SPEECH OF SHRI MORARJI R DESAI
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1962-63 (Final)
Dated : April 23, 1962
A little over a month ago, I had presented in the last Session of the Second
Lok Sabha the statement of the estimated receipts and expenditure of the Government
of India for the year 1962-63 and obtained a vote on account. Today I rise to
request this House to, consider and approve these estimates, with a few small
variations which I shall explain later, for the year as a whole.
2. When presenting the interim Budget I had reviewed the economic conditions
in the year 1961-62. I had referred to the sizable increases in production,
both industrial and agricultural, the restoration of a measure of stability
in the price level, the favourable trends in external aid for the fulfilment
of our plan as well as the seriousness of our foreign exchange situation. It
is not my intention to cover the same ground again as there is relatively little
that is new which I can add to what I said in my Budget Speech last month and
to what has been stated more fully in the Economic Survey, both of which are
being circulated with the budget papers today.
3. For more than a decade now, economic policy in the country has been geared
to the implementation of successive Five-Year Plans of development. In retrospect,
the First Five-Year Plan seems to have been a modest affair, but it laid the
foundation of further effort. We launched on a bigger and bolder programme in
our Second Plan with its emphasis on the development of basic and heavy industries.
Though we faced many difficulties-particularly foreign exchange difficulties-in
its implementation there is no doubt that the Indian economy has emerged greatly
strengthened by it. Indeed, the success of our efforts seems to have led to
a world-wide recognition of the value of planning as an instrument for the uplift
of the less-developed countries.
4. Our Third Plan, which was launched a year ago, aims at raising our national
income in real terms by some 30 per cent over the five years. It also has to
take us appreciably closer to the objective of a self-generating economy which
can continue to develop at a satisfactory rate without external aid. The Plan
envisages an outlay of Rs.7,500 crores in the public sector. This figure is
about two-thirds higher than the corresponding one for the Second Plan. The
total investment of Rs.10,400 crores that we seek to achieve during the Third
Plan equals the actual investment undertaken during the first two Plan periods
put together. Even with this increase in the size of our Plan, we are unable
to accommodate all the legitimate aspirations of our people for more schools
and roads, for more power and drinking water, for more transport and employment
opportunities. Many worthwhile and desirable projects, both public and private,
cannot be taken up because we could not make provision for them in our Plan
for lack of resources. It is, therefore, of the greatest importance that we
should do everything possible to mobilise and harness the resources which will
help us to reach the goals that we, as a nation, have set for ourselves.
5. The most critical shortage which we face and which operates as a major limiting
factor in everything that we do is of external resources. The Economic Survey
has dwelt at length on our difficult foreign exchange position during the first
year of the Third Plan. Despite the availability of substantial external assistance
and the assurance of aid to cover a large part of our project requirements,
the ways and means position in regard to foreign exchange remains acutely difficult.
Our foreign exchange reserves have declined to very low levels and the need
for conserving foreign exchange by the strictest watch on imports and by limiting
our demands within the resources in sight is greater than ever today. Beyond
a point, however, economy in imports of essential requirements becomes self-defeating
in that it inhibits domestic production, raises prices, and in consequence,
leads to a fall in exports. Further, shortages in the key sectors cannot but
weaken and slow down our plan.
6. The assistance which we receive from friendly countries and institutions
is therefore of critical importance. At the same time, without belittling in
any way the value of this assistance, we must recognise that ultimately it is
only through increasing our exports that we can find the external resources
for our development and for repaying the loans and credits which we receive.
I shall later outline some of the fiscal measures which I propose to adopt to
help our exports.
7. It is important to remember that increased exports and economy in imports
which are necessary in view of our foreign exchange situation must mean a restraint
in domestic consumption. A degree of control over domestic consumption is implicit
in our effort to step up investment to substantially higher levels than we have
achieved in the past. In the ultimate analysis, it is not money, but men and
materials which pay for a Plan. The resources we need may be measured and expressed
in terms of money, but they represent in reality the extent to which we can
employ current production for increasing our productive capacity in the future
rather than for meeting the needs of current consumption.
8. Thus, our effort to provide resources for the Plan, the exports to earn the
foreign exchange and the saving to provide the investment, inevitably lead to
a measure of restraint in current consumption. We can achieve it somewhat painlessly
through voluntary savings. We can do it with a certain sense of social obligation
through taxes. Or we can bring it about through an inflationary rise in prices
which hurts the common man and benefits only the speculators and profiteers.
9. All savings strengthen our Plan, whether they are large or small, whether
they are put in banks, or in insurance policies, or in Government securities,
or in our Small Savings Schemes, or in Provident Funds. If the volume of savings
is adequate, the task of ensuring that they are allocated between different
sectors and fields of development according to the priorities in our Plan should
not be too difficult. By controlling non-Plan investment as well as through
proper fiscal and other policies, we can channel the flow of savings into the
public sector and the private sector, into industry and agriculture, into transport
and power, into education and health, according to the priorities and allocations
in the Plan. The important thing, however, is to raise the level of savings
in the country to an adequate level.
10. The banking system has an important role to play in this. A couple of years
ago, there had been signs of a lack of confidence, particularly in some of the
smaller banks. I am happy to say that as a result of various measures which
we have taken, including the scheme of deposit insurance which came into force
at the beginning of this year, our banking system stands greatly strengthened.
The Governor of the Reserve Bank, with whom I recently discussed the matter,
mentioned with special satisfaction the fact that the smaller banks will, in
his judgement, continue to play a useful and important role in our economy.
The State Bank has been opening branches in semi-urban and rural areas. The
Reserve Bank is making special efforts to facilitate the availability of credit
at low rates of interest to agriculture.
11. Although considerable progress has been made in all these directions and
bank deposits are steadily on the increase, the banking system does not find
it too easy to meet all the demands for funds which are generated by our growing
industries and rising levels of production. It seems to me desirable that industry
in the private sector should exercise a greater measure of restraint in relying
on bank finance. I say this not because I want to slow down the development
of the private sector which is as much a part of our Plan as the public sector,
but because private industry has available to it another source of finance which
has, in the recent past, become exceedingly important. I refer to finance in
the shape of equity capital. There was a time when it was difficult to get a
new issue subscribed and only big commercial houses could afford to set up major
enterprises. This situation is fast changing. The public at large, even people
with modest incomes, are now investing in shares. This is a healthy sign which
we must encourage. Government have, therefore been encouraging existing companies,
which wish to branch into new lines of production, to start new companies. Further,
in the floatation of new companies, there should be the maximum opportunity
for public participation. It seems also desirable that new companies should
aim at raising a larger proportion of the capital they need through equity shares,
rather than by loans, as they did in the past. The pursuit of these policies
will mean that the ownership of private industry will become more wide-based
and the concentration of economic power will be reduced.
12. The banking system also provides finance to the public sector. Apart from
the investments which It makes in Government securities public sector undertakings
draw upon the banks to meet their requirements of working capital. Life insurance
like banking is yet another source of finance for our development. The Life
insurance Corporation is a major investor in Government securities. It also
contributes to the development in the private sector. It is making special efforts
to popularise insurance in the rural areas through its Janata Scheme and is
using Panchayats and Co-operative Societies in order to spread insurance in
the villages.
13. In the effort to mobilise savings for the public sector, I attach the greatest
importance to the Small Savings movement. During the Second Plan period, the
net collections from small savings, including Prize Bonds, amounted to nearly
Rs.415 crores, which was roughly 9 per cent of the total outlay in the public
sector in the Second Plan. The Third Plan target for net collections from small
savings is Rs.600 crores. We had, accordingly, budgeted last year for a net
collection of Rs.105 crores from small savings. But judging from the progress
of collections during the year, the revised estimates presented last month came
down to Rs.95 crores and 1 would not rule out the possibility of actuals being
even lower. Clearly, we shall have to redouble our efforts to make the Small
Savings Scheme a success, particularly in the rural areas. I would invite the
co-operation of every Member of this House in this great task.
14. The Government must, of course, for its part, do a great deal too. We have
to improve our selling arrangements as well as service to the small saver. We
must devise new schemes to suit his needs. This is engaging my urgent attention
at the moment. I can make one announcement straightaway. At present, contributions
to Provident Fund and to life insurance policies are, within certain limits,
eligible for a rebate on income-tax. However, for those who are not salaried
workers or wage-earners, there is no scheme of Provident Fund. The opportunity
for life insurance is also subject to medical cheeks. To make available some
kind of an arrangement analogous to a Provident Fund for people who are self-employed
and not salaried workers, I propose to extend and modify the Cumulative Time
Deposit Scheme run by the Post Offices. At present monthly deposits can be made
under the scheme for a period of 5 or 10 years. We shall now introduce, in addition,
a 15-year account with a maximum monthly deposit limit of Rs.300. The existing
limit of a maximum monthly deposit in a 10-year account will also be raised
from Rs.l00 to Rs.200 per month. At the same time, the contributions made to
the 10 and 15 years accounts will be allowed to earn a rebate of income-tax
as in the case of life insurance premia and contributions to recognised Provident
Funds and subject to the same limits.
15. The Third Five-Year Plan lays considerable emphasis on realising adequate
surpluses from public enterprises and envisages a contribution of Rs.450 crores
from this source in addition to the sum of Rs.100 crores to be raised by the
Railways. We must get an adequate return on the vast amount of capital we are
investing in our railways, power plants, irrigation works, fertiliser plants,
steel plants and the like. By making past investments pay for future investments,
the rate of economic growth can be accelerated. This is the experience of all
countries irrespective of whether they rely mainly on the public or the private
sector for development. The private sector in India is already relying, to a
considerable extent, on the ploughing back of the profits and savings in the
corporate sector for its expansion. The public sector must do the same If it
is to play an increasing role in the development of our economy. This means
not only efficient and economical operation of public sector plants, but also
a policy of charging a proper fee or price for the services and products supplied
by the public sector. Betterment levies, water rates, electricity charges, railway
freights and the like cannot be determined on the philosophy of no profit and
no loss’, but on the consideration that all these services and facilities
need to be enlarged and their users must pay more for these things today in
order that there may be plenty of them tomorrow and the day after. Our price
policy must ensure that investment in key and basic industries earns a good
enough return to make higher investment possible. Situations may, of course,
arise in which a certain industry or a service needs to be subsidised. But even
subsidies can only be given out of surpluses arising somewhere else. Whenever
we accept the need for a subsidy at any one place, we should remember that it
will call for bigger surpluses elsewhere.
16. I should now like to give an account of the budget estimates for 1962-63.
17. In the budget presented on 14th March, 1962, the revenue receipts were estimated
at ‘Rs.1305.87 crores and expenditure at Rs.1369.33 crores, leaving a
deficit on revenue account of Rs.63.46 crores. As a result of the changes that
have since been made, the revenue deficit, on the basis of existing taxation,
is now estimated to go down to Rs.60.78 crores.
18. I should now like to explain briefly some of the important variations.
19. Apart from the changes which are really a regrouping of certain Demands
for grants following the recent reorganisation of certain Ministries and which
have been referred to in the Explanatory Memorandum, there are five items which
account for an increase in the estimates of revenue expenditure. The largest
of these is on account of the increase in dearness allowance. The last Pay Commission
had recommended that whenever the working class consumer price index remained,
on an average, 10 points above 11,5 for a period of 12 months, Government should
review the question of increasing the dearness allowance. As this condition
was satisfied during the period November 1960 to October 1961, it has been decided
to increase the dearness allowance of employees drawing basic pay below Rs.400
per month. The increase will range between Rs.5 and Rs.10 with suitable marginal
adjustments and will be given with retrospective effect from 1st November 1961.
As this decision was taken only a few days ago, it has not been possible to
work out the additional requirements under each Demand. Accordingly, a lump
provision of Rs.7.38 crores has been included as a miscellaneous item in a single
Demand which will be surrendered at the end of the year and the Ministries will
be expected to go in for supplementary grants, to the extent necessary, during
the course of the year.
20. I have already referred to the importance of increasing our export earnings.
The promotion of sales abroad is a costly business. Apart from the expenditure
on staff which Government employ, both at home and abroad, for this purpose
and the money which they spend on participation in fairs and exhibitions abroad,
industry itself must spend a great deal more for this purpose, and be prepared
occasionally to incur a loss. In deserving cases, it may be necessary for Government
to provide financial assistance to industries when they are in no position to
carry the whole burden of promotion themselves. It may also be necessary to
make grants to organisations set up by Government or industry for promoting
exports. I am, therefore, providing a sum of Rs.1 crore for export promotion
and development.
21. The Government of India have been examining for some time now the difficulties
experienced by industries located at great distances from the coal fields-more
particularly industries in the southern and western regions-in obtaining adequate
supplies of coal. In addition to the measures already taken for stepping up
the movement of coal by sea to these regions, we have now decided to make available
additional import of furnace oil, to the extent possible, with our limited foreign
exchange resources. To facilitate the use of furnace oil by industries located
at some distance from the ports, we propose to make a reduction in the cost
of transport of the furnace oil from the ports to the points of consumption.
The arrangement briefly will be that in accepting consignments of furnace oil
from various ports, the railways will recover from the consignor or the consignee,
as the case may be, only half the freight charges which are leviable in accordance
with the normal tariff rates in force at the time of booking, subject, however,
to the net minimum charge in force at present. The difference between the amount
recovered from the consignor or the consignee and the full freight applicable
will be made good to the railways by a subsidy. A provision of Rs.25 lakhs is
being made for this purpose.
22. An additional provision of Rs.99 lakhs has been made to accommodate the
proposals approved after the earlier estimates were framed mainly for the purchase
of stores and equipment required by the Survey of India.
23. Lastly, the estimates of Defence Services show an increase of Rs.1.7 crores
on account of the decision to revise the pay scales of Services officers with
retrospective effect from 1st April, 1960.
24. As against this increase in estimates of revenue expenditure, I propose
to transfer Rs.15 crores from the profits on coinage operations outstanding
under suspense. Prior to 1956-57, the net profit on coins put into circulation,
representing the difference between their face value and the cost of their metallic
content, was kept under a suspense head, the transfer to revenue being limited
to the net expenditure in the year on the running of the Mints plus a stabilised
credit of Rs.45 lakhs. This arrangement was revised in consultation with the
Comptroller and Auditor-General and with effect from 1956-57, the actual profits
on coinage and loss on destruction of uncurrent coins are adjusted directly
as revenue or expenditure. The amount outstanding under the suspense head was
intended to be utilised as a deficit neutralisation reserve and accordingly,
a sum of Rs.10 crores was transferred to revenue in each of the years 1959-60
and 1960-61. The balance at credit under the suspense head at present is a little
over Rs.37 crores and I feel it would be reasonable to transfer Rs.15 crores
from the suspense head to revenue receipts. After taking this transfer into
account, the revenue deficit will go down by Rs.2.68 crores.
25. On Capital account, the estimates presented last month provided for an expenditure
of Rs.1188 crores for Capital expenditure, including loans to State Governments
and other parties. The loan requirements of Hindustan Aircraft Limited have
since been reduced from Rs.2.5 crores to Rs.1 crore, but this saving will be
offset by an increase of Rs.1.5 crores in the Defence Capital Outlay. In addition,
a sum of Rs.95 lakhs is required for the purchase of bonds of the value of 2
million dollars to be floated by the United Nations Organisation. The original
estimates had provided for a loan of Rs.9.88 crores to the Railway Development
Fund from the General Revenues which the Railways would not now be requiring.
After taking into account the effect of the transfer of profits on coinage,
the Capital budget will show a deterioration of Rs.6.07 crores which will be
counterbalanced to the extent of Rs.2.68 crores by the improvement in the Revenue
budget. In the net, the overall deficit will increase from Rs.147 crores estimated
last month to Rs.150 crores.
PART B
26. I come now to, my taxation proposals. Before 1 refer to them, may I repeat
what I have stressed from time to time that taxation policy no longer serves
the sole objective of raising resources for the exchequer. In w planned economy,
it must also serve the wider objectives of augmenting savings, promoting exports,
of bringing about a better balance between the supply and demand for individual
commodities and indeed of social justice in distributing the rewards and sacrifices
implicit in planned progress. Further, all these objectives have to be reconciled
with an eye not only to the immediate future, but also to the long-term perspective
we have kept before ourselves. No less important a consideration is that the
administration of the tax laws should cause the minimum of vexation both to
the tax payer and to the tax collector and one thing that should not be taxed
is people’s patience.
CORPORATION AND INCOME TAXES
27. I shall begin with the direct taxes. I propose to increase the rate of tax
on Indian companies from 45 per cent to 50 per cent while the rate of tax on
foreign companies will continue at 63 per cent generally. For this purpose,
the rate of income-tax applicable to all companies is being raised from 20 per
cent to 25 per cent the rates of super-tax being suitably adjusted. This will
mean that the State will now get half the profits of joint stock companies as
against 45 per cent in the recent past. I, however, propose to exclude earnings
from exports from this increase. This is necessary because profit margins on
exports are relatively low and we want to give every inducement to trade and
industry to sell abroad.
28. It will be necessary, with the increase in the level of corporation tax,
to make some reduction in inter-corporate taxation because when one company
pays a dividend to another, the same profit is liable to corporation tax twice.
In the case of Indian companies the rate including super-tax applicable to dividends
received from Indian subsidiary companies registered before 1-4-1961 will continue
at 30 per cent, while that on dividends received from all other Indian companies
will be reduced to 35 per cent. Indian companies in which the public are substantially
interested and whose income does not exceed Rs.25,000 will continue to get a
further concession of 5 per cent. In the case of foreign companies which have
not made the prescribed arrangements for the declaration and payment of dividends
within India, the rate applicable to dividends received from Indian subsidiary
companies registered before 1-4-1961 will continue at 30 per cent; on dividends
received from a non-subsidiary Indian company registered before 1-4-1959, it
will be reduced from 63 per cent to 50 Per cent while on dividends received
from other Indian companies, it will be reduced from 40 per cent to 35 per cent.
As a result of these changes, corporation tax will yield an additional revenue
of Rs.10.25 crores.
29. I also propose to tighten the schedule of admissible entertainment expenses
introduced last year. Though this will not bring any appreciable additional
revenue, I expect it to restrain conspicuous entertainment at company expense.
30. I have taken the opportunity of reviewing personal taxation of all kinds.
I have come to the conclusion that while the richer sections of the community
must pay more, there is room for some simplification and relief at particular
points. Accordingly, it is proposed to revise the schedule of rates of income-tax
and super-tax on individuals, Hindu undivided families and unregistered firms.
The income-tax payers form a relatively well to do section of the society. In
a population of 443 millions, they are under a million and thus are a microscopic
group. It is only natural that they should bear a share of the tax burden in
keeping with this privileged position. In this context, rates of income-taxes
on corresponding incomes in different countries are often compared. This is,
however, not meaningful as conditions differ widely. In any case, proper comparison
can only be of the incidence of total tax burden on different groups with the
same relative position in each society.
31. In the revised rate structure of income and super-tax the rate at the highest
slab will be 72.5 per cent exclusive of the surcharges while the rate on incomes
below Rs.5000 will remain unchanged. The intermediate slabs have been suitably
adjusted to secure an even increase in rate. Honourable members will recall
that various studies have stressed the fact that at intermediate and lower levels
of income, our tax rates are comparatively low but in view of the limited span
of income spread, they rise steeply. While this is to an extent inevitable in
our circumstances, the changes I have proposed will bring about an improvement
over the present position.
32. I am conscious that income-tax weighs a little more heavily on salaried
classes than on others. I, therefore, propose to reduce the surcharge on income-tax
on salaries, which also include pensions, from 5 per cent to 2.5 per cent leaving
other surcharges unchanged. The rate at the highest slab inclusive of surcharge
will be 87 per cent. It is proposed to raise the exemption limit for Provident
Fund contributions and insurance premia to Rs.10,000. As I have mentioned earlier,
it is also proposed to liberalise and widen Cumulative Time Deposit Scheme with
the benefit of income-tax exemption which can be taken advantage of by self-employed
and uninsurable persons. These measures will give some relief to individuals
without reducing the resources available for development.
33. It is also proposed to revise the structure of rates of tax on registered
firms by reducing the limit of exemption, revising the number of slabs and the
rates of tax and having higher rates for firms with five or more partners.
34. All these measures taken together are expected to yield annual revenue of
a little over Rs.15
CAPITAL GAINS
35. Capital gains are already taxable under our income-tax Act. The incidence,
is, however, restricted in the case of non-company assessees to income-tax only,
calculated in the prescribed manner. In an equitable system of taxation, capital
gains realised during a short period and those not so realised require to be
treated differently. It is necessary to secure broad equity in the treatment
of different categories of tax payers. In a number of cases, it is not possible
to establish certain incomes as arising out of business but they are nonetheless
of a similar nature. Gains realised through purchase and sale of capital assets
within a short period fall in this category. I have proposed that gains which
result from disposal of capital assets within a period of one year from the
date of acquisition shall be made subject to income-tax and super-tax like other
ordinary incomes. Capital gains for assessees other than companies from assets
held over a period longer than one year will be subject to income-tax at the
rate of 25 per cent or at the rate applicable as if they were short term gains,
whichever is less. Long term capital gains of companies will continue to be
taxed at the rate of 30 per cent. This will yield a revenue of Rs.50 lakhs half
of which is expected to be realised from companies.
EXPENDITURE TAX
36. I propose to abolish the five year old Expenditure Tax with effect from
the current year. When it was introduced in 1957, it was realised that it had
no backing of historical experience. It was, however, hoped that the tax would
be a potent instrument for restraining ostentatious expenditure and for promoting
savings. While these are very desirable objectives, experience has shown that
the existence of the Expenditure Tax has contributed little to them. The revenue
from this source has remained conspicuously small. It has been argued that the
incorporation of an Expenditure Tax in the tax structure would make the administration
of income-tax a great deal more effective and would enable the rates of income-tax
to be lowered suitably. Experience has not shown this to be the case. If the
working of this tax had shown some Promising results, it would have been worth
while to continue and even extend it; but with the present experience, it is
considered best not to continue a measure which, as a source of economic restraint,
has been ineffective and as a source of revenue unattractive. The basic objectives
of the tax have to be achieved in other ways. This will mean a reduction in
revenue of the order of Rs.70 lakhs during 1962-63.
WEALTH TAX
37. It is proposed to increase the Wealth Tax rates by .25 per cent and .5 per
cent on the two highest slabs and to revise the slab structure a little. It
is also proposed to discontinue the exemption on shares held in new companies
during the first five years allowed at present under the Wealth Tax Act. This
is expected to yield an additional revenue of Rs.2 crores per annum
38. The net effect of all the changes in direct taxes in a full year will be
an increase of Rs.27.2 crores in our revenue.
UNION EXCISE DUTIES
39. Turning to indirect taxes, it is only natural that a major share should
come from the Union Excise duties. I propose to revise the rates of excise duty
on unmanufactured tobacco and cigarettes which would yield a revenue of Rs.5.28
crores in a full year. While the general rates are being increased by only small
amounts, it is proposed to re-classify tobacco granule (rawa) in keeping with
its more general use and also to re-group, cigarette price slabs.
40. I also propose to revise the general structure of duty on cotton cloth and
yarn. The present rates of duty on yarn are 10 and 15 naye paise per kilogram.
The incidence of this duty per metre of cloth is less on superfine cloth as
compared to coarse cloth. This is not an equitable position. It is proposed
to revise the yarn rates in such a way as to achieve a slight progression in
the incidence of tax according to the quality of cloth, maintaining the present
duty on coarse yarn at 10 naye paise. The differential of 10 naye paise per
kilogram in favour of yarn issued in hanks will continue. It is also proposed
to step up the duty on processing of cloth, keeping in view the improvement
in quality and price of cloth as a result of processing. Operations like mercerising,
shrink proofing and organdie processing substantially enhance the quality as
compared to bleaching, dyeing and printing and should attract relatively higher
rates of duty. With these two aspects in view and to secure that the common
man has not to make anything more than a marginal adjustment in his cloth bill
on coarse and medium cloth which he normally uses, it is proposed to reduce
the duty on grey unbleached cotton fabrics. It is also proposed to place units
with 50 or more powerlooms on the same footing as composite mills. Rates of
compounded levy on powerloom units with looms from 5 to 49 are also proposed
to be increased so as to graduate the increase in benefit with the reduction
in size and to reduce the incentive for splitting of units. Units employing
4 looms or less will be exempt. AS a result of these changes, the annual revenue
from cotton cloth and yarn will increase by Rs.12. I crores.
41. It has been found by experience that match boxes of 50 sticks are being
sold at 6 naye paise a box. As local taxes and conditions vary a little, the
actual price to a retail dealer so works out that in several areas he cannot
sell at 5 naye paise a box without incurring a loss, whereas at 6 naye paise
a box he makes an excessive profit. In view of this, it is proposed to revise
the duty fixed by notification so as to wipe out this unintended margin, the
statutory rates remaining unchanged. This will yield a revenue of Rs.1.99 crores
per annum.
42. It is proposed to convert the duty on unprocessed woolen, rayon and art
silk fabrics to a duty on yarn and processing, so as to release the powerlooms
from excise control. The loss in revenue will be made good partly by an increase
in duty on yarn and partly by a duty on processed fabrics. As a result of these
changes, only a small number of units will need excise control in future. As
a fair quantity of yarn is imported, these changes will result in a loss of
Rs.50 lakhs in the revenue from excise duty but there will be a net increase
in revenue of Rs.1.16 crores on account of increased countervailing duty on
yarn.
43. The present definition of patent and proprietary medicines which followed
the Drugs Act has been producing some anomalies. The Drugs Act definition while
suitable for medical purposes excludes from the scope of patent and proprietary
medicines quite a few preparations which are sold under proprietary names and
marks and are priced accordingly. I have, therefore, proposed a more suitable
definition. With this widening of the definition I propose to reduce the incidence
of tax from 10 to 7.5 per cent by a notification and also to exempt totally
certain highly essential drugs.
44. It is also proposed to alter the tariff item of asphalt and bitumen so as
to include coal-tar, which is used for similar purposes. Coal-tar burnt in furnaces
of plants producing it will be exempted by notification. It is also proposed
to revise some of the exemptions which have either outlived their utility or
have been found to be open to abuse. It is proposed to simplify the procedure
for duty on copper and other alloys for convenience of smaller manufacturers.
It is also proposed to increase the duty on aluminium foil by Rs.100 per tonne
in order to discourage its internal consumption which creates a demand for the
import of ingots. In order to encourage export of tea, it is proposed to increase
the duty on loose tea by 5 to 10 naye paise per kilogram and to give a rebate
of 15 naye paise per kilogram on its export.
45. These changes in the existing excise duties will give a revenue of Rs.20.74
crores in a full
46. I also propose to levy excise duty on some new items. It is proposed to
levy a duty on jute manufactures in order to restrict their internal consumption
and to encourage their exports. This will yield a revenue of Rs.3.12 crores.
It is also proposed to levy an ad valorem duty of 5 to 7.5 per cent on certain
iron and steel products but to exempt wastages arising in the manufacture of
these products from raw iron or steel. Net revenue as a result of this will
be Rs.6 crores. It is proposed to levy a duty of 5 to 15 per cent on electric
cables and wires which will yield a revenue of Rs.2.1 crores. It is proposed
to impose a duty on specific acids and gases which will together yield a revenue
of Rs.1.64 crores. Other items on which I propose to levy an excise duty are
plywood at the rate of 10 to 15 per cent, asbestos cement products at the rate
of 10 per cent, tread rubber and latex foam sponge at the rate of 20 per cent,
gramophones, gramophone parts and accessories and gramophone records at rates
varying from 15 to 30 per cent. These items will yield a revenue of Rs.2.30
crores. In the mineral oil section I propose to add a levy at 5 per cent on
mineral oils and mineral oil products not otherwise specified. On the present
production this will bring in a revenue of Rs.26 lakhs. The total revenue from
the fresh levies will be Rs.15.42 crores in a full year.
CUSTOMS DUTIES
47. The changes in the rates of excise duties and the imposition of fresh duties
I have just described will yield a revenue of Rs.7.25 crores on the Customs
side from countervailing duties.
48. I propose to increase import duties on certain iron and steel items and
on art silk yarn by 5 per cent. This will yield a revenue of Rs.2.16 crores.
The main items affected by the increase under iron and steel are structures,
fittings for pipes and tubes, tin plates, steel ingots and manufactures not
otherwise specified. In the case of tin plates, the increase will, however,
be only 2 per cent. I also propose to impose an import duty of 25 per cent on
stainless steel plates and sheets and rods and bars. This will yield a revenue
of Rs.80 lakhs. Copra is subject to an import duty of 40 per cent standard and
30 per cent preferential but by a notification they have been reduced to 15
per cent standard and 5 per cent preferential. It is proposed to increase the
notified rates to 25 per cent and 15 per cent which will still be well within
the ceilings. It is found that as compared to Indian copra, there is a substantial
price advantage in imported copra. It is also proposed to increase the duty
on certain types of tools, excluding machine tools and agricultural implements,
from 35 per cent to 50 per cent. This is in line with certain increases made
last year. These two items will yield a revenue of Rs.1.89 crores in a full
year. It is also proposed to rationalise duties on a few items which will yield
a small revenue of Rs.7 lakhs only.
49. It is proposed to raise the rate of import duty on cars from 100 to 150
per cent. The specific duty of Rs.6000 is, however, being done away with so
as not to discourage import of small or used cars in genuine cases. Though there
are no regular imports of cars, some cars continue to come into the country,
on Customs clearance permits. As their number is small, their outside value
is high and when they are sold, there are very large profits. The proposed increase
in duty will reduce these profits and will make import of cars a little less
attractive. The revenue from this will be about Rs.25 lakhs.
50. Having spoken so far about increases, I now refer to a substantial reduction.
I propose to reduce the export duty on tea from 44 naye paise to 25 naye paise
per kilogram. This will mean a loss of revenue of Rs.4.1 crores. Taken with
the proposed refund of excise duty of 15 naye paise per kilogram, this should
provide a substantial incentive for export of tea.
51. These proposals on indirect taxes side will bring in a revenue of Rs.44.5
crores in a full year. Daring 1962-63, their effect will, however, be for 342
days that is to the extent of 93.7 per cent.
NET EFFECT OF THE PROPOSALS
52. These changes in direct and indirect taxation taken together will bring
in a revenue of Rs.71.7 crores in a full year, of which Rs.44.5 crores will
be from indirect taxation and Rs.27.2 crores from direct taxation. Both direct
and indirect taxation thus play a part in my proposals. This question of the
respective roles of direct and indirect taxation is being raised on a number
of occasions. There seems to be a feeling in some quarters that whereas direct
taxes are progressive indirect taxes are regressive in the sense that their
incidence falls more heavily on the poor than on the rich. I am afraid this
view that indirect taxes are regressive is not correct in our conditions. Whether
indirect taxes hit the poor more than the rich or vice versa depends upon the
kind of commodities that are subjected to indirect taxes and the rates at which
they are taxed. No one would contend that excise duties on automobiles, refrigerators
and airconditioners, for example, hit the poor. Quite a number of items in our
range of indirect taxes are such that they impinge more heavily on the upper
middle and middle classes. We had this whole question analysed last year and
our study shows that indirect taxes in India have been progressive in their
incidence. That is to say, the higher the total expenditure of a family on an
average the higher the proportion of the total expenditure it pays in indirect
taxes. Not only that, but the degree of progression also was shown to have increased
as more and more articles not entering appreciably in common man’s consumption
were subjected to excise duty.
53. Hon’ble Members would also appreciate that in a country like India,
the income-tax cannot be a mass tax. That would be administratively impossible
and indeed irksome to the vast majority of the poorer people. At the same time,
we have to tax at least to some extent even those who are not covered by income-tax,
for it would be equally impossible to meet all our requirements for both plan
and non-plan expenditures without mobilising a part of the incomes that accrue
to the poorer sections of the community. Undoubtedly, the richer sections must
carry an increasingly larger share of taxation and poorer sections must benefit
progressively more through development. That is part of our concept of a socialist
state.
54. I am aware of the wide-spread desire in this House and outside that the
imposition and enhancement of excise duties should not lead to a general increase
in consumer prices. In some cases, duties are imposed as there is a large margin
of profit and it is considered desirable to reduce that margin. In others, for
example, as in the case of matches this year, the duty is meant to take away
the unintended margins of middle-men. In these cases, there should be no increase
in the price to the consumer. On the other hand in a case like that of patent
and proprietary medicines, where it is proposed to reduce the duty, there should
be a reduction in prices. In the case of cloth, a part of the increase in the
rates of duty on yarn and processed fabrics can as well as absorbed by the industry.
The duty on coarse and lower medium fabrics has been particularly so adjusted
that there should be no increase in the price of such cloth.
55. As regards the impact of these duties on exports, I should like to mention
that it is proposed to give a consolidated refund of excise duties paid on the
materials and intermediates used in the process of manufacture. There is, therefore,
no reason why excise duties should impinge on export costs.
56. The taxation proposals outlined above would yield a total revenue of Rs.68.88
crores during 1962-63. Of this, a sum of Rs.60.80 crores will accrue to the
Centre and the balance of Rs.8.08 crores to the States as their share as a result
of the recommendations of the Finance Commission accepted by Government. This
share will go on increasing from year to year. The manner in which these gains
to the States should be adjusted in keeping with the overall requirements of
the Centre and the States for fulfilling their plans is under consideration.
The Planning Commission intends to review shortly the financial position of
the States during the current year in consultation with them.
CONCLUSION
57. As a result of the tax proposals I have placed before this House, there
will be a net accretion of Rs.60.80 crores to the Centre during 1962-63. This
would completely wipe out the revenue deficit. The overall deficit will consequently
be reduced from Rs.150 crores to Rs.89 crores and will be met by the expansion
of Treasury Bills.
58. I cannot say that I am happy with the gap which still remains. It is my
hope that as in the past with increased incomes and production and with a tighter
cheek on tax evasion our taxes will bring in more than we are able to foresee
at present. In this context, I would emphasise that we can no longer go along
with out-moded concept of taxation being limited to what is needed to cover
the revenue component of the budget. In the context of the major development
programmes on which the public sector is engaged and having regard to the possibilities
and limitations of borrowing from the market it is essential that the revenue
budget should provide a sizeable surplus to sustain a part of the capital budget.
In fact during the Second Five-Year Plan we achieved a revenue surplus of the
order of Rs.220 crores without which the upward pull on the price level would
have been far greater. In putting forward my tax proposals, therefore, I have
paid greater heed to the over-all target of taxation for the Third Plan which
as the House is aware is Rs.1100 crores. The additional taxation levied at the
Centre last year should yield a total of about Rs.450 crores over the Five-Year
period. The taxes which I have proposed today will take us yet closer to our
goal of raising adequate resources for our Plan. It is a matter of concern to
me that progress in regard to additional taxation by the States has been slow
and in 1961-62 the State Budgets provided for additional taxation with a five
year yield of about Rs.100 crores only as against the target of Rs.610 crores
set in the Plan. I would earnestly request all State Governments to ensure that
this shortfall is made up with speed and vigour.
59. Higher levels of taxation no doubt impose a burden of sacrifice on our people.
The point to remember is that there are only two alternatives to such taxationinflation
or stagnation. Without the requisite tax effort we would have to face either
an upsurge of prices which would impose a much bigger and much less equitable
burden on the community, or a prolongation of our poverty due to a slowing down
of our development. It is against this background that I would ask the House
to consider and support my budget proposals.