SPEECH OF SHRI Y B CHAVAN
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1972-73
Dated : March 16, 1972
I rise to
present the Revised Estimates for the current year and the Budget Estimates
for 1972-73.
ECONOMIC CONDITIONS: 1971-72
2. In many ways, the year that is now drawing to a close has been the most eventful
in our recent history. It began in the wake of a clear expression of the will
of our people in favour of 9 bold and radical programme to promote growth with
social justice. But the beginning of the year also witnessed a reign of terror
and repression in East Bengal. By November 1971, some 10 million refugees had
sought shelter in our midst; and we stinted no effort or resources in looking
after these hepless and heroic people. Despite this massive influx and the cost
of a war, which was not of our seeking, we decided not to delay or postpone
in any way the equally urgent task of development and social welfare. Instead,
we sought to meet the additional burdens by two supplementary instalments of
fresh taxation, by greater mobilization of voluntary savings and by a renewed
drive for economics in non-Plan expenditure and speedier tax collections.
3. Above all, we met the challenge by drawing on the strength of a united people;
and it is possible new to look back on the events of the post year with a degree
of confidence in the economic sphere As well. Despite the extraordinary stresses
and strains which were compounded by natural calamities ever many parts of the
country, it should be possible to end the current fiscal year with our foreign
exchange reserves mere than intact, Government stocks of food grains of nearly
8 million tonnes, the general price level reasonably stable and a deficit in
the Central Budget significantly lower than what one might have Apprehended.
4. To some extent, the events of the past year will continue to cast their shadow
over the coming months as well. Honourable Members would appreciate that we
have to assist the friendly people and Government of Bangladesh in their immediate
task of reconstruction and rehabilitation. To the extent that we have drawn
upon the accumulated stocks in the economy and there has been unusual wear and
tear of our productive assets, these will have to be mode good. But above all,
now that the refugees have been able to return to their homes, we have to redirect
our energies increasingly to satisfy the aspirations of our own people. While
the resilience and strength displayed by the Indian economy can give us confidence,
there is little room for complacency.
5. Economic conditions in the recent past contain many pointers to the areas
where further sustained effort is necessary. These have been dealt with at some
length in the Economic Survey. The rate of growth of the economy has slackened
in 1971-72. To some extent, this to understandable as the high rate of growth
in the production of major cereals in earlier years cannot-and indeed need not-be
continued year after year. But this trend should be counter -balanced by an
increase in the growth rate of pulses, commercial crops and industry at large.
This has not happened so far. Many of our baste industries, notably steel And
fertilizers, are operating well below capacity. Shortage of agricultural raw
materials has affected important consumer goods industries such as textiles,
sugar and vegetable oils. There are encouraging signs that many capital goods
industries and those producing important intermediate products have their order
books full and are maintaining a satisfactory rate of growth in production.
But here again, progress is by no means uniformly good. Quite apart from tackling
the immediate problems of better management, greater capacity utilization, improved
raw material supply and industrial relation and a general environment of more
activedemand, we have to expedite the creation of additional capacity in a number
of vital areas, including the generation of electricity and fertilizers and
steel where better utilization of existing capacity alone will not sustain demand
for long.
6. There are also other trends which we cannot overlook. While imports, other
than those of food grains, have increased rapidly, this cannot be said of experts.
As a result, the trade gap 10 likely to Widen appreciably in the current fiscal
year. The various Programmes for promoting social welfare which have been taken
in hand over the past two years have yet to gather momentum. Again, despite
some signs of improvement, the level of savings and investment in both the public
and the private sectors is inadequate to sustain a satisfactory rate of growth.
7. This situation must be rapidly transformed if the objective of growth with
social justice and self-reliance is to be realised soon. Nor is a reasonable
degree of price stability possible without a rapid increase in the production
of the basic necessities of the people. Up to a point, and indeed to a much
greater extent than is commonly realised, growth, social justice, self reliance,
investment and mobilization of resources are all mutually reinforcing processes.
We have, however, also to quicken the pace by appropriate changes in budgetary
and other policies. it is precisely in order to bring about such a coordinated
and concerted approach to our economic problems that a Cabinet Committee on
Economic Policy has been recently set up.
REVISED ESTIMATES: 1971-72
8. Coming to budgetary developments during the current year, 1971-72, Honourable
Members would recall that the provision of Rs.60 crores for refugee relief made
in the Budget last May had to be increased subsequently on two occasions making
a total of Rs.360 crores for the year as a whole. Against this provision, actual
expenditure is now estimated at Rs.325 crores. At this stage, it is difficult
to render any precise account of the aid pledged from abroad which will ultimately
compensate us for the expenditure we ourselves have incurred. A significant
part of the refugee assistance received earlier or in the pipeline is already
being diverted to Bangladesh. But on a rough basis, the budgetary outlay of
Rs.325 crores may be offset to the extent of Rs.120 crores by assistance received
from abroad.
9. We have already made a sizeable beginning with assistance to the Bangladesh
Government in the current year itself. Inclusive of a cash payment of about
Rs.20 crores which is being charged to the rehabilitation Budget, the commitments
so far made for assistance to Bangaladesh amount to roughly Rs.130 crores. It
is our intention to provide for a total commitment in this regard of Rs.200
crores of which Rs.82 crores might be disbursed during 1971-72 and the balance
during 1972-73. 10. Defence expenditure for 1971-72 is now estimated at Rs.1411
crores as against the Budget provision of Rs.1241 crores, i.e. an increase of
Rs.170 crores. The expenditure on natural calamities relief at Rs.90 crores
would also be higher than the Budget Estimate of Rs.50 crores.
11. The actual trend in expenditure on Plan schemes during the current year
is a mixed one and some shortfall in Plan expenditure cannot be ruled out. But
there is reason to believe that the shortfall would not be as great as in the
first two years of the Plan. The implementation of important projects in the
steel, fertilizer, petrochemicals and atomic energy field has picked up momentum.
This is also true of the programmes with an accent on social welfare which were
started in the 1970-71 Budget. But the two major programmes for employment in
the rural areas and for the educated unemployed which were introduced in the
last Budget could not be given proper shape for some time; and actual expenditure
is likely to fall short of the Budget provision of Rs.75 crores. Once again,
our experience in the current year highlights the fact that the momentum of
progress cannot be kept up merely by provision of finance. Timely preparation
and selection of projects and speedy implementation are equally important.
12. Receipts under income and Corporation tax are now estimated at Rs.83 crores
more than the Budget Estimate reflecting in the main the efforts made towards
speedier tax collection. Union Excise duties will show only a moderate increase
of Rs.31 crores. On the other hand, Customs revenue will exceed Budget estimate
by Rs.118 crores reflecting primarily the spurt in imports.
13. Receipts from market loans also show, a substantial increase over the Budget
Estimates the actual realisation being Rs.294 crores against the expectation
of Rs.168 crores last May. The nationalised banks have continued to make excellent
progress in deposit mobilization; and the Life Insurance Corporation and the
Provident Funds have also been able to mobilise more funds than was expected
earlier. This has greatly facilitated market borrowings by the Centre in the
current year. Collections under small savings should amount to. Rs.210 crores
against Rs.180 crores assumed earlier.
14. The overall deficit is now expected to be restricted to Rs.385 crores. This
represents an increase of Rs.153 crores over the Budget Estimate. An increase
in deficit of this order cannot be contemplated with equanimity in a normal
year; and its monetary impact even in the current year was held in cheek by
the policy of restraint followed by the Reserve Bank. But Honourable Members
would, I am sure, appreciate that it has to be judged against the additional
liability on account of defence, refugee relief, assistance to Bangladesh and
natural calamities. Expenditure on these four items alone is now expected to
be Rs.1888 crores as against Rs.1351 crores envisaged last May. Even allowing
for additional external assistance for refugee relief, this represents an increase
of Rs.437 crores over the Budget Estimates.
PLAN OUTLAY - 1972-73
15. Sir, I come now to the Budget provisions for 1972-73. In keeping with the
imperative need to accelerate the pace of growth and social welfare, I propose
to increase the budgetary provision for the Central and centrally-sponsored
Plan schemes from Rs.1455 crores in 1971-72 to Rs.1787 crores in 1972-73. This
increase of Rs.332 crores or by nearly one-fourth in a single year represents
the sharpest step-up that we have attempted in the Central sphere over the past
so many years. The increase in Plan outlay is spread over virtually all the
sectors of the economy. Agriculture, Community Development and Cooperation account
for an increase of Rs.23 crores; irrigation & Power, Rs.18 crores; mines
and Metals, Rs.23. crores; industry including Petroleum, Chemicals, Steel and
Heavy Engineering, Rs.44 crores; Shipping & Transport, Rs.56 crores; Posts
& Telegraphs, Rs.14 crores; Railways, Rs.8 crores and Atomic Energy, Rs.30
crores.
16. By far the largest increase is being made in the provisions for these schemes
which combine an element of social welfare with future growth potential. Taking
all such schemes together, the Budget provision in 1972-73 would be Rs.240 crores
as compared to Rs.130 crores in 1971-72. An important innovation relates to
a new lump-sum provision of Rs.125 crores to cover the requirements of rural
water supply, rural home sites, slum clearance and improvement, primary education
and schemes for the educated unemployed. Since there are wide differences in
the requirements of different States for these essential amenities, it is felt
that a lump-sum provision of the nature would make it caster for us to make
an impact in each State in the field where such impact is most urgently needed.
17. There are large disparities among the States in terms of enrolment of children
in schools in the age group 6-11. lump-sum of primary education facilities,
particularly in the backward areas, will help correct regional imbalance and
will also provide scope for larger employment. Of our 560,000 villages, some
130,000-or almost 25 per cent-are cholera-endemic and guinea-worm infected areas.
By tackling the problems of rural water supply in these disadvantaged areas,
it should be possible to contribute substantially to the well-being of the rural
people. The provision for rural home sites should help particularly landless
labour. In some States the need would be to concentrate mainly on slum clearance
and improvement in congested urban areas or on schemes designed primarily to
provide employment to the educated.
18. Among other schemes, the budgetary provision for the small farmers development
agency is being doubled from Rs.6 crores this year to Rs.12 crores next year
and for marginal farmers and agricultural labourers from Rs.3 crores to Rs.6
crores. Similarly, the provision for special nutritional programmes for children
is being increased from Rs.11 crores to Rs.21.5 crores. Programmes for dry farming
development, rural works in drought-prone areas and the crash programme for
rural employment are being continued with a total provision next year of Rs.72
crores. It is our hope that in the light of the experience already gained and
the assessments recently made in consultation with the State Governments, it
would be possible next year to utilise in full the provision that is now be”
made.
19. In addition to the provision made in the Budget, resources are also available
for the Central Plan from the internal surpluses of public sector enterprises
and by way of contribution from financial institutions. The internal resources
of public sector enterprises which would be available for the Plan are expected
to increase from Rs.233 crores in 1971-72 (Budget Estimates) to Rs.275 crores
in 1972-73. Other resources available for the Central Plan including borrowings
‘from financial institutions and contributions by the Reserve Bank from
retained profits etc. are expected to increase from Rs.135 crores in the current
year to Rs.245 crores in 1972-73. Inclusive of Budgetary provision as well as
internal resources of public enterprises and other extrabudgetary resources,
the total Plan outlay on Central Plan schemes is thus expected to increase from
Rs.1823 crores in 1971-72 to Rs.2307 crores, i.e. by Rs.484 crores or by about
27 per cent.
STATE PLANS
20. I am happy to say that there will also be a substantial step up in the Plan
outlays of the States. In the light of the discussions that the Planning Commission
has already had with the State Governments, the annual plan outlay of the States
and Union Territories for 1972-73 is expected to be Rs.1666 crores as compared
to Rs.1440 crores in 1971-72. This includes a provision of Rs.782 crores by
way of Plan assistance from the Centre to the States and Union Territories.
Honourable Members would also note that substantial part of the increase in
the Central Plan outlay is really on schemes which are initiated and executed
by the State Governments themselves.
21. In addition to Plan assistance, the scheme of special accommodation by way
of loans to those States which have substantial non-Plan gaps will be continued;
the provision under this head for next year is Rs.130 crores. But the State
Governments on their own will also have to mobilize resources on a substantial
scale if the Plan outlays now proposed for them are to be implemented without
recourse to overdrafts from the Reserve Bank. As the house is aware, the Minister
of Planning and I have been in close touch with the States in this regard. I
am well aware that there are genuine difficulties in some States in liquidating
past overdrafts over a short period. in recognition of these difficulties we
have arranged, in consultation with the Planning Commission, that such States
would not be called upon to liquidate their existing overdrafts immediately
but would be asked to repay next year only 15 per cent of the estimated overdrafts
at the end of 1971-72. The State Governments have agreed to take steps to reduce
the overdrafts progressively; and we propose to adopt a new set of procedures
to ensure that overdrafts are not used in future as a continuing mode of financing
State expenditures.
22. I may also mention in this connection that we propose g to announce soon
the composition and terms of the Sixth Finance Commission. In our federal system,
the evolution of satisfactory financial relations between the Centre and the
States has a vital bearing on progress and harmony in the country at large;
and the next Finance Commission will have a very important role to play in laying
the base for the Fifth Five Year Plan which will be launched two years from
now.
OTHER EXPENDITURE AND RECEIPTS: 1972-73
23. Outside the Plan, every effort is being made to restrict expenditure to
the minimum. The provision for defence next year is being kept at Rs.1408 crores,
i.e., about the same as the Revised Estimates for the current year. Honourable
Members, I am sure, would appreciate that apart from providing for normal increases
in costs, salaries and dearness allowances, we have also to make adequate provision
for recouping the losses suffered during the war and for looking after the families
of those who have made the supreme sacrifice for the defence of the motherland.
It is our earnest hope and endeavour that out of the anguish and agony of the
recent past will emerge a new spirit of peace and harmony in this great sub-continent
so that all its 700 million inhabitants can devote their entire energies against
their common enemies of hunger, want, disease and exploitation of man by man.
24. I expect the yield from income tax and corporation tax to increase from
Rs.985 crores (Revised Estimates) in the current year to Rs.1060 crores in 1972-73.
Revenues from Excise duties should increase from Rs.2103 crores to Rs.2330 crores
and from Customs duties from Rs.652 crores to Rs.700 crores. The continuance
of special levies which, I am afraid, is unavoidable in the present circumstances,
would bring in Rs.70 crores next year as against Rs.20 crores in the current
year.
25. Unfortunately, a significant part of the additional revenues will be offset
by an increase in food subsidy from Rs.30 crores in the Budget Estimates for
the current year to Rs.100 crores in the Budget Estimates next year. On the
basis of present procurement and issue prices, the burden of food subsidy next
year would amount in fact to Rs.120 crores. I have made a somewhat lower provision
of Rs.100 crores as it is our intention not to let this burden grow without
appropriate remedial measures to keep it in cheek.
26. The welcome increase in food grains production has added to the fiscal burden
in another way. During 1972-73, the additional financial requirements of the
Food Corporation of India for carrying the buffer -stock of food grains are
estimated at Rs.12 0 crores. I am making a budgetary provision in this regard
of Rs.25 crores only so that the balance of Rs.95 crores will have to be found
by the Corporation by additional borrowing from the banking system. At the end
of February 1972, the Corporation’ s borrowings from the banking system
had already reached the high level of Rs.350 crores. A further addition of Rs.95
crores during the coming year will naturally strain the resources of the banking
system unduly unless the demand’s on it from other sectors are correspondingly
moderated. That is why net receipts from market loans next year are assumed
at the level of Rs.215 crores only. Thus, directly or indirectly,, the procurement
of food grains is now having a substantial repercussion on the Central Exchequer
as also on the distribution of income within the country.
27. Net receipts from external loans next year are also expected to show a substantial
decline from Rs.469 crores this year to Rs.374 crores in 1972-73. Recent events
have once again served as a reminder that even as we strive for greater growth
and social welfare, we cannot neglect the urgent need for reducing the dependence
on external assistance. Our policy to be progressively independent of external
assistance is not directed at anyone other than ourselves. Its thrust is towards
invigorating our own internal efforts. There are a few major areas, such as
cotton, oil-seeds, fertilizers, steel, petroleum products and spare parts for
equipment installed in the past where our dependence on imports is still high.
Similarly, our export earnings can be increased rapidly by creaing additional
facilities for mining, fishing and manufacture of a large variety of engineering
and consumer goods. We are making detailed plans in each of these sectors to
increase production rapidly so that our growing requirements can be met without
undue dependence on imports and surpluses created for augmenting exports. No
effort whether by way of provision of finance or otherwise will be spared to
accelerate this process of self-reliance through import substitution and export
promotion.
28. At existing rates of taxation, the overall budgetary deficit next year will
be Rs.375 crores. There will be a surplus on revenue account of Rs.219 crores,
but this would be more than offset by the deficit on capital account of Rs.594
crores.
IN SUM
29. To sum up, the main feature of the Budget for 1972-73 which I am now presenting
is the substantial increase in the outlay on the Plan. The budgetary provision
for the Central Plan proper is being increased by Rs.332 crores or nearly 23
per cent. Inclusive of internal surplus and other extra-budgetary resources,
the increase in the Central Plan works out to Rs.484 crores, or 27 per cent.
Taking the Centre, the States and the Union Territories together, the total
provision for the Plan for the next year, as now envisaged, comes to Rs.3973
crores as against Rs.3263 crores in the current year, i.e., an increase of Rs.710
crores, or 22 per cent. A substantial increase in Plan outlay of this order
would be a major factor contributing to economic growth over the coming months.
It has been our experience that an increase in Plan outlay in the public sector
is a prerequisite for revival of industrial production whether in the public
or in the private sector. It is our expectation, therefore, that the increase
in Plan outlay next year will serve as a catalyst for the revival of growth
particularly in the industrial sector where recent trends leave much to be desired.
30. Within the total Budget provision for the Plan at the Centre, as much as
Rs.240 crores is being earmarked for schemes with an accent on social justice
as well as economic growth. I am well aware that even this provision of Rs.240
crores is modest as compared to the magnitude of the problem. But I am sure,
Honourable Members would agree that it represents a sincere effort towards meeting
the basic minimum needs of the most disadvantaged sections of our society.
31. It is a matter of some satisfaction that despite the substantial increase
in Plan outlay and without any credit for mobilization of additional resources,
the overall deficit in the Central Budget for 1972-73 is now expected to be
limited to Rs.375 crores. This satisfactory outcome is the result mainly of
the fact that during the past critical year, we were able to introduce what
amounts virtually to three different budgets with substantial measures for additional
resource mobilization. The total receipts on account of the taxation measures
introduced last year will be of the order of Rs.500 crores in a full year.
32. Important as the Central Budget is as an instrument for furthering our social
and economic objectives, it has to be supplemented by basic changes in our economic
institutions and policies. During the last year, Government has taken a number
of steps in this direction. The taking over of the management of general insurance,
the guidelines given to financial institutions is regard to convertibility of
leans into equity and participation in the management of the enterprises assisted
by them, continued effort to direct the new vitality of the nationalised banking
system towards improvement in the economic conditions of the small and new entrepreneurs
in industry and agriculture and the policy of differential interest rates-these
are all various facets of the same thrust forward towards the goal of economic
progress with social justice. Honourable Members may rest assured that we shall
continue our. efforts in the same spirit and over a broad front over the coming
months so that the mandate for creating a socialist society is carried out with
speed and vigour.
PART B
33. Sir, without taxing the patience of Honourable Members any further, I should
proceed now to the business of taxation proper. Having introduced virtually
three budgets in the past 12 months, I might well be expected to declare a holiday
from further taxation for at least one year. But I am afraid I cannot allow
myself such unique distinction. A deficit of Rs.375 crores cannot be left wholly
uncovered without danger to price stability. We have also certain commitments
to the State Governments to raise revenue on their behalf. Fiscal policy must
serve the larger objectives of selfreliance and equity. Nor should I fight shy
of making a few concessions. The introduction of a new Budget is also an opportunity
for a certain amount of spring cleaning.
34. The Direct Taxes Enquiry Committee under the chairmanship of Shri K.N. Wanchoo,
ExChief Justice of India, submitted their Report last December. It contains
a number of valuable and far-reaching suggestions for unearthing black-money,
preventing evasion and avoidance of taxes and reducing tax arrears. Copies-of
the Report will Boon be made available to Honourable Members. It has often been
said in this House that basic changes in the tax system should be introduced
by means of a Taxation Amendment Bill rather than through the annual Finance
Bill so as to give Honourable Members more time for a detailed consideration
in the light of discussion both within and outside the House. Accordingly, I
propose to bring forth a separate legislation as early as possible to give effect
to those recommendations of the Committee which Are acceptable to the Government
and which require a major change in the present tax laws.
35. There has been a feeling for some time in the country that a family consisting
of husband, wife and minor children which constitutes a common unit of consumption
and as such a common focal point for the incidence of indirect taxation, is
also a more appropriate and equitable basis for purposes of direct taxation
subject to certain safeguards for wives at work. The present tax treatment of
Hindu undivided families has also encouraged tax avoidance. On these two related
questions, the members of the Wanchoo Committee have made several alternative
suggestions. Government will examine these suggestions carefully and sponsor
separate legislation in due course for restructuring the Income Tax Act and
the Wealth Tax Act to the extent necessary.
36. In the meanwhile, I propose to introduce through the Finance Bill a few
changes in the Direct Tax structure which are designed either to produce some
additional revenue in a difficult year or to give effect to such recommendations
of the Wanchoo Committee as can be easily incorporated in the present tax laws.
DIRECT TAXATION
37. On the assumption that no news in good news, I propose to make no change
in the rates of income tax as also of surcharge on income tax in the case of
taxpayers other than. companies.
38. In order to remove any temptation that people may feel for neglecting their
regular duties in favour of any casual or ephemeral or even imaginary pastime,
I propose to withdraw the present exemption in respect of casual and non-recurring
income when it exceeds Rs.1000 in a year. However, a Finance Minister in particular
should not frown upon those who are specially favoured by the goddess of good
lack. Accordingly, winnings from Sates or other lotteries will be taxed on a
concesoional basis. Those who win a prize in a lottery are perhaps in the same
happy position an people who enjoy a capital gala when their property appreciates
in value without any effort on their part. On this principle, in computing incomes
from such winnings a deduction of Rs.5, 000 plus 50 per cent of the balance
will be allowed. However, even those who are favoured by Fortune should make
their offering first at the alter of the Exchequer - I propose, therefore, to
provide for deduction of tax at source at the rate of 34.5 per cent from crossword
puzzles and lotteries. Casual losses will be allowed to be set off only against
the same type of income.
39. I propose to provide for deduction of tax at source at the rate of 2 per
cent of the payments made to contractors by the Government, local authorities,
statutory corporations and companies. Payments made in turn by contractors,
other than individuals and Hindu undivided families, to subcontractors will
attract a deduction at the rate of 1 per cent. I hope this alliance between
the revenue department and contractors will lead to prompter payments all round.
40. With effect from 1st April, 1972 Government will pay a rate of interest
of 12 per cent per annum on the amount of refund the payment of which is delayed.
Honourable Members will recall that at present the rate of interest we pay is
only 9 per cent per annum. h is only fair that the interest charged when there
is delay in the payment. of direct taxes to the Government is also similarly
increased from 9 per cent to 12 per cent per annum.
41. Capital gains arising from the transfer of jewellery held for personal use
are not so far chargeable to the capital gains tax. This has given rise to fictitious
transactions in jewellery in order to regularise incomes which have escaped
taxation. I propose. therefore, to repair this omission.
42. Dividends received from cooperative societies are at present completely
exempt from income taxation. I see no justification for this exemption and propose
to withdraw it. Such dividends, however, will be included in the categories
of income which qualify for exemption from income tax upto R a. 3, 000 in a
year.
43. These measures are likely to yield Rs.6 crores in a full year and Rs.3 crores
in 1972-73 of which some Rs.2 crores will be the share of the States. 44. Coming
to corporate taxation, I propose to do away altogether with the special deduction
of 5 per cent of profits in the case of domestic companies engaged in priority
industries. This will yield Rs.6 crores in a full year and Rs.4.5 crores in
19,72 -73.
45. Some months ago when we levied special surcharges, many Honourable Members
had asked why the surcharge on company taxation was fixed at 21/2 per cent when
a surcharge of 5 per cent was levied on many other items including railway passenger
fares. I propose now to remove this discrimination. For the assessment year
1972-73, the surcharge will continue to be 21/2 per cent of the income tax payable
by all companies. However, on income tax payable in advance during the financial
year 1972-73, the surcharge would be at the rate of 5 per cent. This change
will yield Rs.12 crores over a full year and Rs.9 crores in 1972-73.
46. There are a number of other changes that are proposed in the Finance Bill
for preventing evasion or avoidance taxes and for rationalising the incentives
available for promoting saying and investment. A few changes are proposed, for
example, in relation to taxation of charitable and religious trusts in the light
of recommendations made by the Wanchoo Committee. Voluntary contributions received
by such institutions will qualify for exemption from income tax only if these
are applied to charitable orreligious purposes or are accumulated for such purposes
in the specified manner. The other important changes relate to audit by a Chartered
Accountant and compulsory registration for a trust to qualify for tax exemption,
extension of the definition of relatives for judging whether the income or property
of the trust is being used in a manner which would constitute disqualification
from tax exemption and making the trust liable to pay wealth tax when any part
of the corpus or income of the trust is used for the benefit of the author of
the trust, a substantial contributor to the trust or the trustees and their
relatives, etc.
47. Regarding incentives for investment and saving, investment in industrial
proprietory concerns or partnership firms will now be included among assets
which qualify for exemption from wealth tax upto Rs.11/2 lakhs. When one category
of exempt assets is changed to another category of such assets, the requirement
of minimum holding for a period of six months will be reckoned with reference
to the period of holding of both the assets. This would remove the difficulty
that has been experienced by many recipients of accumulated Provident Fund contributions.
Contributions made towards the unit-linked- insurance plan of the Unit Trust
of India will qualify for deduction in computing the taxable income of an individual
in the same manner as life insurance premia and contributions to Provident Funds.
48. The income of approved Gratuity Funds will be exempted from income tax prospectively
from the assessment year 1973-74. The amount of gratuity that will be exempt
from income tax in the case of employees other than Government employees and
employees of local authorities will be subject to a uniform ceiling of half
a month’s salary for each year of completed service or 15 month’s
salary or Rs.24,000 - whichever is the least.
49. I have come to the conclusion that the small but select class of income-tax
payers in the country deserves some special recognition from the Government.
Accordingly, I propose soon to award to each assessee a distinct and permanent
account number of his own. I am afraid, there is no mark of distinction which
does not lead to easy detection; and I cannot help it if individual account
numbers make it difficult to avoid taxes.
50. Finally, I come to the demand which has been made by industry that while
the development rebate may be withdrawn, Government should introduce some other
fiscal concessions and announce them in advance so as to impart a continuing
momentum to industrial growth in the country. Government is not averse to the
grant of fiscal concessions. It is, however, felt that fiscal concessions for
promoting industrialisation should not be general or across-the-board in character
but should relate specifically to our social and economic objectives. Again,
as far as possible, it would be desirable to provide incentives which encourage
the use of those resources, such as labour, which are in abundant supply rather
than of resources, such as capital, which will continue to be scarce for a long
time to come. The Wanchoo Committee has made a number of recommendations with
different objectives in view. After examining all these suggestions carefully,
we propose to come up with specific provisions in the Taxation Amendment Bill
which is proposed to be introduced later in the year. These provisions would
be designed primarily to promote industrialisation in the backward regions of
the country.
51. The total yield of all the changes indirect taxation will be Rs.24 crores
in a full year and Rs.16 crores in 1972-73 of which the share of the Centre
would be approximately Rs.14 crores. I could also have taken credit for improvement
in taxcollections as a result of the many changes designed to reduce tax evasion.
But I have decided not to credit myself with any such gains in advance.
52. Sir, may I now turn to what are perhaps euphemistically called indirect
taxes?
CUSTOMS DUTIES
53. I have only one main proposal in regard to customs duties. It will be recalled
that in December last, we had imposed a regulatory duty at the rate of 2.5 per
cent ad valorem on most imported products and a higher duty of 10 per cent on
a few selected items. The need to exercise a general restraint on imports remains
as great as ever. It is also necessary in imposing regulatory duties to ensure
that the simplification of the import tariff which was introduced last year
is not unduly disturbed. Accordingly, I propose to apply the 10 per cent ad
valorem rate to all items which pay a duty of 100 per cent or more as well as
to the few selected items which were included in the 10 per cent list last December.
A new rate of 5 per cent ad valorem will apply to all items on which a duty
of 60 per cent or more but less than 100 per cent in payable. The remaining
items will continue to bear the regulatory duty of 2.5 per cent. However, those
items which were totally exempted last December will continue to remain so.
These changes will result in an additional revenue of Re. 8. 60 crores in a
full year.
54. I also propose to continue the provisions which enable us to levy a regulatory
duty of customs. However, in keeping with the provisions relating to regulatory
duty of excise, power is being taken to levy regulatory duty of customs also
upto a rate of 15 per cent of the value of the imports.
EXCISE DUTIES
55. Coming now to Excise Duties, I propose to make no addition to the list of
commodities which can be subject to such duties. But Honourable Members would
appreciate that even without exploring fresh fields or pastures new, it is possible
to increase the yield by more intensive cultivation; and this is a responsibility
which I cannot, escape.
56. Pursuant to the decision to continue the scheme of levying additional excise
duties in lieu of sales-tax on sugar, textiles and tobacco, we are committed
to raise the overall incidence of these additional excise duties to 10.8 per
cent of the value of clearances by the end of the Fourth Plan period.
57. To this end, I propose to transfer to the States the entire proceeds of
the regulatory duty of 15 per cent of the effective basic duty on unmanufactured
tobacco which was levied last December by converting it into an additional excise
duty which is itself being rounded upwards on different varieties. As a result,
the States will gain to the extent of Rs.11.56 crores by way of additional duties
whereas the Centre will lose Rs.9.70 crores by way of regulatory duty. At the
same time, the basic and special duties on different varieties of unmanufactured
tobacco are being merged in keeping with a general scheme to which I would soon
refer. In the process, I have also taken the opportunity of rounding upwards
the rates on different varieties to make up, in part, for the loss of revenue
to the Centre. The yield of the combined duty, exclusive of the additional duties
for the States, will go up by Rs.9.31 crores.
58. In the case of cigarettes, a similar rationalisation and rounding off would
result in a gain of Rs.7.63 crores to the State Governments by way of additional
excise duties and a loss of revenue of Rs.4.64 crores under other duties which
would now be combined and shared with the States.
59. In the field of textiles, I propose to raise some additional revenue for
the States from art silk fabrics. At present, taking all the duties into account
and depending on the price per square metre, there are four different rates
that apply to art silk fabrics namely, 3 per cent, 5.7 per cent, 8 per cent
and 10 per cent. I propose to reduce the 5.7 per cent rate to 5 per cent and
increase the rate of 10 per cent which applies to fabrics worth more than Rs.5
per square metre to 15 per cent. Of the additional revenue of Rs.8.59 crores,
the share of the States by way of additional duties will be Rs.5.80 crores and
the rest will accrue to the shareable pool between the Centre and the States.
60. In short, the revenue by way of additional excise duties will increase by
Rs.25 crores and this entire increase will go to the States. Honourable Members
would note that I have left sugar entirely untouched in this exercise.
61. The Fifth Finance Commission had recommened that from 1972-73, the special
excise duties which have been levied in the past exclusively for the benefit
of the Centre should also be included in the divisible pool. In keeping with
this principle, I have decided to merge the special excise duties with basic
excise duties and to round off the combined rates so as to introduce a certain
measure of simplicity in the rate structure. As a result, with just half a dozen
exceptions, all the ad valorem rates of excise duties will fall under 6 different
slabs, namely, 10 per cent, 15 per cent 20 per cent, 25 per cent, 30 per cent
and 50 per cent. To mention a few examples, in the case of cement, the basic
duty of 20 per cent and the special duty of 4 per cent will now be replaced
by a combined duty of 25 per cent. Similarly, items which carry a basic duty
of 15 per cent and a special duty of 3 per cent will now have a rate of 20 per
cent applied to them. There are only four items, viz., latex foam sponge, polyurethane
foam, and articles made from that foam, and tyres for motor vehicles where there
is a basic duty of 40 per cent and a special duty of 8 per cent. The new combined
rate for these items will be 50 per cent. In case Honourable Members feel that
the laws of rounding off always favour the Exchequer, I hasten to inform them
that in the case of coffee, the aggregate rate which works out to Rs.102 per
quintal would be rounded downwards to Rs.100 per quintal. In the case of vegetable
non-essential oils, also, the rate is being reduced from Rs.110.25 per metric
tonne to Rs.100 per metric tonne.
62. In the case of wireless receiving sets, the present system of taxing certain
component parts, i.e., transistors and diodes, has given an impetus to large-scale
smuggling. I propose, therefore, to remove the duty on such parts and replace
it by suitable changes in the duty on wireless receiving sets in such a way
that the incidence of duty will increase with the price of the set. The present
exemption from duty for sets of a value not exceeding Rs.165 and manufactured
by the small-scale sector is being continued.
63. The combined result of the rationalisation measures would be a gain in revenue
of Rs.10.70 crores.
64. There are a few items where the opportunity of merging the special duty
with basic duty is also being taken to raise additional revenue. In the case
of paints and varnishes, the additional revenue will be Rs.2 crores and in the
case of paper, it will be Rs.5 crores. The higher rates of duty on paper, however,
will apply only to the more expensive varieties of paper and board. Printing
and writing paper used for exercise note-books and text books will not be affected.
Newsprint would also continue to be exempt from duty and there would be no change
either in the case of mill-board and straw-board where the smaller manufacturer
is involved.
65. Similar increases are being made in the case of rayon and synthetic fibres
and yarn. The more expensive varieties of artificial synthetic fibres and yarn
such as polyester fibre and yarn will bear higher duties. However, rayon filament
yarn which is a comparatively cheap item will remain unaffected. The additional
revenue from these changes is expected to be Rs.6.50 crores.
66. I now come to a few major proposals which are intended to raise revenue
for the Centre in a manner which serves at the same time some. of our larger
social or economic objectives. It will be recalled that last December a regulatory
duty at 50 per cent of the effective basic excise duty was imposed on steel
ingots, iron and steel products and tin plates so as to bridge the substantial
gap between the prices of imported and indigenous steel. Even after these changes,
a considerable gap remains between imported steel and indigenous steel prices.
It is necessary to economise on the use of steel in the country by charging
for it a price which bears a reasonable relationship with international prices.
The basic duty on steel products, therefore, is being raised by about 30 percent
and the regulatory duty of 50 per cent will apply to these higher basic rates.
The total additional revenue from steel products is expected to be Rs.36.20
crores of which Rs.11.80 crores would be by way of regulatory duties.
67. For similar reasons, the regulatory duty of 25 per cent on aluminium and
its products is being raised to 331/3 per cent of the basic duty. This measure
will yield Rs.4.18 crores.
68. Honourable Members are also aware of our substantial dependence on imports
in regard to petroleum products. The duty on motor spirit has been raised substantially
in the recent past and this has had the salutary effect of curbing the growth
of demand. As a token of appreciation, I propose, therefore, to leave the motoring
community untouched this year. I am afraid, I have, however, to make up for
the omission last year in the case of kerosene where our reliance on imports
is even greater. In addition, the comparatively low rate of duty on kerosene
encourages its adulteration with other products, particularly with high speed
diesel oil. I am well aware that kerosene is an item of common consumption both
in the rural and the urban areas. But in view of the circumstances I have mentioned,
some additional taxation of kerosene could not be avoided. I propose, therefore,
to increase the duty on kerosene by Rs.59.75 per kilo litre or roughly by about
6 paise per litre. This will result in an additional revenue of Rs.29.80 crores
in a full year.
69. In the Budget last May, we had introduced a duty on compounded lubricating
oils and greases. Lubricating oils are also manufactured and marketed to some
extent by a mere Blending of two oils without any added ingredient. There is
no reason why these marketable oils should not be made liable to duty. I propose,
therefore, to amend suitably the definition of the existing tariff item which
will yield an additional revenue of Rs.5 crores. The duties on asphalt and bitumen
as also on petroleum waxes are also being suitably revised to yield -an additional
revenue of Rs.3.30 crores.
70. It has often been said that the agricultural sector which has been witnessing
significant growth in income over recent years should also make, an appropriate
contribution to the overall needs of the country. We have appointed a Committee
under the Chairmanship of Professor K. N. Raj to examine the whole question
of taxation of agricultural incomes and wealth. Steps have also been taken to
raise additional revenue from this sector by levying a-duty on tractors and
on fertilizers. I propose now to raise the duty on fertilizers from 10 per cent
to 15 per cent. This will result in additional revenue of Rs.12.50 crores. Duty
at the rate of 10 per cent will also now be levied on power-driven pumps which
are designed primarily for handling water. This measure is expected to yield
a revenue of Rs.2 crores.
71. There are a few other minor items such as synthetic organic dyestuffs and
optical bleaching agents where the rate of duty is being changed from 15 per
cent to 20 per cent with an additional yield of Rs.2.63 crores. The duty on
aerated waters with blended concentrates is being increased from 10 per cent
to 20 per cent with an additional yield of Rs.1.65 crores. Pistons will now
he added to the list of motor-vehicle parts for the purposes of duty. The revenue
yield from this would be Rs.50 lakhs.
72. The merger of special duty with basic duty results in a rate of Rs.605 per
metric tonne on hessian and of Rs.385 per metric tonne in the case of other
jute products which relate mainly to sacking. I propose to round off these rates
to Rs.600 and Rs.400 per metric tonne respectively. The regulatory duty will
remain unchanged at 50 per cent. The not gain to the Exchequer would be Rs.1.76
crores of which Rs.1.20 crores would be by way of regulatory duties.
73. Throughout ages, our spinners and weavers have produced an infinite and
ever-changing variety of colour, texture and design to beguile our fancy; and
the Central Board of Excise and Customs has had a difficult task in evolving
a textile tariff which can keep pace with all the subtle nuances of our textile
products. I propose to make one more effort and introduce an extensive rationalisation
of the textile tariff which has been worked out after a great deal of detailed
examination. Honourable Members would, I am sure, be happy to note that the
overall revenue effect of this rationalisation, at any rate, would be insignificant.
74. Finally, I would like to round off by a few concessions in excise duties.
In the case of some items, duty-free clearance upto a value of Rs.50,000 is
allowed subject to the proviso that the total clearances from the unit do not
exceed Rs.2 lakhs in a year. In some other cases, clearances upto a value of
Rs.1 lakh are exempted. I propose now to raise the exemption limit in all cases
where the lower limit of Rs.50,000 is allowed today to Rs.1 lakh subject to
the upper ceiling remaining unchanged at Rs.2 lakhs. This measure which is intended
to help the smaller units will cost the Exchequer Rs.1.40 crores in a full year.
75. Some concessions were introduced in the last Budget to encourage the use
of minor oils in the manufacture of soap. In view of the urgent need to reduce
our dependence on imports in regard to vegetable oils in general, I propose
to increase the incentive by reducing the minimum percentage of use of minor
oils from 5 per cent to 3 per cent and by introducing a rate of rebate of Rs.4.50
per metric tonne on the duty leviable on soap as long as the reduced minimum
use of minor oils obtains. This rebate will increase progressively by Rs.1.50
per tonne for every additional percentage point increase in the utilization
of these oils. A similar concession in relation to rice bran oil used in the
manufacture of soap at the rate of Rs.150 per tonne for every additional percentage
point of use of rice bran oil beyond a minimum level of 15 per cent will also
be given.
76. To encourage the use of rice bran oil in the manufacture of vanaspati, the
minimum percentage use of 7 per cent which was prescribed last year is being
reduced to 1 per cent without any change in the rate of rebate which would remain
Rs.100 per metric tonne on the duty payable on vanaspati produced from such
oil. Similarly, the incentive for greater use of ootton-seed oil in the manufacture
of vanaspati is also being increased on a graded basis. The present general
concession of Rs.100 per tonne of vanaspati produced from cotton-seed oil will
be withdrawn and a minimum compulsory usage of 10 per cent prescribed. Beyond
this percentage, however, the rebate would be Rs.200 per metric, tonne upto
20 per cent of usage, Rs.250 per metric tonne from 20 to 30 per cent of usage
and again Rs.200 per metric tonne beyond 30 per cent of usage. These concessions
on oils would cost the exchequer about Rs.60 lakhs.
77. Honourable Members would be happy to know that I have no proposals this
year in regard to postal and telegraph rates. The Finance Bill, however, provides
for some changes in the sales-tax law applicable to Delhi to remove certain
lacunae which act to the detriment of sales tax revenue accruing to the Delhi
Administration.
TO SUM UP
78. Taking all the proposals together, the total additional revenue from Excise
duties would be of the order of Rs.145 crores in 1972-73 of which Rs.97 crores
will accrue to the Centre and roughly Rs.48 crores to the States. In addition,
countervailing import duties which will apply in respect of all changes in excise
duties other than those relating to iron and steel and aluminium are expected
to yield an additional revenue of Rs.13.40 crores. Other changes in Customs
duties win yield. as already mentioned, an additional revenue of Rs 8.60 crores
for the Centre. The additional yield from direct taxes for 1972-73 would be
Rs.14 crores for the Centre and Rs.2 crores for the States. All in all, the
additional revenue at the Centre next year will he of the order of Rs.133 crores
and for the States, Rs.50 crores. The initial deficit of Rs.375 crore will thus
stand reduced to Rs.242 crores which I think is a reasonably safe level.
79. Sir, in conclusion, may I express the hope that the Budget proposals I have
just presented will be judged in their entirety and against the background of
the formidable challenge we continue to face as a nation. The level of investment
in the economy needs to be raised substantially at the present juncture. This
is necessary not only in the interest of growth, particularly industrial growth,
but also for making a tangible impression on the well-being of the most disadvantaged
sections of society. We have also to assist Bangladesh in her immediate task
of restoring a measure of stability and viability to the economy. Nor can we
let down our guard in regard to the security and integrity of the nation. At
the same time, deficit financing must be kept within reasonable proportions.
80. Fortunately, the bulk of the unavoidable and indeed necessary increase in
outlay next year will be financed by the normal growth in revenues. If I have
not been able to avoid additional taxation altogether, I hope Honourable Members
would remember that I have not been unduly cautious either in providing a stimulus
to growth and social welfare by a substantial increase in Plan outlay. Some
of my tax proposals will also serve other objectives such as self-reliance.
It is in this sense that I spoke at the outset of quickening the mutually reinforcing
process of growth, social justice, self-reliance, investment and resource mobilization.
I can only hope that taken in their entirety, the Budget proposals will take
the economy one stage forward in its march towards our cherished goals.
I thank you.