SPEECH OF SHRI MORARJI R DESAI
DEPUTY PRIME MINISTER AND
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1968-69
Dated : February 29, 1968
I rise to present the Budget for the year 1968-69. The Indian economy is emerging
now from one of the most difficult periods since independence. Successive droughts,
shortage of food and raw materials, rising prices, subdued industrial demand,
inadequacy of exports and savings and sluggishness in the capital market had
combined to create a feeling of despondency which has afflicted us in the recent
past. Honourable Members, I am sure, would agree that we can now look back on
the past two years with a sense of relief. With the help of our friends abroad
and the efforts of our own people, we have been able to avoid a major disaster
and to impart at the same time a new sense of dynamism to our programmes of
agricultural development.
2. I look upon the coming financial year with a certain degree of optimism and
with the expectation that given the right policies, it can become a year of
revival. With the sharp increase in agricultural production and rising incomes,
there would undoubtedly be some increase in the demand for industrial products.
Recent trends in exports have been encouraging. The price level is registering
a decline. The objective of policy in the coming year must be to consolidate
the gains: so that a major developmental programme can be undertaken in our
Fourth Five-Year Plan which will be launched in the following year.
3. Honourable Members are already familiar with the various aspects of the new
agricultural strategy. The availability of nitrogenous fertiliser has been more
than twice as high this year as in 1965-66. Arrangements are in hand to maintain
supplies at a high level in the coming year. The area under high yielding varieties
of seeds is expected to increase from 15 million acres this year to 21 million
acres next year. In recent years we have concentrated on minor irrigation works
in order to get quick results from investments. In the current year, 3 to 31/2
million acres were covered by new minor irrigation facilities and the target
for the coming year is another 31 million acres. Major irrigation schemes on
which substantial progress has been made also deserve our prior attention.
4. We have to make earnest efforts to ensure that we introduce the same kind
of technological advance in commercial crops as we have achieved in respect
of foodgrains. Increased productivity per acre is essential if adequate returns
to the farmer are to be reconciled with reasonable prices to the domestic consumer
and competitiveness in export markets. The processing industries can make a
valuable contribution in this regard; and I shall have occasion later to refer
to a measure I propose to introduce to encourage these efforts.
5. Assurance of remunerative prices to the farmer for his products is an integral
part of the new agricultural strategy. I should like to assure the House that
inadequacy of finance will not be allowed to stand in the way of purchase by
Government and the Food Corporation of such supplies as may be forthcoming at
the procurement prices. The target of procurement is 7 million tonnes; and well-planned
procurement measures by all concerned will have to be undertaken to reach this
target. Even with this target, import of substantial amount of foodgrains appears
to be necessary in order that the long unfulfilled programme of building up
a sizeable buffer stock can be achieved after making allowance for replenishment
of private inventories and some increase in consumption. An agreement has already
been signed to import 3.5 million tonnes of foodgrains from the U. S. A. under
PL 480.
6. The steady rise in prices over the last few years has been a matter of all-round
concern. Over the four years ending March 1967 prices had risen by 60 per cent
and there was a further rise during the earlier part of the current financial
year. In recent months there has been a downward trend. A part of the recent
decline is no doubt seasonal; bit it is reasonable to hope that the increasing
flow of foodgrains and consumer articles will help in the stabilisation of prices
at reasonable levels.
7. Sir, I am happy to say that Government was able to get agreement this year
that a part of the increase in dearness allowance which was due to Government
employees be credited to their provident funds instead of being paid in cash.
These special contributions can be withdrawn in the coming year. But may I request
my Honourable friends to join me in an earnest appeal to Government employees
not to withdraw these contributions as that will help in maintaining a climate
of price stability. Economics, they say, is a dismal science; and I see no escape
from saving more in order to preserve the value of the savings.
8. A substantial part of increase in incomes would need to be ploughed back
into further investment, if an adequate tempo of development is to be achieved
and maintained. In part, investments will be undertaken directly by those who
save out of larger incomes. Farmers will wish to purchase pumps, tractors and
other equipment. In part, however, savings of all classes have to be mobilised
for outside investment, public or private.
9. The small savings movement has a vital role to play in securing this objective.
Net small savings have been relatively low in the recent past, in consequence
of the droughts. I am making a number of modifications in the small savings
schemes and necessary notifications are being issued in this regard. Briefly,
we are introducing a new five-year deposit scheme with a tax-free return of
about 4.5 per cent and are accordingly revising the return on the existing five-year
cumulative time deposit scheme, and the 12-year and 10-year tax-free savings
certificates. With a renewed drive for collection, particularly, in the rural
areas, these measures should help in greater mobilisation of resources.
10. The return on provident fund accumulations of Government employees is also
being raised; I propose to do so, however, on the first Rs.10,000 of accumulations
only. Those who are self-employed do not have the facility of saving through
provident funds. I propose, therefore, to introduce a public provident fund
scheme under which all sections of the community will have the opportunity of
contributing to a provident fund, and to avail of the income-tax benefits provided
for under the law in respect of contributions to such funds. It is my hope that
in time, this provident fund scheme will secure substantial resources for the
exchequer. Self-employed persons such as doctors, lawyers, artists, actors and
actresses, like old soldiers, are never known to retire. But they too reach
their prime some day. Something laid by-legitimately, and with considerable
saving in tax liability-should prove valuable even to those who have a greater
claim to immortality than most of us.
11. A moderate increase in exports has occurred during the current year; and
the increase in imports has been less than that in exports. Nevertheless, our
foreign exchange reserves declined by $ 60 million between April and mid-November,
1967; and it became necessary to draw $ 90 million from the International Monetary
Fund. In recent weeks, there has been a welcome increase in reserves. In response
to better export performance, which may be expected to continue. The fact that
we have been able to get some debt relief this year has also helped in managing
the over-all foreign exchange position. With the revival of industrial activity,
import demand will be strong once again; and this underscores the fact that
we cannot restore viability to our balance of payments without a sustained increase
in export earnings . Basically, this is a question of increasing the production
of exportable goods and increasing efficiency and savings all round. Export
policies have also to be geared promptly to changing circumstances.
12. That is why we announced a number of changes in export duties on the 7th
of February without waiting for the presentation of the Budget when every Finance
Minister likes to mix the bitter with the sweet. The urgency of the situation
was such that 1 had to forego the certainty of receiving at least one bouquet
in the midst of whatever brickbats that may be in store. We have been giving
cash assistance to some of our exports, particularly the newer manufactures.
Certain adjustments in these rates of assistance have already been made. Government
propose to maintain the new structure of assistance intact-encouraging neither
uncertainty nor perpetual expectations of further assistance. We have also recently
streamlined and simplified the procedures for release of foreign exchange for
the purpose of export promotion.
13. One of the important needs of the export sector has been the provision of
adequate and cheap credit. During the year, the industrial Development Bank
enlarged the facilities for medium-term export credit; and the Reserve Bank
also took measures to ensure that credit for exports of newer manufactures was
available at particularly concessional rates. It is desirable that credit should
be available for exports generally at a relatively low rate of, interest. I
am, therefore, making provision in the Budget for the coming year for grant
of a subsidy towards interest charges on export finance provided by the banks.
The Reserve Bank will announce the details of the scheme which will include
the prescription of a ceiling on interest charges qualifying under the scheme.
14. An adequate expansion of India’s export earnings is only possible
within an appropriate international framework. It is a matter of gratification
for us that the second session of UNCTAD is being held in New Delhi. It is our
earnest hope that the deliberations of the Conference will help in promoting
co-operation in trade and aid between the developed and the developing countries
and among the developing countries themselves.
15. As the Honourable Members are aware, we took a series of steps during the
year to stimulate industrial output. With the revival of agricultural production
and the consequent rise in incomes, a number of consumer goods items such as
cotton yarn and vanaspati are showing an increase in production. There are also
signs of a revival in the production of commercial vehicles. Industries supplying
the needs of agriculture have done well even in the recent past and continue
to do so. The level of private investment should pick up in response to the
generally better economic outlook. Continued increase, in exports and progress
towards reducing the dependence on imports will also be necessary to create
and sustain a climate of industrial revival. In this connection, it is a matter
of satisfaction that our capital goods industries have won valuable export orders
in the recent past and that we hope, to get sizeable orders for wagons, rails
and other steel products from the Soviet Union. I expect an increase in the
industrial production of the order of at least 5 to 6 per cent in the coming
year. This increase, though moderate as compared to our past performance, would
represent a significant advance over the rate of growth in the last two years.
16. The working of public Sector undertakings has been engaging our earnest
attention. The public sector has been particularly hit by recession because
it is mostly engaged in the production of capital goods or producer goods. The
general recovery in the economy will undoubtedly help, but the basic problem
of achieving a long-term improvement in efficiency and yields will have to be
tackled urgently. The recommendations made by the Administrative Reforms Commission
are being actively studied and 1 trust before long certain concrete steps will
be taken to effect a lasting improvement.
17. Now that I have taken you through a survey of savings and exports, of prices
and production, I could perhaps turn safely to some inconvenient facts of life.
In my Budget Speech last year, I had referred to the need to avoid deficit financing
in the circumstances then prevailing in the country. These circumstances have
changed for the better; but unfortunately, not my budgetary fortunes so far.
In actual practice, the current year is expected to end with a large deficit
of Rs.300 crores at the Centre. Honourable Members would appreciate that it
is neither an easy nor a pleasant matter for me to come to this House with this
particular piece of information. It is some solace that the worsening in the
budgetary position has little to do with unexpected increase in expenditure.
The deterioration has come about on account of shortfalls in revenues and foreign
aid utilisation which in turn have been due to the low level of economic activity
and also, because of a decline in the resources of the States and public sector
enterprises. To some extent perhaps, we were also misled into undue optimism
by the oft repeated charge of underestimation of resources. As soon as the picture
regarding shortfall in resources started emerging, I tried to make judicious
readjustment of outlays. The manoeuvrability for such an exercise in the midst
of the year is extremely limited, particularly if this is super-imposed on a
tight budget. There was also the consideration of the effect which any drastic
cut in public spending would have had on the recessionary situation. In fact
there were suggestions from most quarters to step up expenditure in one way
or the other. Some steps were also taken in this direction. However, the expenditure
estimates in totality have been contained; and on this count at least I can
claim Some credit for having taken to heart the admonitions of the Honourable
Members.
18. The Budget which 1 presented in May last had assumed the utilisation of
external assistance, other than PL 480, of Rs.865 crores. Actual aid utilisation
is not expected to amount to more than Rs.756 crores, thus showing a shortfall
of as much as Rs..109 crores. The receipts from import duties will be about
Rs.125 crores less than assumed in the original Budget. Further, the Railway
revenue shows a shortfall of Rs.17 crores, their ordinary working expenses being
at the same time, Rs.23 crores higher-in all, a deterioration of Rs.40 crores.
On the Posts & Telegraphs side also, there is a similar deterioration of
Rs.22 crores. I The internal resources of public sector undertakings have gone
down by Rs.41 crores, the bulk of which is in respect of Hindustan Steel.
19. There is one other factor which has also contributed to the large deficit
this year-I am referring to the overdrafts of States. Last March we had provided
Rs.55 crores’ to some States in order to enable them to clear their overdrafts
with the Reserve Bank which were likely to be outstanding at the end of 1966-67.
In the Budget that I presented last May, I had also made a provision of Rs.50
crores for the same purpose. In the event, a total of Rs.113 crores was given
to the States in respect of their overdrafts at the end of the last fiscal year;
it was hoped that with the burden of past overdrafts taken care Of, the States
would be able to avoid similar overdrafts in the current fiscal year. Unfortunately,
some of the States are still running overdrafts and 1 have decided to provide
Rs.50 crores more in the current year’s Revised Estimates to clear the
overdrafts once again at the end of the current year. While we have thus decided
to safeguard the Plans of the States next year, Honourable Members would appreciate
that we cannot allow a similar situation to develop next year also. I trust
that the State Governments will not precipitate a situation in which we will
be obliged to reconsider the existing banking facilities enjoyed by the States
with the. Reserve Bank.
20. Next year’s revenue receipts at existing levels of taxation are estimated
at Rs.3132 crores, being Rs.1 38 crores more, than the current year’s
Revised Estimates. The major increase of Rs.86 crores occurs under excise duties.
Income tax is likely to show an improvement of about Rs.10 crores only as the
profitability in the corporate sector this year will be reflected in the assessment
next year. Customs revenue is expected to show a slight fall of Rs.3 crores,
the anticipated improvement, under import duties being more than offset by reduction
under export duties. The rest of the increase in revenue next year occurs mainly
under interest receipts. Of the total revenue receipts, Rs.423 crores will be
transferred to the States as their share of Central taxes and duties.
21. External aid, other than PL 480, is placed at Rs.775 crores. Next year’s
repayment liabilities are Rs.193 crores, thus giving a net figure of Rs.582
crores. The rupee accruals in respect of PL 480 imports as also the dollar credit
under the new agreements are placed at Rs.274 crores as against Rs.366 crores
this year.
22. Next year’s expenditure estimates include Rs.1015 crores for Defence
as against Rs.970 crores in the Revised Estimates, thus showing a rise 6f Rs.45
crores which is mostly accounted for by dearness allowance increases and somewhat
larger provision for replacement stores. Included in these estimates is also
an increase of Rs.2 crores for pension charges and Rs.7 crores under Capital.
Border roads account for a provision of Rs.48 crores which is Rs.5 crores higher
than in the Revised Estimates.
23. Sir, I am well aware that our defence expenditure should receive the utmost
scrutiny so that the resources available for development are not unduly eroded.
The question of reducing the magnitude of defence expenditure without detriment
to national security has been continually receiving our earnest attention. Significant
progress has already been achieved towards improving the teeth-to-tall ratio
and further measures to Improve this are in hand; likewise, other measures for
improving the cost-effectiveness of our defence outlays are also under consideration.
It is obvious that with the substantial increase in the price-level that has
taken place over the recent past, some increase in defence expenditure would
become unavoidable. Honourable Members would, however, be interested to note
that as a percentage of gross national product, defence expenditures have already
come down from 4.4 per cent in 1963-64 to an estimated 3.2 per cent in 1967-68.
24. The Budget estimates for 1968-69 include Rs.243 crores on account of non-Plan
grants to States and Union Territories. A provision of Rs.223 crores has also
been made for giving non-Plan loans to States and Union Territories of which
Rs.105 crores is for purchase and distribution of fertilisers, seeds and pesticides,
and Rs.20 crores for scarcity relief. The provision for non-Plan expenditure
under the developmental heads is estimated at Rs.237 crores as against Rs.214
crores this year in part as a result of increased provision for export promotion.
Rs.186 crores are provided under heads relating to Administration as against
Rs.177 crores this year, the bulk of the increase being on account of higher
dearness allowance. The total interest charges are estimated at Rs.550 crores
as against Rs.50 8 crores this year.
25. The resources for the Plan next year on the basis of the estimates just
mentioned and a number of miscellaneous items not mentioned here, are placed
at Rs.1544 crores of which Rs.170 crores are to be contributed by public sector
undertakings including the Railways and the Posts and Telegraphs.
26. The requirements for meeting the Plan outlays of the Centre and those of
the Union Territories as well as for providing Plan assistance to States are,
however, much larger. In making provision for the Plan at the Centre, a balance
has to be struck between the constraint of resources and the need to maintain
the progress in respect of continuing schemes and the initiation of new schemes
in sectors of high priority. On this basis, a sum of Rs.615 crores has been
allocated for providing assistance to the States as against Rs.595 crores this
year. Rs.65 crores have been provided for Union Territories-one crore more than
this year. The provision of Rs.1179 crores for the Centre’s own Plan will
only be marginally higher than the current year’s budgeted outlay of Rs.1172
crores and the expected outlay of about Rs.1150 crores. In the aggregate, the
provision for the Plan in the Centre’s Budget for the coming year amounts
to Rs.1859 crores as against the expected outlay of about Rs.1809 crores in
the current year. This would, of course, be augmented by the resources that
the States themselves are able to raise for their Plans. Honourable Members
may like to note that a provision of Rs.140 crores is being made for building
up a buffer stock of foodgrains which has a valuable part to play in underpinning
our plans for development. If account is taken of this, what may be broadly
caned “planned outlays for development” would show a significant
increase over the current year.
27. I would also like to point out that of the Plan assistance of Rs.615 crores
to the States, Rs.590 crores has been already allocated among the different
States by the Planning Commission and the remaining Rs.25 crores is being specifically
earmarked for a speedy completion of selected major irrigation projects. It
is my earnest hope that the State Governments will provide adequate resources
for the urgent requirements of minor irrigation and rural electrification. Over
the year, depending on the economic situation, I will do my best to supplement
the efforts of the States in these two priority areas.
28. The main items forming part of the Centre’s outlay of Rs.117 9 crores
are: Rs.172 crores for the Railways, Rs.153 crores for iron and steel, of which
Rs.110 crores are for Bokaro, Rs.82 crores for petroleum and Rs.70 crores for
chemicals including fertilisers. The provision for agriculture is Rs.53 crores,
that for Posts and Telegraphs Rs.48 crores and for financial institutions Rs.35
crores. I quite realise that these provisions do not meet the requirements of
all the Ministries; but the constraint of resources has left me with no choice.
29. Honourable Members would note that we have decided to appoint a Finance
Commission in advance of the due date so that its findings are available for
the formulation of the Fourth Plan. A copy of the Notification constituting
the Commission and incorporating its terms of reference is being laid on the
Table of the House today. I have been particularly keen for sometime that the
various financial problems between the Centre and the States, and among the
States themselves, should be objectively reviewed so that solutions are found
which are not only just but accepted as such by all concerned. The recommendations
of the Commission, I am sure, will serve this purpose and contribute towards
national integrity and harmony.
PART B
30. Sir, I now come to the much awaited and perhaps much dreaded part of my
Budget speech. I trust the Honourable Members will not take me to task if the
proposals I unfold do not fulfil the expectations of dread. With resources available
for the Plan next year of Rs.1544 crores and the proposed Plan provision of
Rs.1859 crores, there is a gap in the Centre’s Budget of Rs.315 crores.
A deficit of this kind is usually an invitation to a Finance Minister to sharpen
his knife for a major operation for mobilisation of additional resources. On
this occasion, I propose to engage myself essentially in a minor operation in
the nature of plastic surgery-taking out a little flesh here and adding a little
bit there in order to make the tax-system more efficient and attractive.
31. A number of radical suggestions for tax reform have been made from time
to time by Honourable Members, individual scholars and associations of labour,
trade and industry. The final report of Shri Bhoothalingam has been received
and will be made available to Honourable Members. The Public Accounts Committee
has also recently made a number of suggestions in this regard; and we are awaiting
the recommendations of the Administrative Reforms Commission. Over the year,
I have given the most anxious consideration to the revision and simplification
of the tax structure, both direct and indirect. While some changes are obviously
desirable and could be introduced without further delay, fundamental changes
in the tax system should not be made without a very thorough study of all the
Implications. I am having such a study undertaken in earnest and am hoping that
the climate of the country will be conducive to the acceptance of more thoroughgoing
changes in the next Budget.
DIRECT TAXES
32. Coming to direct taxes first, my main proposals in the field of corporate
taxation relate to the discontinuance of the ‘dividend tax’ on excess
distributions of equity dividends and a reduction in the surtax on company profits
from 35 per cent to 25 per cent. The abolition of the ‘dividend tax, apart
from making for simplification, should improve the climate for equity investment.
The reduction in the surtax on company profits is intended as a spur to efficiency.
33. I propose to introduce a number of concessions to promote higher agricultural
productivity, particularly by encouraging the efforts of user industries. I
propose to make a provision for the deduction, in the computation of business
profits of companies, of an amount equal to one and one-fifth of the expenditure
incurred by them in providing agricultural inputs, such as, fertilisers, seeds,
implements and pesticides, and extension services, in spheres related to the
particular industry in which the company is engaged. This weighted deduction
will be available where the qualifying expenditure is incurred by the company
directly and also through approved associations or organisations. The development
of the seed processing industry occupies high priority in our agricultural programme.
I, therefore, propose to accord to it the ‘priority industry’ treatment.
34. As part of the measures designed primarily to assist export promotion, I
propose to extend the concession of development rebate at the higher rate of
35 per cent of the cost of new equipment, to the manufacture of vegetable oils
and oilcakes through the solvent extraction process, processed concentrates
for cattle and poultry feeds and processed fish and fish products. I propose
also to provide for the grant of an Export Markets Development Allowance to
taxpayers other than foreign companies at the rate of one and one-third of the
revenue expenditure incurred for the development of export markets. Further,
to encourage export of technical ‘know-how’ and technical services
by Indian companies, I propose to exempt from tax the whole of their income
consisting of dividends, royalties and fees derived through these activities
from foreign companies.
35. In the field of taxation of personal incomes, I have reached the conclusion
that in the interest of simplification of the tax structure and convenience
of taxpayers, the Annuity Deposit Scheme should be discontinued. Accordingly,
I propose that no Annuity Deposits will be required to be made on incomes arising
after the current financial year.
36. Last year, as a measure for stimulating investment in equities, Indian company
dividends were exempted from income-tax in cases where the total income from
dividends of the taxpayer during the year did not exceed five hundred rupees.
I propose to extend this concession by exempting the first five hundred rupees
of such dividend income from tax even where the total dividend income exceeds
five hundred rupees in the year.
37. For several years past the rate structure of tax on personal incomes has
included the levy of separate surcharges in relation to unearned incomes and
earned incomes in excess of specified limits. Under our integrated scheme of
direct taxation which comprises, besides income-tax, an annual tax on wealth
and taxes on gifts and inheritance, I do not see any need or justification for
differentiating between unearned and earned incomes through the levy of surcharges
on income-tax, which result in complications in tax calculations. I, therefore,
propose to discontinue the levy of separate surcharges on unearned and earned
incomes. Simultaneously, in order to maintain the progressiveness of the income-tax,
I propose to step up the basic rates of income-tax on incomes over Rs.1 lakh
from the present rate of 65 per cent to 70 per cent on income in the slab between
rupees one lakh and rupees two and half lakhs and to 75 per cent on income above
that level. I also propose to step up the rates of ordinary wealth-tax on wealth
in the slab over Rs.10 lakhs by half per cent, that is, from 2 per cent to 21/2
per cent on wealth between Rs.10 lakhs and Rs.20 lakhs, and from 21/2 per cent
to 3 per cent on wealth above Rs.20 lakhs.
38. In a situation where both the husband and the wife are tax-payers in their
own right, It would be improper for any outsider to decide as to who is dependent
on whom. At present, we avoid this ticklish question by allowing both parties
to claim a spouse allowance. This still leaves open the question as to who brings
more tax benefit to the partnership through marriage. To eliminate this unintended
strain on the relationship of marriage, I propose to provide that where both
the husband and the wife have taxable incomes, the spouse allowance will be
available to neither.
39. As a measure of relief to totally blind individuals, I propose to provide
for the deduction of Rs.2,000 in the computation of their taxable income.
40. I also propose to simplify the existing basis of the calculation of tax
on partnership incomes derived from registered firms. This will be done by deducting
the tax borne by the firm itself in computing the partners’ shares in
the income of the firm. At present, we grant rebate of tax at the average rate
to the partners on the proportionate amount of the tax borne by the registered
firm. In order to maintain the overall incidenceof tax, I propose to make a
consequential upward adjustment in the rates of tax on registered firms. Some
rationalisation is also being undertaken in regard to rate structure of tax
on the incomes of cooperative societies and Local Authorities.
41. There are a number of changes I propose to introduce in regard to the computation
of income from house property, deduction for the cost of maintaining a vehicle
by salaried employees, procedure for grant of refunds and withholding of tax
from interest payments.. It is not necessary for me to go into the details of
all these changes which are spelt out in the Explanatory Memorandum on the Finance
Bill.
42. I shall now refer to some of the measures that I propose to introduce for
countering tax evasion and avoidance. In this context, I propose to take steps
for setting up, departmentally, an organisation for valuation of lands, buildings
and other assets. Further, J propose also to have administrative instructions
issued to secure that, as far as possible, the same value is adopted for an
asset for the purposes of income-tax, wealth-tax, gift-tax and estate duty.
43. Another measure is to classify as short-term capital gains, the gains arising
from the sale or transfer of capital assets within 24 months of their acquisition,
as against the present period of twelve months.
44. The deductible amount of entertainment expenditure in businesses and professions
is already subject to certain limits. These limits are often circumvented through
entertainment undertaken out of entertainment allowances or ‘expense accounts’
operated by employees. Henceforth, such expenditure will also be brought within
the purview of the limits. The existing restriction in the case of companies
on the deductible expenditure on provision of perquisites, benefits and amenities
to their higher-paid staff will be extended to non-corporate enterprises. An
alternative monetary limit of Rs.1,000 per month for each employee will also
be laid down. Further, depreciation allowance and maintenance expenditure admissible
to the employer on residential accommodation and household equipment such as
refrigerators and air-conditioners provided by him to the employees free of
charge, will also be brought within these limits.
45. Tax liability is sometimes artificially reduced by diverting profits to
relatives and associate concerns in the form of excessive payments for goods
and services. Claims are also made for deduction of expenses in large amounts
shown to have been paid in cash, often with a view to frustrating investigation
as to the identity of the recipients and the genuineness of the claim. To plug
these loopholes, I propose to provide that payments made in businesses and professions
to relatives or associate concerns will have to pass the test of reasonableness
in order to qualify for deduction. Further, I propose to provide that payments
made in amounts exceeding Rs.2,500 after a date to be notified later will be
allowed as a deduction only If these are made by crossed cheques or by crossed
bank drafts.
46. In order to expedite tax assessments, I propose to reduce the period of
time limitation for completion of assessments in original proceedings for 1969-70
and later years from four years to two years from the end of the relevant assessment
year. As a corollary to this, the time limitation for making applications for
refund of tax will also be reduced, likewise, to two years from the end of the
relevant assessment year.
47. I propose to lay down very stringent penalties on those who continue to
avoid taxes by concealing their incomes or wealth. For this, the penalties for
concealment of income or wealth will be stepped up to a minimum of 100 per cent
and a maximum of 200 per cent of the concealed income or wealth. In the case
of persons defaulting in the statutory obligation to deduct tax at source and
pay At to the credit of the Central Government, I propose to provide for punishment
of rigorous imprisonment up to six months and a fine of not less than 15 per
cent per annum of the tax in default, on conviction before a court. Currently,
such punishment is only a fine upto Rs.10 for every day of default.
48. The changes proposed by me in regard to corporate taxes and the taxes on
personal incomes will take effect prospectively i.e., in relation to incomes
on which advance tax is payable or tax is deductible at source during the coming
financial year, 1968-69. Similarly, the proposed increases in the rates of ordinary
wealth-tax will take effect prospectively from the assessment year 1969-70.
The discontinuance of annuity deposits from the coming financial year is expected
to bring in, in a full year, additional tax revenue of the order of Rs.18 crores
due to non-deduction of deposits in computing the taxable income. Other changes
in the taxation of personal incomes are likely to result in a reduction in revenue
to the extent of about Rs.4 crores in a full year, leaving a net gain to revenue
of about Rs.14 crores. I have not taken into account the gain to revenue on
account of increase in the rates of wealth-tax as the benefit of It will accrue
only during the financial year 1969-70. Together with the changes in corporate
taxation, which Imply a loss in revenue next year of about Rs.4 crores, the
yield from direct taxes would show an increase of Rs.10 crores next year as
a result of all the changes I have proposed.
49. Before concluding the subject of Direct Taxes, I should like to add that
I have been impressed with the view expressed in this Honourable House that
the medium of the Finance Bill should not be utilised to make too many changes
in the income tax law. Accordingly, I have brought up only such changes in regard
to which delay would have been inadvisable, leaving out changes concerning structural
or administrative matters to be considered and brought up separately in the
course of the year.
INDIRECT TAXES
50. I now come to indirect Taxes. In keeping with the objective of maintaining
price stability for items of essential consumption, I have maintained the utmost
restraint in proposing changes in excise and customs duties. At the same time,
some additional taxation of items of less essential consumption cannot be avoided.
There is also need to deploy the instrument of indirect taxation for assisting
export promotion and Import replacement. I have also taken the opportunity of
removing anomalies and introducing a measure of rationalisation and simplification.
51. It is proposed to levy an excise duty on six now commodities, namely, confectionery
and chocolates, leather cloth, embroidery, parts of wireless receiving sets
like valves and transistors, steel furniture and crown corks. The duty on confectionery
and chocolates is proposed at 80 paise per kilogram which is expected to yield
an annual revenue of Rs.2.4 crores. The duty on embroidery and steel furniture
will be at the rate of 20 per cent d valorem which together will yield a revenue
of Rs.5.4 crores in a full year. Leather cloth will bear a duty of 25 per cent
ad valorem yielding an annual revenue of Rs.1.52 crores. On crown corks a duty
of one paisa per piece is proposed which will yield an annual revenue of Rs.1.50
crores. The statutory rate of duty on valves and transistors is proposed to
be fixed at Rs.5 per piece, but the effective rates at present are being fixed
at Rs.3 and Rs.1 per piece respectively by exemption notification. The likely
yield would be Rs.2.90 crores. The new levies on confectionery, embroidery and
steel furniture will be confined to the organised sector of these industries
manufacturing the products with the aid of power. These new levies will collectively
yield a revenue of Rs.13.72 crores in a full year.
52. Among the commodities which are already excisable, the existing rates of
duty on all varieties of unmanufactured tobacco other than tobacco dust are
proposed to be stepped up by about 10 per cent. On this occasion, I have decided
to be Impartial between the different devotees of nicotine, be they addicted
to the humble bidi, hookah and chewing tobacco or to cigarettes, cigars and
the pipe. These increases will yield an additional revenue of Rs.6.36 crores
in a full year. Another item on which increase has been proposed is jute manufactures
of which the rate of basic excise duty on hessians is being increased from Rs.375
to Rs.450 per tonne and on other manufactures from Rs.175 to Rs.250 per tonne.
These increases will yield an additional revenue of Rs.4.02 crores in a full
year.
53. My next proposal is to increase the basic excise duty on complete refrigerators
and airconditioners from 20 per cent to 30 per cent ad valorem and that on component
parts from 30 per cent to 40 per cent. This measure will appeal to at least
those Honourable Members who pulled me up in the last Budget session for overlooking
such obvious Items of less essential consumption. The increase in duty on these
Items will yield an additional revenue of Rs.2.40 crores in a full year.
54. It will be recalled that as a part of the Budget proposals last year the
duty on sized cotton yarn of fine and super-fine counts was increased substantially.
Representations have been received from the powerloom weavers that the burden
of this duty at the weaving stage is rather heavy. It is therefore proposed
to re-adjust the rate structure in such a way that relief is afforded on sized
yarn and duties suitably stepped up at the processing stage of powerloom fabrics.
The overall budgetary effect will only be marginal. It is also being ensured
that the incidence of the duty on composite mill fabrics, handloom fabrics and
hosiery remains more or less unchanged. Particular care is being taken to ace
that the handloom sector is left unaffected, and in fact some relief is proposed
to be given to this sector by exempting totally hank yarn in plain straight
reels of new French counts 29 or more but less than 34-the latter being equivalent
to a shade more than 40 British counts. This will involve a loss of about Rs.10
lakhs in a full year. Representations have also been received from the smaller
producers of aluminium that the effect of the Budget proposals of last year
has affected their profitability adversely. It is proposed to afford some relief
to these smaller producers by reducing the effective duty to the extent of Rs.150
per tonne; this concession will be available only to those ore-based producers
whose clearance of aluminium and products made out of aluminium had not exceeded
12,500 tonnes in the previous financial year. The revenue effect of this concession
will be a loss of about Rs.25 lakhs in a full year.
55. Rationalisation of the existing concessions to certain paper manufacturers
and exemptions applicable to some varieties of paper are being given effect
to by notifications, the overall revenue effect of which will be a nominal gain
of Rs.15 lakhs in a full year.
56. The ceiling rates fixed in the Mineral Products (Additional Duties of Excise
and Customs) Act, 1958 have no w been found to be inadequate. The over-recoveries
in the hands ‘ of the oil companies which have to be appropriated to the
Consolidated Fund through levy of these additional excise duties require a higher
rate of levy. It is accordingly proposed that the ceiling rates in respect of
Motor spirit, Refined diesel oil and Petroleum products not otherwise specified
be raised sufficiently and the effective rates which are fixed by notification
issued by the Central Government stepped up suitably. These changes will yield
an additional revenue of Rs.10.13 crores in, a full year, but the consumers
will not be affected as the duties, though recovered from the oil companies,
cannot be passed on by way of price increases to the consumers. The cumulative
effect of all the proposals relating to excise duty will be an additional revenue
of Rs.36.4 3 crores in a full year.
57. It is proposed to continue the levy of special excise duties at the existing
rates for another year. The provision for levy of regulatory duty of excise
in the same manner as in section 42 of the Finance Act 1967 is being continued
though there will be no levy of this duty at present.
58. For some time past 1 have been exercised over the administrative burden
on the excise department and the complaints of abuse associated with the existing
system of physical control. I have accordingly decided to extend the system
of selfassessment by the manufacturers, to all manufacturers, big and small,
making exception in respect of a few excisable commodities only which present
complications in assessment or where there is substantial movement in bond.
A large measure of trust will thus be placed in the manufacturers, their declarations
and their accounts. Day to day verification of clearances by Central excise
officers will be dispensed with and replaced by periodical cheek of the self-assessed
documents and accounts to ensure that the amounts due to Government have been
properly assessed and paid. This change in procedure will, however, necessitate
certain essential revenue safeguards. To this end, the penal provisions for
unauthorised removal of the goods or other contraventions of the rules and regulations
with intent to evade payment of duty are proposed to be made more stringent.
59. I have also reviewed the existing system of control on the tobacco growers
for the purpose of levying excise duty on unmanufactured tobacco. Steps are
being taken by which the need for the excise officers to contact the growers
will be considerably reduced. The excise control on sparse growing areas is
also being simplified.
60. The levy of local sales tax by the States on goods declared to be of special
Importance in inter-State trade is limited to 3 per cent at present. On a request
from some of the States, suitable amendment is being made in the Central Sales
Tax Act deleting mill-made silk fabrics from this list of goods. This will give
the States freedom to levy sales tax on It without any restriction.
61. I was reminded last year that in spite of my much discussed aversion to
alcoholic liquors, I had not made any proposals in this regard. I should retrieve
my reputation now; and I propose to increase the Import duty on whisky, brandy,
and a few other alcoholic liquors by about Rs.9 per bottle. I also propose to
increase the Import duty on cloves, cassia and cinnamon by about Rs.12 to 13
per kilogram. There is a high margin of profit in respect of these spices and
their use is confined to the comparatively affluent sections of the community.
The proposals with regard to these consumer goods will yield an extra revenue
of Rs.2 crores.
62. My next proposal is in regard to chemicals, plastics, synthetic resins and
miscellaneous articles not otherwise specified in the Customs tariff schedule.
The present effective rate of 50 per cent ad valorem is proposed to be raised
to 60 per cent ad valorem with some exceptions. This will yield an additional
revenue of Rs.12 crores. The proposed increase is not likely to cause any hardship
because the cost of chemicals is usually, a small fraction of the price of the
manufactured article, and secondly, because imported chemicals are usually not
required in the manufacture of articles consumed by the common man; wherever
they are, the existing rate is proposed to be maintained. Thus, though the tariff
item regarding chemicals covers drugs and medicines too, the present rate on
the latter as also on the chemicals and intermediates required for their manufacture
is being maintained by issue of exemption notifications. Similarly, the existing
rate on carbon black and red phosphorus will be continued by issue of an exemption
notification. Further, sulphur, dye intermediates recommended by the Tariff
Commission and various other chemicals, the duty on which had been specially
reduced or exempted wholly in the past, will continue to pay duty at the existing
rates. In this connection I should like to make a special mention of an exemption
that is proposed for chemicals and intermediates used in the manufacture of
insecticides, pesticides and fungicides. Some of these have already been exempted,
but it is now proposed to issue an omnibus exemption notification covering all
such chemicals and intermediates as are not manufactured in the country. This
concession is being given to encourage the use of these products as an aid to
agricultural production.
63. The last proposal on the Customs side is an increase in duty on some of
the iron and steel products which at present carry a specially reduced rate
of 15 per cent ad valorem. This rate is proposed to be raised to 271 per cent
add valorem as a specially reduced rate is no longer justified in view of the
indigenous production which is coming up. The revenue effect of this proposal
will be an additional yield of Rs.1.50 crores in a year.
64. The special duty of Customs is being continued for another year but a notification
is being issued exempting imported goods from this levy so as to maintain the
status quo. The provision for levy of regulatory duty of Customs in the same
manner as in section 39 of the Finance (No.2) Act, 1967 is being continued though
there will be no levy of this duty at present.
65. As a result of the proposals relating to excise duties, there will be an
additional yield of Rs.3.80 crores on account of the increased collections under
countervailing duty. The aggregate additional revenue under import duties will
be Rs.19.30 crores.
POSTS AND TELEGRAPHS
66. I had occasion to mention earlier that the deterioration in the revenue
budget of the Posts & Telegraphs Department this year would be of the order
of Rs.22 crores. The result is that they have not only not been able to pay
the due dividend liability to the General Revenues but have not, also been able
to cover their working expenses this year. The working expenses of the Post
Office Branch have particularly gone up very rapidly due to the increase in
staff costs. It has been agreed that the shortfall of this year and the last
two years should be made good over a period of three years commencing from the
next year. On this basis and at existing tariffs, It is anticipated that the
deficit in the revenue budget of the Posts 4-Telegraphs Department next year
would be Rs.23.83 crores. Honourable Members are aware that a Tarill Enquiry
Committee under the Chairmanship of Shri Mahavir Tyagi had been appointed to
evolve definite principles on which the tariff policy of the Department might
be based. The Committee’s interim report covering the Post Office Branch
has since been received and based on the principles suggested by the Committee,
It is proposed to revise the postal tariffs. The interim report and a Memorandum
showing the proposed changes is being circulated separately along with the Budget
papers and I shall, therefore, mention only the more important changes. The
postage on letters upto 15 grams is proposed to be increased from 15 paise to
20 paise and that for a letter-card from 10 paise to 15 paise and for a postcard
from 6 paise to 10 paise. The postage for books, pattern and sample packets
and book packets containing printed books and registered newspapers will also
be raised. The money order commission which is 15 paise per Rs.10 will now be
20 paise per Rs.10 upto Rs.200 and 30 paise per Rs.20 thereafter. The postage
charges for foreign malls will also be revised. The Committee has not yet reported
on the tariffs for other branches, but in view of the loss in the working of
the Telegraphs Branch, It is proposed to make a small increase in some of the
inland telegraph rates. These changes are expected to bring in an additional
revenue of Rs.24.70 crores on the Postal side and Rs.1.08 crores on the Telegraphs
side in a full year. The changes would be given effect to from dates to be notified
later and are expected to cover the deficit of the Posts & Telegraphs Department
next year.
67. I might add that 1 have already taken account of the increases in the posts
and telegraphs rates in preparing the Budget Estimates for 1968-69 so that they
will not count towards reduction of the initial deficit of Rs.315 crores. Similarly,
the changes in fares and freights announced by my colleague, the Railway Minister,
have also been taken into account before striking the deficit.
SUMMING UP
68. To sum up, the additional revenue next year from the measures of taxation
1 have proposed would be Rs.65.73 crores of which Rs.10 crores would be under
direct taxes, Rs.36.43 crores under excise and Rs.19.30 crores under customs.
Of this, a sum of about Rs.15 crores will accrue to the States leaving a balance
of Rs.50.73 crores available for the Centre’s Budget. I hope the State
Governments will utilise this addition to their resources for minor irrigation
and rural electrification.
69. On capital account, the abolition of the Annuity Deposit Scheme will mean
a loss to the Central exchequer of Rs.35 crores next year. Part of this loss
will be made up by contributions to the new public provident fund for which
I am taking credit for Rs.10 crores only. There will, therefore, be a net loss
on capital account of the order of Rs.25 crores. The net gain to the Centre’s
Budget on revenue and capital account taken together of all the changes will
be of the order of Rs.25 crores so that the initial deficit of Rs.315 crores
goes down to about Rs.290 crores.
70. Honourable Members may well appreciate the immense reservation with which
I have reconciled myself to a large deficit next year. A number of considerations
have weighed with me. In so far as the Plan outlays are concerned, It is clear
that any further reduction can only lead to dislocation of the progress of continuing
schemes even in critical areas such as agricultural development, fertiliser
production and family planning where we are poised for substantial achievements.
We have also to keep in mind the problem of unemployment among technicians which
is already a matter of concern. Besides, it would be shortsighted to retard
the process of recovery by putting an undue curb on Governmental spending. I
am sure that no section of the House would have commended such an approach.
The other alternative was to put up proposals for massive mobilisation of resources.
It is my judgement that this would hurt the economy and retard the process of
growth.
71. I have done my best to restrict the outlays on Defence and Administration.
I am happy to note the earnestness in all parts of the Defence Services to eschew
every form of avoidable expenditure. I am anxiously awaiting the finalisation
of the Reports of the Administrative Reforms Commission. I need hardly reiterate
that Government would go into the recommendations of the Commission with earnestness
and promptness in order that the objectives of efficiency and economy in administration
can be fulfilled as early as possible.
72. In estimating the resources at the existing rates of taxation, having been
bitten once, I have assumed a modest recovery in industrial production. If,
as I hope, the modifications in taxation I have proposed succeed in Improving
the climate for saving, investment and export, the economy might revive more
vigorously and this would help in moderating the actual deficit. Honourable
Members may rest assured that I have not changed my belief that we cannot afford
to indulge in large budgetary deficits year after year. If I have reconciled
myself to a deficit next year, it is in the expectation that by assisting the
revival of the economy at this stage, we shall be able to achieve a more satisfactory
budgetary balance before long.
73. No Finance Minister can claim either perfect foresight or absolute wisdom.
But I do feel that the situation is as hopeful as it is challenging. The utmost
co-operation, discipline and even a measure of self-denial by all sections of
the community will be necessary If we are to meet the challenge. I would like
to appeal to all the Honourable Members for their co-operation and constructive
suggestions so that, together, we can turn the present challenge into hope and
opportunity for the future. On my part, I can only assure a continuous watch
on Implementation of economic policies and a readiness to take appropriate action
from time to time. In conclusion, It is my earnest hope that the Budget I have
had the honour of presenting today reconciles as best as possible the variety
of concerns that are so anxiously felt in this Honourable House and in the country
as a whole.