rs.31/2 crores more than was originally estimated. The large
increase in advances to State Governments is mainly due to an increase in
the loans for the rehabilitation of displaced persons which are now estimated
at Rs.15.85 crores against the original estimate of Rs.8.35 crores and loans
for Grow More Food schemes which, at Rs.12.86 crores, involve an excess of
over Rs.1041 crores over the original budget. Additional loans had also to
be given to the States for the river valley projects and for certain important
irrigation and hydro-electric schemes in some of the Part B States.
45. For next year, a total provision of Rs.77 crores has been made for capital
outlay and Rs.62.62 crores for loans to States. Among the important items
included in the former I would mention Rs.19.62 crores for Railways, Rs.5.45
crores for Posts and Telegraphs, Rs.10.56 crores for industrial development
on such items as the Fertiliser Factory at Sindri, the Machine Tool Factory
at Bangalore and investment in ship building and the manufacture of dry core
cables. Defence capital outlay, as mentioned elsewhere, is estimated to cost
Rs.14.97 crores, while schemes of State trading will involve a net outlay
of Rs.13.68 crores, which will be recovered in subsequent years. The provision
in the loans budget includes Rs.27 crores for loans to States for the river
valley schemes, Rs.71/2 crores for loans for other productive purposes, Rs.1.68
crores for industrial housing, Rs.16 crores for rehabilitation and Rs.8 crores
for Grow More Food schemes. A lump sum provision of Rs.11/2 crores has also
been included for possible loans to those States which have recently suffered
from natural calamities like floods and earthquake.
46. Before 190 on to consider the ways and means position I should like to
mention briefly the work of the Planning Commission. The Commission have been
engaged for some time in a close study of the problems of planning and development
in the country and their report is likely to be received by Government by
about the end of May 1951, after they have completed their consultations with
the States Governments and others. An underdeveloped economy like ours is
inevitably one with a low volume of savings which can be devoted to productive
investment. Even this small margin has been affected as a result of the strains
and stresses of the war and post-war years and the shifts in the distribution
of income within the community. The resulting dearth of resources calls for
a degree of national effort which makes planning and the fixation of priorities
a vital necessity if even the meagre resources available are not to be frittered
away. In recent years there has perhaps, been a tendency to identify planning
with large scale expenditure out of past savings. But the real problem is
to increase the current flow of saving through a concerted effort by the present
generation so as to make available, without a violent disturbance of the country's
economy which the unregulated release of accumulated savings will involve,
resources for productive investment and for financing social services. Without
in any way anticipating the findings of the Commission it may be hoped that
as a result of their examination of the problem they would advise Government
of the lines on which national effort should be mobilised, the levels to which
the Centre and the States should endeavour during the next few years to raise
their financial resources and the targets which the country should try to
achieve through intensive development.
47. This leads me to a mention of the discussions which Government have been
having with the United States Government for participation in President Truman;s
Point Four Programme and with Commonwealth countries in connection with what
is generally known as the Colombo Plan. Hon;ble Members are aware of the agreement
which has been signed between this country and the United States under President
Truman's Point Four Programme, the significance of which to the technological
progress of the country is likely to be far greater than what its monetary
dimensions indicate. In connection with the Colombo Plan, we have drawn up
a statement of our essential requirements in the next six years involving
a total outlay of Rs.1,800 crores. The problem of raising the living standards
of the vast underdeveloped and, till recently, exploited regions of South
East Asia is one which is unlikely to be solved by the resources available
to the countries of that area. Finance from abroad, and that on a substantial
scale, has to be forthcoming if this problem is to be tackled adequately.
There is an increasing recognition by the more fortunately placed countries
of the West and the Western hemisphere that their help in this urgent task
is necessary and that the raising of the living standards of these backward
areas is vital for the peace and stability of the world. While it is obviously
in our own interest to help ourselves to the maximum extent possible by mobilising
our own resources I trust that outside assistance on terms acceptable to us
will be available in the near future in undertaking this great task.
48. I shall now turn to a consideration of the ways and means position. The
current year's budget included Rs.75 crores from market borrowings and Rs.28
crores from small savings. In addition, credit was also taken for a possible
sale of Rs.10 crores from securities held in the cash balance investment account.
In June 1950 a cash-cum-conversion loan was floated, cash subscriptions to
which amounted to Rs.71/ 2 crores and converslonwto Rs.223/4 crores. In addition
to the public loan, sales of securities from the cash balance investment account
have amounted to Rs.23 crores while the net receipts from small savings are
now placed at Rs.31 crores showing an improvement of Rs.3 crores over the
budget. The total borrowings have, however, still fallen below the estimate
by Rs.29 crores. This has been mainly due to the fact that the recovery in
the capital market has not been as good as was once expected and that the
promise of increased demand for investment of the earlier period has not been
maintained. For next year, I have taken credit for Rs.100 crores for new loans
and a net credit of Rs.43 crores from small savings. Government have the option
of repaying the 3 per cent loan 1951-54 with an outstanding balance of Rs.87
crores next year and provision has been made for this repayment.
49. There has been a welcome, though slight, improvement in the position regarding
small savings this year. With the shift in the distribution of the national
income in recent years that most competent observers have noticed, the mobilisation
of small savings, particularly in the rural areas, has assumed special importance
and has been engaging the constant attention of Government. Among measures
taken for stimulating additional savings may be mentioned the revival of the
system of authorised agents in three States as an experimental measure. In
rural areas it is also proposed to avail of the assistance of Branch Sub-Postmasters
in this task. Recently, a Treasury Savings Deposits Scheme, which combines
the attractive yield on National Savings Certificates with the advantage of
an annual income, has been introduced and the results, in the short time it
has been in operation, are encouraging. The question of widening the pattern
of investment for the small saver is constantly under examination. Social
and political changes have occurred in the country which involve more restricted
opportunities for certain classes who in the past have been large supporters
of the investment market. Their contribution has to be replaced from the savings
of those who benefit from these changes. The importance of mobilising the
small savings cannot therefore be over emphasised. This is a task which requires
the cooperation of all sections of the community both rural and urban, agricultural
and industrial. We cannot depend purely on casual sales of savings or deposit
certificates. We must develop a wide net work of savings groups in the towns
and in thq countryside for a continuous mobilisation of small amounts. In
this connection, may I mention that the successful working of savings groups
in industrial undertakings should not be regarded as a relevant consideration
in dealing with disputes regarding the level of wages?
50. Before I pass on to the budget proposals I may summarise the position.
The revised estimates for the current year show a surplus of Rs.7.93 crores
while the deficit on capital account will amount to Rs.67 crores. For next
year, on the existing basis of taxation, the revenue account is expected to
show a deficit of Rs.5.54 crores while the deficit on capital account will
aumount to Rs.78 crores. The total deficit in the current year will be met
from the opening balance of Rs.149 crores which will be reduced to Rs.95 crores
at the end of the year. On the estimates that I have explained so far, I am
left with the problem of not merely covering the estimated revenue deficit
of Rs.5.54 crores but also of covering, as far as possible, the more substantial
deficit on capital account while closing the budget year with an adequate
closing balance.
PART B
51. It may assist the House if I explain briefly the various considerations
which I have taken into account in formulating the proposals which I shall
place before it. In dealing with the substantial deficit on both capital and
revenue account in the coming year I have had to keep in mind two requirements.
Firstly, additional resources have to be raised for leaving Government with
a sufficient closing balance at the end of the Budget year. Secondly, the
deficit has to be covered to the largest possible extent so as to avoid the
generation of further inflation.
52. At a time when inflationary conditions exist it must be the aim of Government
to adjust the money supply to the available supply of goods and services by
drawing off as much as possible of the purchasing power in the hands of the
community, either by taxation or by borrowing, the exact proportion between
the two being determined with reference to the prevailing circumstances. In
other words, Government ought to aim at a surplus budget, taking the revenue
and capital budget together. Conversely, at a time of deflation the effect
on the community of the fall in the purchasing power should be mitigated by
Government increasing the money supply by increasing public expenditure. The
effect of a budgetary deficit on the economic life of the country is precisely
the same whether it is a deficit on revenue account or a deficit on capital
account. Such a deficit, other things remaining equal, increases the available
money supply in the hands of the community and at a time of inflation adds
to the inflationary spiral. The effect is in no way altered even if the deficit
in a particular year is met from the accumulated balances of the past.
53. In the light of what I have said just now, I am sure the House will agree
with me that the substantial deficit of Rs.83 crores in the budget next year
cannot be left wholly uncovered. This will reduce the cash balance of Government
at the end of the budget year to Rs.12 crores which will be wholly inadequate,
considering the present magnitude of Government transactions. A safe closing
balance for Government should, in my view, be something of the order of Rs.50
crores. This, in a sense, sets the minimum limit to the amount of fresh resources
that will have to be raised next year to achieve a satisfactory cash position.
Any further addition to our resources will be welcome, if it could be obtained.
54. After a careful consideration of the problem in all its aspects I have
come to the conclusion that something like half this deficit should be met
by raising additional resources and the balance met from the accumulated cash
balances of Government.
55. The House may well ask if this deficit could not have been avoided either
by economies or by the postponement of capital expenditure. I have explained
at some length, while dealing with the expenditure estimates, the steps taken
to secure economies in public expenditure. While this quest for economy will
be rigorously pursued, it will be unrealistic to expect that this will release
any appreciable amount for financing the capital budget. The capital budget
itself has been so carefully pruned that it now provides only for essential
schemes of capital outlay and development, which cannot be further curtailed
without affecting the country's development and for the requirements connected
with the rehabilitation of displaced persons. Even within the accepted provision
for capital expenditure, which in the case of most spending Ministries and
State Governments represents a very substantial reduction on their demands,
it is my intention to suggest the enforcement of economies in spending by
the adoption of austerity standards in regard to construction, scale of accommodation
and so on. While all these efforts may yield some results, it is unlikely
that they will bridge to a substantial extent the deficit on capital account
next year.
56. This brings me to the important problem of distributing the additional
burden in the coming year between taxation and borrowing. So far as borrowing
is concerned, the House is well aware of the difficult conditions prevailing
in the capital market. In my estimates for the coming year I have taken credit
for a total borrowing of a little over Rs.140 crores, taking small savings
and market borrowings together. While I am satisfied that this is not in any
way over-optimistic there is little scope, unless there is a very marked improvement
in the position, for bettering on these estimates. I am, therefore, left with
no alternative but to turn to the tax-payer for helping me out. In doing so
I am not unaware of the present level of the tax burden but in an emergency
like this I am sure that some additional burden will be borne cheerfully in
the wider interest of the country. In laying the tax-payer under further contribution,
the House may rest assured that I have made every effort to see that the additional
burdens are spread as widely and as equitably as possible.
NEW AND ADDITIONAL TAXATION
57. In the field of direct taxation, my first proposal is to raise the rate
of Corporation tax by a quarter of an anna, from two and a half annas to two
and three-quarter annas. Since 1922 it has always been the practice to fix
the rate of Company super-tax at the lowest rate of super-tax applicable to
an individual. This was departed from twice in recent years, once in the Finance
Act of 1946 and again in the Finance Act of last year. I consider that it
is not inappropriate at the present juncture to do something towards re-establishing
the conventional parity between the two rates. This proposal is estimated
to yield an additional revenue of Rs.2.25 crores.
58. My second proposal is to levy, exclusively for the purposes of the Centre,
a small surcharge of 5 per cent on all income tax and super-tax rates, excluding
Corporation tax with which I have already dealt. The present situation calls
for a measure of sacrifice from every one according to his means and this
surcharge will not be an onerous burden on anyone. On a person with an income
of Rs.5,000 a year, this will mean no more than 8 annas a month. It will amount
to Rs.3 a month on a person with an income of Rs.12,000 a year and Rs.12 a
month on a person with an income of Rs.24,000. I am sure the House will agree
that this burden cannot be considered excessive. The additional revenue from
this surcharge which, as I mentioned, will accrue in its entirety to the Centre
is estimated at Rs.6 crores.
59. Before I leave the subject of income-tax I should like to mention a minor
adjustment that is being made in respect of the rebate of super-tax given
to Life insurance Companies. The income tax investigation Commission have
suggested that the rebate of super-tax hitherto given to Life insurance Companies
was not justified in respect of that portion of the profits of the business
which went into the pockets of the shareholders and did not accrue to the
benefit of the policy holders. Government have accepted the Commission's recommendation
and the rebate is proposed to be reduced from 2 annas to 11/2 annas. The effect
of this on the revenue will be negligible and I have taken no credit in the
budget for this.
60. Turning to indirect taxes I shall first deal with changes in-the Customs
duties. My first proposal is to levy an enhanced surcharge of 5 per cent on
all items in the import schedule except such of them as are governed by specific
agreements under the General Agreement Relating to Trade and Tariffs. In other
words, the proposal is that for any item for which the existing surcharge
is, say, twenty per cent the new rate should be 25 per cent. Articles at present
exempt from surcharge will pay a surcharge of 5 per cent. The yield from this
is estimated to be Rs.2 crores.
61. My next proposal is to increase the Present surcharge of 100 per cent
on ale, beer, spirits, and other fermented liquor by 50 per cent. The yield
from this is estimated at Rs.40 lakhs.
62. My third proposal is to rationalise the incidence of import duties on
mineral oils other than motor spirit and kerosene. The existing duties on
these oils will be raised alternatively to a maximum of 20 per cent of their
value, wherever it is higher. The additional yield from this is estimated
at Rs.60 lakhs.
63. In the field of export duties I propose to make two changes. I propose
to levy a duty of Rs.80 per ton on ground nut kernel. The price of ground
nut kernel has gone up considerably in recent months on account of the increase
in demand and this duty will be in consonance with the policy of appropriating
to the exchequer the large difference between the external and internal prices.
I also propose to revive the export duty on cotton cloth, which was withdrawn
in 1949, but confine it to coarse and medium cloth only, excluding furnishing
fabrics and manufactures like hosiery, apparel, towels, etc. The cloth covered
by this duty is made mostly from Indian cotton and enjoys a price advantage
which would justify the imposition of a moderate export duty, which I suggest
should be 10 per cent ad valorem. The yield from the export duty on ground
nut is estimated at Rs.11/2 crores and that from the export duty on cotton
cloth at Rs.21/2 crores. Certain readjustments in the application of concessional
assessments to existing export duties on cotton waste and black pepper will
also be made by executive orders, yielding Rs.1 crore and Rs.75 lakhs respectively.
64. I now turn to Union Excises. Here my first proposal is to increase the
present excise duties on motor spirit and kerosene by 5 per cent so as to
equalise the duties of Customs and Excise. This change is consequential to
the general surcharge of 5 per cent on import duties which I have mentioned
earlier. The additional revenue from this is estimated at Rs.15 lakhs.
65. My next proposal is to make certain changes in the excise duties on tobacco.
The rationalisation of tobacco excises has, as the House is aware, been under
the consideration of Government for some time. The existing system of taxing
tobacco on the basis of its intended use has not only been criticised as being
contrary to the normal principle that an article should be taxed according
to its specific character but has also proved cumbersome and difficult, both
to the administration and to the trade. A widespread scheme of departmental
restrictions designed to guard against the evasion of taxation by the diversion,
after clearance, of tobacco, capable of multipurpose use, from a low-rated
use to a high-rated use has had to be imposed. These have been difficult to
administer and have also created some amount of justifiable discontent in
the trade.
66. The scheme of rationalisation now proposed has two main features. It makes
the minimum changes necessary in the taxation of tobacco which goes into the
manufacture of cigarettes. In respect of other categories of tobacco, the
present basis of taxation with reference to intended use will be abandoned
and the duty will be levied as a leaf duty at flat rates, separately for flue-cured
and for other tobacco. The rationalisation also provides for the levy of a
further duty on certain tobacco manufactures like biris and snuff. The leaf
duty on flue-cured tobacco, except tobacco used in the manufacture of cigarettes,
will in future be Rs.1 per lb. while other tobacco will pay a duty at 8 annas
per lb. Flue-cured tobacco used in the manufacture of cigarettes will continue
to pay duty at the existing rates while other tobacco used for the manufacture
of cigarettes will pay the flat rate of leaf duty of 8 annas. The existing
concessions for stalk and tobacco used for agricultural purposes will continue.
The manufacture duty on cigarettes, whether made out of flue-cured tobacco
or other tobacco, will subject to certain minor tariff alterations due to
the imposition of the flat rate of leaf duty, continue as at present. Pipe-tobacco
will pay a rate of Rs.6/8/- per lb. Biris and snug will pay in addition to
the leaf duty of 8 annas, as against 12 annas at present, an additional manufacture
duty averaging 8 annas per lb. on their tobacco content.
67. I have carefully considered the effect of the proposed changes on the
consuming public. Fluecured tobacco is not generally used for chewing or hooka
purposes and over most of this field the additional burden would amount to
only 4 annas a pound over the present rate of 4 annas a lb. This duty has,
no doubt, been doubled but considering the low per capita consumption of tobacco
in this form, the additional burden is likely to be insignificant. In the
case of snuff and biris also, fluecured tobacco is hardly ever used and the
consumer will get the benefit of a reduction of 4 annas per lb. In the present
tax of 12 annas a lb. which he is now paying. This loss of revenue has to
be made up and it is in the context of the need for additional revenue and
the desirability of making every section of consumers contribute their share
of additional revenue, that the small manufacture duty on snuff and biris
is justified. The manufacture duty on snuff will be at 8 annas per lb. For
birts a graded manufacture duty will be levied at 9 annas a thousand for biris
containing more than three quarters of a lb. of tobacco per 1,000 and 6 annas
a 1,000 for biris containing three-quarter of a lb. of tobacco or less. At
the existing rate of taxation an average birl smoker is probably paying a
duty of Rs.6 a year. Under the new proposals he would pay about Rs.8 a year.
Compared to what the smoker of even the cheapest variety of cigarettes has
to pay, I do not think that this places an undue burden on him.
68. I mentioned earlier that the rates of duty on tobacco used for cigarettes
will mostly remain unchanged. But, while we are raising the rates of tax paid
by the other sections of tobacco consumers, it is hardly fair to leave the
cigarette consumer untouched. I therefore propose to levy a small surcharge
of a quarter of an anna per 10 cigarettes the retail price of which is more
than 2 annas per ten and half an annas per 10 cigarettes the retail price
of which is more than 51/2 annas per ten.
69. The total additional revenue from the changes in the tobacco tariff which
I have just mentioned is estimated at Rs.13 crores.
70. Before I conclude the taxation proposals I may mention a proposal which
has only a limited interest, as it affects only the Delhi State. Hon'ble Members
are aware that the question of levying a sales tax in Delhi has been under
consideration for some time. The neighbouring States of Punjab and Uttar Pradesh
have sales taxes and there have been complaints that the existence of a tax-free
zone in Delhi results in a diversion of trade from these States to Delhi to
the detriment of their revenues, without any corresponding benefit to the
Centre. The Centre has been advising the various State Governments to exploit
sales taxes for augmenting their resources and there is no reason why the
Centre should not introduce it in Delhi in the present financial stringency
which has underlined the need for exploring all available means of raising
additional money. Government have accordingly decided to introduce a sales
tax in Delhi. This will be done by applying, with suitable modifications,
the law of one of the Part A States. The tax will be a moderate single point
tax. The details are being worked out but in the meanwhile I have taken a
credit of Rs.1 crore on this account for the coming year.
NET RESULTS OF PROPOSALS
71. I may now summarise the net effect of the proposals which have been placed
before the House. The additional revenue from the changes in income-tax is
estimated at Rs.8.25 crores and that from changes in Customs and Central Excise
duties to Rs.8.75 crores and Rs.13.15 crores respectively. The sales tax in
Delhi is estimated to yield Rs.1 crore. The total additional revenue is thus
estimated atRs.31.15 crores. This will convert the revenue deficit of Rs.5.54
crores into a surplus of Rs.25.61 crores and reduce the overall budget deficit
of Rs.52.37 crores. This remaining deficit will be met from the opening balance
of Rs.95.42 crores, leaving a closing balance of Rs.43.05 crores at the end
of the year.
CONCLUSION
72. I have now come to the end of my story. I wish it had been possible for
me to present a budget without imposing the additional burdens I have been
compelled to suggest. But the financial difficulties through which the country
is passing make it imperative that sacrifices should be made to enable Government
to meet the heavy demands on them without impairing the economic health of
the country. I know that there will be some criticism that the entire burden
next year has been thrown on the tax-payer and that in distributing this burden
the direct tax-payer has been let off more lightly than the indirect tax-payer.
So far as laying the entire burden on the tax-payer is concerned. I have already
explained how it is not possible to raise additional money by borrowing over
of the amount, for which I have taken credit in the budget. Apart from the
effects of recent political and economic changes on the capital market, we
still seem to be in a state of transition so far as the effect of-the shifts
in income, to which I have already referred, on the capital market is concerned.
As regards the second criticism I would point out that, in a relatively poor
country like ours, the scope for raising money by direct taxation is somewhat
limited and a fair amount of the tax burden has necessarily to be laid on
the community by means of indirect taxes. For a population of over 35 crores
the number of people who pay income-tax in this country is probably something
like 6 to 7 lakhs. It will not, therefore, be correct to say that the raising
of additional taxation by the enhancement of indirect taxes is inequitable.
But in suggesting increases in indirect taxation I have confined them as far
as possible to either luxury or near luxury items. It is, nevertheless, true
that the net of taxation has been cast fairly wide but I am sure the House
will agree with me that in the burden of building up the new India every section
of the community should take its legitimate share.
73. Before I conclude, I should like to say a few words about a charge that
has frequently been made that by drawing upon the accumulated balances in
recent years Government have added to the inflationary pressure. If it is
suggested that Government have been drawing on these balances and putting
the money in circulation inside the country I think this is wholly wrong.
We started with an opening balance of about Rs.270 crores after the partition
and at the end of the current year the balance would have dropped to Rs.95
crores. Thus, in a period of three and a half years, our balances would have
been run down by Rs.175 crores. But during this period Government's net overseas
expenditure, mainly on the purchase of foodgrains, stores, equipment etc.,
will amount to a little over Rs.400 crores. Thus, taking Government expenditure
by itself, this running down of thtt balances cannot be said to have generated
fresh inflation. But if the suggestion to that the disinflation trends would
have been materially assisted if Government had raised all the finance they
required currently, without drawing on their balances, my answer to it is
that it ignores the realities of the situation While a Government is, in a
sense, the creator of economic conditions by its policies, it is, very often,
also the creature of circumstances beyond its control. No government, much
less a popular government, faced-With the multitudinous problems with which
this Government has been faced by the partition of the country and its aftermath,
could have sat back and refused to incur expenditure necessary for the security
of the country, the relief of displaced persons, the grant of food subsidies
to keep prices from rising or the progress of essential schemes vital to the
country's welfare and development. While there may be legitimate criticism
of some item of expenditure or the other I think it will, on the whole, be
correct to say that the bulk of this money has been spent on useful or unavoidable
items.
74. Sir, it to, I believe, the usual custom to end the budget speech with
a review of the general financial position of the country but I do not propose
to do so. In the rapidly changing conditions all over the world he will indeed
be a rash man who can hazard a guess as to the future. But I have little doubt
myself about the inherent strength of our financial position and I have every
confidence in the ability of our people to sustain and support the Government
in whatever measures may be necessary to maintain the finances of the country
in a sound position. It is in this hope and in this faith that I have made
the substantial demands which this budget makes on the tax-payer. I have been
greatly heartened in this task by a recent communication which I have received
from an ordinary villager, who is neither in business nor in service, which
I would venture to mention to the House. It is from one who at present pays
no tax to any authority, Central, State or local. He says that he has a burning
desire to help the Government of India in some way or the other. He has remitted
a sum of five rupees to me and has promised to remit a similar sum every year.
It is not the small amount that he has offered but the spirit behind the offer
that matters and, so long as the common run of our people can produce men
and women with this spirit, this country can face the future, however difficult
it may be, with confidence.