SPEECH
OF SHRI Y BCHAVAN
MINISTER OF FINANCE INTRODUCING
THE BUDGET FOR THE YEAR 1973-74
Dated : February 28,1973
I
rise to present the Revised Estimates for 1972-73 and the Budget Estimates for
1973-74.
2. The budget of the Central Government is not merely an exercise in balancing
revenue and expenditure. Its primary role today is to be a major instrument
for the realisation of our basic social and economic objectives. This Government
is firmly committed to accelerated economic growth in a framework of greater
social justice and self-reliance. The budget proposals which I shall present
later in my speech are aimed at achieving these basic objectives. For a proper
appreciation of these budget proposals in the broad context of the strategy
for realising these objectives, it is necessary to bear in mind, as background,
the state of the economy in 1972-73 and the economic prospects for 1973-74.
The Economic Survey which was presented to Parliament a few days ago covers
this territory fairly extensively. I shall, therefore, be brief in describing
the salient features of the current economic situation.
ECONOMIC CONDITIONS
3. With the return of refugees to their homeland and the emergence of Bangladesh
as a friendly independent sovereign country, we had hoped that 1972-73 would
be a year in which we would devote our entire energy and resources to the unfinished
task of economic and social reconstruction and development. We did certainly
recognise from the beginning that 1972-73 was not going to be an easy year for
the economy. In the course of my budget speech last year, I had pointed out
that while the resilience and the strength displayed by the economy in 1971-72
could give us confidence, there was little room for complacency. I had at that
time warned that the events of 1971-72 would continue to cast their shadow in
1972-73. The strains and stresses through which the economy has had to pass
in the current year could not, however, be wholly foreseen at that time.
4. Once again there was a failure of the monsoon in the summer of 1972 which
created severe drought and scarcity conditions in several parts of the country.
This has led to extensive loss of crops, shortage of fodder, and paucity of
drinking water, creating conditions of grave hardship and suffering in parts
of the country. The Government has been deeply concerned over the human suffering
resulting from these unprecedented adverse conditions, in order to meet this
challenge a large effort has been made to provide the maximum resources possible
for the relief of those living in the affected areas, and we will have to continue
these efforts so long as they are required. Unfortunately, this is the second
year in succession that the production of food grains during the kharif season
suffered a serious set-back. This has adversely affected the procurement of
grain for distribution by Government. The drought has also adversely affected
the production of important commercial crops, such as oil seeds and raw jute.
As a result, imbalances in certain strategic sectors of the economy producing
the basic necessities of life have been magnified.
5. The abnormal increase in prices that took place in the current year is basically
a reflection of these imbalances. The wholesale prices index during the period
April 1972 to the end of January 1973 registered an increase of 9.1 per cent,
as compared to an increase of 3.7 per cent during the corresponding period of
1971-72. The rise in the prices of food articles was the crucial factor contributing
to the increase in the index of wholesale prices. I am very conscious of the
fact that movements in prices during the current year have added greatly to
the hardships suffered by the weaker and more vulnerable sections of our society.
A major thrust of the policy of this Government is to reduce these hardships.
6. I do not intend to describe in detail the measures adopted by the Government
to arrest the price rise and to relieve the distress caused by the drought.
Honourable Members are aware of the determined efforts made by the Central and
State Governments to stand by the people affected by the drought. Whatever resources
in terms of money are required are being made available. The public distribution
system has been strengthened. A country-wise emergency programme was launched
to increase agricultural production in the current rabi season to offset the
loss of kharif output for which Rs.190 crores were made available to the States.
On present indications the production of food grains during the rabi season
will register a significant increase, and I am confident this will result in
a reduction of the pressure on prices. As a precautionary measure the Government
has arranged to import about two million tonnes of food grains during the early
part of 1973 at a cost of about Rs.160 crores in foreign exchange. But there
is no scope for complacency. The emerging price trends will have to be kept
under continuous watch. Arrangements for procurement and public distribution
will have to be further strengthened and steamlined.
7. The events of the current year have brought into sharp focus the continued
heavy dependence of Indian agriculture on the rains. This is a pointed reminder
of the urgent need to expand the area under irrigation and to evolve suitable
techniques of dry farming as essential elements of an agricultural strategy
designed to reduce the instability of crop production. The large scale distress
in the drought affected areas has served to emphasise once again the pressing
need for better regional balance, and evenness in the level of development.
8. Against this background the sharp acceleration in the rate of growth of industrial
production during the current year is heartening. On present indications the
index of industrial production will register an increase of close to 7 per cent
over the year, against an increase of 4.5 per cent in the previous year. But
for a continuing shortage of power, the outcome would have been still more favourable.
While a large number of industries have contributed to industrial recovery,
the rapid growth of textiles, after a decline in the preceding year, was the
most important favourable factor. Sustained growth in industrial production
in the coming year will require a more broad based effort than in the past.
9. I am glad to say that the export front looks encouraging. Exports increased
by 23 per cent during the first eight months of 1972-73. This is a good performance,
particularly when allowance is made for the uncertainties that have prevailed
in exchange markets during the greater part of the current year. It would be
well to remember, however, that our exports were helped by certain factors whose
continuation cannot be taken for granted. The exports of engineering goods on
which we had Placed high hopes have lost some of their earlier momentum. Some
of the principal factors, like lesser utilisation of external assistance and
large payments for imports of food grains and industrial inputs like iron and
steel, oil, and fertilizer, are likely to exert greater pressure on our foreign
exchange reserves. Clearly, foreign exchange is still a major constraint on
our development. If self-reliance is to become a living reality, there must
be a massive increase in our exports, coupled with adequate expansion in the
domestic production of such vital import substitutes as iron and steel and fertilizers,
and increased efforts in exploring indigenous sources of supply of oil. The
behaviour of agricultural production, both of food grains and commercial crops,
will also be a major determinant of the state of our balance of payments.
10. Despite a rapid growth of industrial production and of exports, the growth
of real national income in the current year is likely to be small due mainly
to lack of adequate growth in the agricultural sector. In order to retain a
proper perspective of the situation, it must not be forgotten that fluctuations
in national income are not an uncommon. phenomenon in countries heavily dependent
on agriculture. Such fluctuations must not lead us to draw pessimistic conclusions
about the country’s basic economic health, or its development potential
and prospects, which are sound.
11. As the Honourable Members know, the Government, after a careful assessment
of all relevant factors, has fixed the growth target for the Fifth Plan at 5.5
per cent per annum. The criticism is made that this target is too ambitious
considering past trends. I am, however, entirely unable to accept that the target
is unrealistic. Purposeful planning, after all, is not simply an extrapolation
of past trends. The political and economic development of India since independence
has belted the gloomy prophecies of many a distinguished commentator. More than
once it has been demonstrated that the economy and polity of India have the
resilence to bear hard shocks and emerge even stronger. The events of 1971 are
an impressive indication of what can be achieved by collective will properly
channelised. The task now before the nation is to bring a similar sense of discipline,
determination, and hard work to bear on its quest for a better quality of life
for the common man and a self-reliant economy.
12. The immediate tasks for the economy may be summarised as follows: Firstly,
inflationary pressures have to be contained through a judicious combination
of demand management, increased production of basic wage goods, and the strengthening
of the public distribution system. Secondly, in order to improve growth prospects,
vigorous efforts have to be made to increase the rate of savings and investment.
The third most important task is to achieve greater viability on the external
front, which can only be achieved through higher exports and restraint on imports.
Fourthly, there must be a rapid increase, in employment opportunities, both
in rural and urban areas, to make an adequate dent on the problem of unemployment.
Determined efforts are necessary to reduce disparities in income and consumption.
Finally, to secure greater social justice, programmes designed to provide minimum
basic amenities to all citizens must be expanded in scope and coverage. These
are the principal tasks which I have kept in mind in framing the budget proposals
for 1973-74.
REVISED ESTIMATES: 1972-73
13. The set back in the agricultural sector due to the failure of the monsoons
had its inevitable impact on the budgetary position of the Government during
the current year. A sum of Rs.150 crores had to be provided for assistance to
States chiefly for the development of minor irrigation under the emergency agricultural
production programmes. In addition, the provision for short-term loans for seeds,
fertilizers, and pesticides, was raised from Rs.60 crores to Rs.100 crores.
Relief operations had to be organised on a massive scale in all the areas affected
by natural calamities. The provision for assistance to States for relief of
natural calamities had to be stepped up from Rs.75 crores to Rs.220 crores.
I feel it will be useful to draw up more effective plans for dealing with drought
and natural calamities which unfortunately are at present a feature of the Indian
economic scene.
14. The Budget made a provision of Rs.720 crores for Central assistance to States
for State Plans. To accelerate the work on certain irrigation and power projects,
and with a view to bridge the gap in Plan resources, it has been decided to
step up this assistance by another Rs.55 crores. In addition, special accommodation
by way of loans continued to be provided to certain States to meet inescapable
deficits in their non-Plan accounts and for specified projects. The Additional
burden on the Central Budget on this account in the current year is likely to
be Rs.153 crores. It was necessary to make this enhanced special accommodation
as, otherwise, the resources available to such States for implementing their
Plan would have been reduced.
15. I had mentioned in my budget speech last year that a scheme for liquidation
of overdrafts taken by the States had been evolved in consultation with the
Reserve Bank of India to ensure that overdrafts were not used by States as a
mode of financing their expenditure. The scheme was put into operation with
effect from 1st May, 1972 and has worked effectively during the year. I wish
to say that we could not have solved the problem of States’ overdrafts
but for the cooperation extended by the State Governments in this matter. However,
this was not achieved without paying a price. The overdrafts to States, amounting
to Rs.642 crores at the end of April, 1972, were cleared by providing ways and
means advances and advance release of payments due to States. A small portion
of these ways and means advances has been recovered in the course of the year
and the recovery of the balance amount of Rs.421 crores will be spread over
the next few years. This arrangement really represents the taking over of the
past deficits of State Governments on to the books of the Central Government
with a corresponding adjustment in the books of the State Governments, thus
increasing, though notionally, the deficit in the Central Budget by this same
Rs.421 crores.
16. The Defence Expenditure for the current year, now estimated at Rs.1600 crores,
shows an increase of Rs.192 crores as compared to the original Budget provision
of Rs.1408 crores. Other commitments contributing to expenditure higher than
estimated in the budget proposals this year are - additional food subsidy to
the extent of about Rs.17 crores, payments on account of the take over of general
insurance, coking and non-coking coal mines and the indian Copper Corporation
to the extent of Rs.56 crores, and, Rs.18 crores for rehabilitation assistance
to about 8 lakhs people on the Western front affected by December 1971 war with
Pakistan.
17. Honourable Members will, however, be glad to know that we have not allowed
these unforeseen and heavy commitments on account of drought relief and emergency
production programmes to come in the way of Plan expenditure. The Budget for
1972-73 had provided for a big step-up in the Plan outlay. Taking Central and
Union Territories Plans and assistance to State Plans together, the provision
was Rs.2624 crores, which represented an increase of nearly Rs.500 crores over
the 1971-72 Plan provision. I am glad to be able to say that there will not
be any material shortfall in Plan expenditure this year. On the other hand,
the Railways’ Plan expenditure for the year will register an increase
of Rs.34 crores over the budget estimates.
18. Special Nutrition Schemes started in 1970-71 for providing supplemental
nutrition to vulnerable sections of the population have gained momentum, and
currently 32 lakhs pre-school children and expectant and nursing mothers in
urban slums, tribal areas and rural areas are deriving benefit from them.
19. The scheme for provision of home-sites to workers in rural areas is also
gathering momentum. Central assistance for providing over 2 lakhs house-sites
has already been sanctioned. States are also assured of assistance for Basti,
improvement schemes on the analogy of the Calcutta improvement Scheme.
20. Receipts under income and Corporation taxes are now estimated at Rs.83 crores
more than the Budget Estimates. Customs revenue may exceed the Budget Estimates,
by Rs.90 crores. Union Excise duties may, however, show a decline of Rs.37 crores
as compared to the Budget Estimates because production may be affected on account
of prevailing drought conditions and the power shortage.
21. In order to meet the heavy commitments to the States and to mop up the surplus
investible funds of the banks and other financial institutions, we have taken
recourse to three additional floatations of market loans during the current
year. As a result, there will be an improvement in the receipts under this head
by Rs.263 crores the realisation being Rs.478 crores, against the provision
of Rs.215 crores made in the original Budget proposals. Collections under the
various Small Savings Schemes are now expected to reach Rs.300 crores, as against
Rs.230 crores assumed in the Budget.
22. After taking all these changes into account, the overall budgetary deficit
will still be Rs.550 crores. This figures excludes Rs.421 crores of loans to
States for clearance of their overdrafts till the end of last year. A deficit
of this order, despite large scale additional resource mobilisation, was inescapable
due to the extremely difficult situation caused by the drought and the resultant
shortfall in food grains production involving unexpectedly heavy spending on
drought relief and on the emergency agricultural production programmes.
BUDGET ESTIMATES: 1973-74
23. Let me now turn from a narration of the past to the future. As we leave
behind 1972-73 and turn to 1973-74, our main objective is to fulfil the remaining
commitments of the Fourth Plan and to provide a firm base for the launching
of the Fifth Five Year Plan in 1974-75.
24. In the background of the strong inflationary pressures prevailing in the
economy, it is not easy to reconcile the requirements of growth with the requirements
of stability. However, my general approach has been that the stability to be
aimed at must be the stability of a growing economy. I believe that a solution
which seeks stability by cutting down expenditure which adds to the productive
capacity of the economy is in the long run self-defeating. In an economy where
there is considerable unemployment such an approach would aggravate the inequitable
distribution of income between those who are fully employed and the unemployed.
For these reasons the provisions for development expenditure have been stepped
up in the last three years notwithstanding the severe stresses through which
the economy has had to pass in this period.
25. In 1973-74 a provision of Rs.1924 crores for the Central Plan is being made
which will be Rs.137 crores larger than the 1972-73 Budget provision. In addition
to this, a provision of Rs.810 crores for Central assistance to State Plans
is being made which represents an increase of Rs.35 crores over the 1972-73
provision. With a Plan provision of Rs.110 crores for Union Territories, the
original estimated requirement for Union Territories for the Fourth Plan will
also be fulfilled. The Plan provision in the Budget next year taking together
Central and Union Territories Plans, as well as Central assistance to State
Plans will be Rs.2844 crores as against Rs.2624 crores in 1972-73.
26. As Honourable Members are aware, a number of significant initiatives have
been taken in the past three years to reorient our approach to the Plan so as
to combine the objective of promoting rapid economic growth with the ideal of
securing greater social justice and the well being of the needy and the poor.
For this purpose, in continuation of earlier measures like the nutrition programme
for children, rural water supply schemes, social security benefits for industrial
workers, and schemes for rural employment, an amount of Rs.125 crores was earmarked
for a new package of welfare measures in 1972-73 Budget. Important schemes introduced
during 1972-73 were special employment programmes for both educated and uneducated
unemployed - Rs.60 crores, expansion of primary education - Rs.30 crores, slum
improvement and rural home sites - Rs.20 crores, and rural water supply - Rs.15
crores. These schemes are an essential component of our development strategy
of growth, subserving the cause of social justice. They have now gathered momentum
and are yielding beneficial results. We have, therefore, decided to provide
in the 1973-74 Budget the same amount of Rs.125 crores for continuation of these
schemes in the Central Plan.
27. There are a number of ongoing schemes which form the core of the Plan and
provide the necessary infrastructure for our industry and commerce. We have
to find resources for these. The Plan provision for power is being increased
from Rs.88 crores this year to Rs.115 crores next year. Provision for increasing
production capacity in the field of fertilizers and chemicals is being fixed
at Rs.134 crores, as against Rs.95 crores in the 1972-73 Plan. Honourable Members
will agree with me that an increased supply of power and of such critical inputs
as fertilizers will have a highly favourable effect on the growth in agriculture
and industry.
28. A word would be appropriate here about the Differential interest Rates Scheme.
Honourable Members will recall that on the 25th March last year I made a policy
statement in this House in regard to public sector banks starting a scheme of
lending at a concessional rate of interest for helping certain categories of
persons in the low income brackets in their productive endeavours. The Reserve
Bank issued the guidelines for the scheme in June 1972, and thereafter banks
started operating a pilot scheme. Later, when progress was reviewed it was felt
there was need for making some adjustments in the scheme. After considering
all aspects I have decided to announce the following changes in the scheme.
29. The pilot scheme was confined to 163 industrially backward districts, excluding
those which were covered by the Small Farmers Development Agency and the Marginal
Farmers and Agricultural Labour Schemes. The scheme will now be applicable to
Small Farmers Development Agency/Marginal Farmers and Agricultural Labour Schemes
districts also, and in an will be operated in 265 districts covering three-fourths
of all districts in the country. Institutions for physically handicapped persons,
and orphanages and women’s homes, irrespective of their place of location,
will hereafter be eligible to borrow at the concessional rate, provided the
funds thus obtained by them are used purely for productive schemes, and not
for meeting their normal expenses. In the pilot schemes, the income limit for
eligibility had been fixed at not more than Rs.2,000 per annum per family in
urban and semi-urban areas, and Rs.1,200 per annum per family in the rural areas.
I am increasing this limit to Rs.3,000 for urban and semi-urban areas, and Rs.2.000
for rural areas. I have also decided to make a change in regard to the ceilings
for loans under the scheme. The ceiling for working capital loans, which was
earlier Rs.500, is now being raised to Rs.1,500, and for term loans from Rs.2,500
to Rs.5,000. With these liberalisations I hope the scheme will be able to make
a better impact.
30. Despite the progress made by the schemes already initiated for providing
employment, and the efforts made both by Central and State Governments, what
has been done so far has not been commensurate with the magnitude of the problem.
Clearly, this is a field for fresh initiatives and greater concerted effort
in the years to come. Government is particularly concerned about the growing
unemployment among educated persons. In order to make a further dent on this
problem it is proposed to undertake new programmes which will generate employment
opportunities for an additional half a million educated persons in various fields
and will at the same time help in the creation of durable assets, collection
and compilation of valuable data, and training of an adequate number of persons
to help in implementing the new programmes and projects that will be introduced
in the Fifth Plan. For this purpose, a provision of Rs.100 crores has been set
apart in 1973-74 Budget. But for the constraint of resources, I would have been
happier to allocate a much larger sum for this purpose.
31. Another significant step which to being taken is the provision of Rs.150
crores for ‘advance action’ on the Fifth Plan. This will ensure
that when the Plan is launched we are in a position to get the benefits of Plan
programmes within the Plan period itself. The next Plan envisages a much larger
investment both in agriculture and key and basic industries, as well as industries
producing goods for mass consumption. If the projected growth rate is to be
achieved within the policy framework of self-reliance it is essential that projects
of critical importance to the economy are completed according to schedule and
attain full capacity output within the shortest possible time. The advance action
on the Fifth Plan proposed in the 1973-74 Budget is designed to facilitate this
outcome.
32. In addition to the provisions made in the Budget, resources will also be
available from the internal resources of the public sector enterprises, and
by way of contributions from financial institutions. Such resources are estimated
to yield an additional Rs.518 crores to the Central Plan for next year, thereby
raising resources for the total Central Plan to Rs.2442 crores.
33. The State Plans have made satisfactory progress and for this purpose wherever
necessary the Central Government has been providing help over and above the
Central assistance for State Plans. With the provision of Rs.119 crores in 1973-74
Budget, the total expenditure on special accommodation to States during the
Fourth Plan will be in excess of Rs.800 crores which was the estimate in the
original Plan. The total State and Union Territories Plan outlay as worked out
after discussions between the States, Planning Commission and Finance Ministry
will be of the order of Rs.1914 crores as against Rs.1704 crores during the
current year.
34. Taking the Central Plan with its internal resources as well as the State
and Union Territories Plans, the total Plan outlay in 1973-74 will be Rs.4356
crores as against Rs.4011 crores during the current year.
35. On the non-Plan side due care has been taken to restrict the growth of expenditure
to the minimum level. Defence expenditure is retained at the same level as in
current year, namely, Rs.1600 crores. Special accommodation to the States will
be of the order of Rs.119 crores and this should enable them to fulfil their
Plan targets. In addition to this, a sum of Rs.79 crores will be given as loans
to States for financing certain specific projects outside the State Plans. As
a precautionary measure I am also providing Rs.100 crores for assistance to
States for meeting expenditure on natural calamities relief. I shall be a happy
man if it is not needed.
36. The report of the Third Pay Commission is yet to be received. Government
share the anxiety of the Honourable Members and of Central Government employees
that the report, when received, should be considered and acted upon expeditiously.
In the absence of the report, it has not been possible to make any specific
provision for meeting the expenditure arising out of recommendations yet to
be made. On receipt of the report, and subsequent to whatever decisions may
be taken on its recommendations, Supplementary Grants to the extent necessary
will be taken for the additional requirements.
37. On the resources side, income-tax and corporation tax at current levels
of taxation, are expected to show an improvement of Rs.80 crores, and Union
Excise Duties Rs.196 crores. Small Savings are continuing to show progress in
collections and are expected to yield Rs.325 crores next year, as compared to
Rs.300 crores this year. Repayments of loans by the States next year will also
be higher in view of the massive loan assistance extended to them this year.
38. I am glad to confirm that the Refugee Relief Levies will be withdrawn with
effect from 1st April, 1973. Necessary legislation for this purpose will be
introduced separately before the end of this financial year.
39. After taking into account the improvement in revenue, the increased outlays
on the Plan, and other commitments, the year 1973-74 will, at the existing levels
of taxation, show a deficit of Rs.335 crores. This figure makes no allowance
for requirements arising out of the coming report of the Pay Commission.
40. Honourable Members, I am sure, will agree with me that in the present inflationary
situation which the economy faces, the size of the deficit must be kept to a
low level. In order to accomplish that, it becomes necessary for me to make
proposals for increased taxation which will reduce this deficit. Now I shall
deal with these proposals.
PART B
41. Before describing the tax proposals in detail, I would like to share With
Honourable Members the general considerations underlying these proposals. As
I have already mentioned, in the prevailing inflationary conditions in the country
it would not be prudent to have a large deficit in the Budget. Moreover, there
are the inevitable commitments arising out of the resource requirements for
the Fifth Plan. If adequate resources are to be raised for financing the Fifth
Plan, action has to begin in this very year. I have therefore no alternative
but to propose some additions to the tax burden.
42. Both direct taxes and indirect taxes have to contribute to raising resources
for our development. As Honourable Members are aware, the Direct Taxes Enquiry
Committe, under the chairmanship of Shri K. N. Wanchoo, ex- Chief Justice of
India, has made a number of proposals in the field of direct taxation. I have
carefully examined these proposals and am submitting a separate Bill to give
effect to such of these recommendations as are acceptable to the Government.
Some of the recommendations which have a bearing on the raising of resources
are being implemented through the present Budget proposals. In making these
proposals I have also taken account of the Report of the Committee on Taxation
of Agricultural Wealth and income headed by Dr. K. N. Raj.
43. In the present circumstances, there is no escape from using indirect taxes
also to raise additional resources. However, I have taken care that in the process
articles of mass consumption are left untouched. This will become evident as
I unfold my proposals.
DIRECT TAXATION
44. As Honourable Members are no doubt aware, the Committee- on Taxation of
Agricultural Wealth and income has suggested several measures for mobilisation
of resources from the agricultural sector. One of their principal recommendations
is that agricultural income should be taken into account in determining the
rate of tax applicable to non- agricultural income. This will help to reduce
sharp disparities in the tax burden on persons with similar incomes. I consider
this recommendation of the Committee to be well-conceived, and am accepting
it. I am therefore making provision in the budget for aggregation of both the
agricultural and non- agricultural components of a taxpayer’s income for
purposes of determining the rates of income-tax that will apply to the non-agricultural
portion in cases where the taxpayer has non- agricultural income exceeding the
exemption limit. For the purpose of determining the rate of income tax applicable
to the non~ agricultural portion of a taxpayer’s income, the first 5,000
rupees of his non-agricultural income will be appropriated to the lowest slab,
which is exempt from tax. The agricultural income will be appropriated to the
middle slabs, and the balance of the non- agricultural income will be appropriated
to the upper slabs of the aggregate income. This scheme of partial integration
will apply to the case of individuals, Hindu undivided families, unregistered
firms, association of persons, bodies of individuals, and artificial juridical
persons.
45. It is generally recognised that the present system of tax treatment of Hindu
undivided families has encouraged tax avoidance. It is my view that the unintended
tax benefits currently available to Hindu undivided families should, to the
extent possible, be neutralised. I therefore propose to provide separate rate
schedules, in respect of both income-tax and wealth tax, with higher rates applicable
to Hindu undivided families having one or more members with independent income
or wealth exceeding the exemption limit. This is one of the recommendations
of the Direct Taxes Enquiry Committee. It is also proposed to bring the minimum
exemption limit in the case of all Hindu undivided families to the uniform level
of Rs.5, 000 applicable in the case of individuals.
46. Capital gains tax can become a means of avoiding or reducing the burden
of payment of income-tax. At present capital gains arising from the sale or
transfer of capital assets held by a taxpayer for a period exceeding 24 months
are entitled to concessional tax treatment. I propose to extend this period
to 60 months. As a result, only capital assets held by a taxpayer for a period
exceeding 60 months will qualify for concessional tax treatment applicable in
relation to long-term capital assets.
47. Where industrial undertakings are required to shift as a result of compulsory
acquisition of land and buildings, I propose to exempt, as a measure of relief,
capital gains arising from the payment of compensation in such cases if the
gains are reinvested for the acquisition of land and buildings for re-establishing
the undertakings or starting new industrial ventures within a period of three
years of the acquisition.
48. I also wish to encourage long-term savings through life insurance, and provident
fund contributions. At present, 100 per cent of the first Rs.1,000 of qualifying
savings, plus 50 per cent of the next Rs.4,000, and 40 per cent of the balance
is allowed as deduction in computing taxable income. I propose to allow a deduction
equal to 100 per cent of the first Rs.2,000 of the qualifying savings. The quantum
of deduction in respect of next Rs.3, 000 will continue at the existing rate
of 50 per cent and in respect of the balance at the rate of 49 per cent. Sports
lovers will be glad that donations to approved sports institutions will qualify
for tax-relief in the same manner as donations to charities. I shall be happy
if this leads to improvement in the facilities provided to young, sportsmen.
49. It has been a basic policy of the Government to encourage small and medium
entrepreneurs with comparatively small resources to form public companies. Towards
this objective, I propose to raise the limit up to which a concessional rate
of income tax is applicable in the case of widely-held companies from Rs.50,000
at present to Rs.1 lakh. Under the existing schedule of rates, closely held
companies in the corporate sector pay income-tax at a concessional rate on the
first Rs.10 lakhs of their industrial profits. I propose to reduce the slab
on which the concessional rate is applicable from Rs.10 lakhs to Rs.3 lakhs.
It is hoped that this. measure will encourage conversion of these companies
into widely-held companies, and thereby broaden the base of the ownership of
industry.
50. At present there is some doubt whether management compensation in respect
of business undertakings or other property the management of which is taken
over by the Government is liable to tax. To set this matter beyond doubt, I
intend to introduce a provision to treat such management compensation as income
from business liable to tax. This will apply retrospectively from the assessment
year 1972-73.
51. Under the existing law, income tax is deductible at source from the payments
made by Government, statutory corporations, local authorities and companies,
to contractors in respect of works or labour contracts. I propose to include
cooperative societies also in the category of taxpayers required to deduct tax
at source from payments made by them to contractors.
52. The Credit Guarantee Corporation of India has been formed for the purposes
of guaranteeing advances made by banking companies to the hitherto neglected
sectors of the economy. This is a laudable purpose and I propose to exempt the
income of this Corporation from tax for a period of five years.
53. In my budget speech for 1971-72, I gave notice of Government’s intention
to withdraw the development rebate in respect of ships acquired, or plant and
machinery installed after May 31,1974. In response to the demand that this should
be substituted by other fiscal concessions to impart a continuing momentum to
industrial growth in the country, I had indicated that I would come up with
some specific proposals for encouraging industries in selected sectors and those
in backward areas. In pursurance of this undertaking, I am giving an indication
of certain measures which Government has in mind for this purpose, as also for
promotion of research and development, and exports. I propose to bring necessary
legislation in the course of the year to give effect to these proposals.
54. It is my intention to provide an initial depreciation allowance of 20 per
cent of the cost of machinery and plant installed in selected industries after
May 31, 1974. This would provide additional resources to the concerned enterprises
in the early years of their development. A list of the industries to which this
will apply is under consideration.
55. In order to provide a stimulus to investment in backward areas I intend
to accord preferential tax treatment to industries to be set up in such areas
after March 31, 1973. Specifically, the intention is to allow a deduction equal
to 20 per cent of the profits derived by an industrial undertaking set up in
the backward areas in computing its taxable profits. This concession will be
available for a period of 10 years from the establishment of the industry. The
ceiling on investment eligible for subsidy will also be raised from Rs.50 lakhs
to Rs.1 crore, and the percentage of subsidy will be raised from 10 per cent
to 15 per cent of the investment.
56. I feel it is important to enlarge the area of fiscal incentives for promoting
research and development, particularly in the field of industry. I also feel
that inadequate attention to this aspect is retarding the development of indigenous
technology and therefore of self-reliance in industry. At the moment capital
expenditure in regard to scientific research related to the business activity
of the taxpayer during three years immediately preceding the commencement of
business is allowed to be written off against the profits of the year in which
the business is commenced. I propose to extend this concession, covering revenue
expenditure, in regard to payment of salaries to research personnel, and on
material inputs, during the pre-investment period. I also propose to allow a
weighted deduction equal to one and one-third the amount paid for sponsored
research and development work, in approved laboratories.
57. Honourable Members will agree with me that it will be a paying proposition
for sizeable development expenditure to be incurred in developing exports, particularly
of non-traditional products. At present expenditure on export market development
is deductible for tax purposes to the extent of 133.3 per cent of actual costs.
In view of the great importance of promoting our exports, I propose to increase
the weighted deduction to 150 per cent in the case of widely held companies.
58. I am very conscious of the need to encourage the increase of employment
in industry so that its growth may be oriented towards labour rather than capital
intensive techniques. We are considering schemes which may serve this purpose.
59. The total additional revenue from the various measures in the field of direct
taxes enumerated by me will be Rs.31 crores in a full year and Rs.18.6 crores
in the year 1973-74, of which the share of the Central Government will be approximately
Rs.14 crores.
INDIRECT TAXATION
60. Sir, in turning to indirect taxes next, I intend to take up Central excises
ahead of customs, in reversal of the normal order of precedence in deference
to the former being the major contributor to our revenues.
EXCISE DUTIES
61. In doing so, I would like first, to refer to the effort I propose to make
for raising revenue on behalf of the States through additional duties of excise.
Honourable Members will recall that this is the third and final year for the
fulfilment of our commitment to the States to raise these duties in lieu of
sales tax leviable on three commodities, namely, sugar, tobacco and textiles,
so as to achieve an overall incidence of 10.8 per cent of the value of their
clearances by the end of 1973-74. To reach this target, I shall have to raise
about Rs.25 crores in this Budget. In carrying out this exercise, I have been
faced with considerable difficulty because one of the commodities, sugar, is
at the moment a somewhat sensitive item, and, another namely textiles, does
not seem to offer much scope. That leaves me with no choice but to fall back
on the“old faithful”, cigarettes, to help me out of the predicament.
Tobacco has been a much maligned commodity almost from the days of its discovery.
While I would certainly refrain from adopting any attitude of castigation towards
the numerous devotes of the tobacco leaf, I shall be content if those who take
pleasure from the use of this weed will contribute in some higher measure to
the national Exchequer.
62. Experience has shown that the existing slab system whereby cigarettes pay
fixed percentages of ad valorem duties depending on the ranges or slabs of value
in which they fall, has been leading to the creation of dead areas in which
no brands of cigarettes can flourish. By the very nature of the scheme there
is also an in-built temptation towards the artificial depression of the values
of certain brands which, I feel, will not only affect their quality but also,
in the long run, the revenue from cigarettes. I, therefore, propose to resort
to a more progressive system by adopting the simple principle that the better
a cigarette, the more it pays. Starting with an aggregate base of 100 per cent
ad valorem (for both basic and additional duties) at a value of ten rupees per
thousand, the levy will rise at a steady rate of 5 per cent for every additional
rupee or part thereof in value, till it reaches the present aggregate statutory
ceiling of 300 per cent, which, if this. is any consolation to smokers, I do
not intend to revise upward. By suitable inter se adjustments in the basic and
additional duties I hope to raise Rs.32 crores in a full year, of which the
major share of Rs.24 crores will go to the States by way of additional excise
duties.
63. I am afraid I cannot, while coming down on the cigarette smoker make things
easier for the pipe smoker or the person who rolls his own cigarettes. I therefore
propose to levy a duty on manufactured smoking mixtures for pipes and cigarettes,
which will yield about Rs.80 lakhs, of which Rs.22 lakhs will accrue to the.
States.
64. I have been concerned over the tendency of certain textile manufacturers
to avoid payment of the legitimate duties on cotton and art silk fabrics by
cutting up good fabrics into smaller pieces of fents and, into pieces of cloth
which are euphemistic ally called rags. I have, as the first step towards curbing
this tendency, already revised the definitions of fents and rags by reducing
their length criterion. As the second step I now propose to increase suitably
the duties on fents and, for the first time, prescribe duties for rags. If these
measures do not have the desired effect, it might become necessary to consider
more drastic steps.
65. There have been complaints that the duty incidence on certain blended fabrics
manufactured with an ingredient of cotton is lower than on similar fabrics in
which viscose is used in place of cotton. I propose to remove this disparity.
66. A situation has been created where, because of the total exemption enjoyed
by artificial silk fabrics processed without the aid of power or steam, there
is a growing tendency on the part of some art silk units to resort more and
more to processing their fabrics with non-power operated machines. This cannot
be allowed to continue. In making such fabrics also liable to duty now, I have,
however, ensured, in the interests of equity, that the incidence on them is
kept 40 per cent lower than it would be had power been used.
67. The above measures on textiles are expected to yield Rs.3.65 crores of which
about Rs.1 crore will accrue to the States by way of additional excise duties.
68. The combined effect of the proposals detailed so far will net for the States
a total revenue of Rs.25 crores in a full year.
69. With my commitment to the States by way of additional duties thus fulfilled,
I must now, in my continuing search for extra resources, turn to another commodity
that has often come to the help of the Finance Minister in the past. I am referring
to motor spirit. Honourable Members will recall that I had increased steeply
the duty on motor spirit in 1971 with a view to curbing its consumption. Since
then, and as though to give me adequate justification for resorting again to
the curbing mechanism, there has been a pronounced$ spurt in the use of petrol.
I propose therefore to apply the curb and also raise some revenue by increasing
the duty on motor spirit by Rs.80 per kilolitre so as to yield Rs.19.20 crores
per year.
70. I also intend to take this opportunity for making a few modifications in
regard to certain petroleum fractions which are classifiable as motor spirit,
particularly raw naphtha, where there is need for economy in its consumption.
However, in doing so, the existing concessions for the use of naphtha in the
manufacture of fertilisers, as also fuel in the manufacture of steel, will be
left untouched. These minor modifications will net an additional revenue of
Rs.1.60 crores.
71. When the levy was first imposed on compounded and blended lubricating oils
and greases I had granted relief to the smaller manufacturers by exempting such
products manufactured without the aid of power from duty. I, however, find that
even some of the bigger manufacturers have stepped into a territory not really
meant for them, by changing their production to methods where power is not used
so as to avoid paying duty. Honourable Members will appreciate that I cannot
allow such avoidance to go unquestioned. I, therefore, propose to withdraw the
existing criterion and effectively confine the concession to the smaller manufacturers
by prescribing it on a quantity-slab basis. I also propose to increase the effective
rate of duty on such oils and greases from 13 per cent to 15 per cent. These
measures will yield Rs.2.35 crores.
72. While on this subject of the ingenuity of manufacturers I would like to
mention the parallel instance of nylon yarn spinners who have started adjusting
the denierage of their yarn in a way that will enable them to pay lower duties
taking advantage of the denierage grouping system on the basis of which the
rates of duty are levied. To cite an instance, in the first group where the
cut-off point is 30 deniers, production has shifted to yarn of 31 and 32 deniers,
which therefore pays only a lower duty. I propose to rectify the situation by
suitably re-adjusting the existing denier groups.
73. The next measure I propose is meant to facilitate the collection of duty
on synthetic fibres and yarn. This I intend doing by exempting the raw materials,
such as polymer chips, used in such manufacture, from duty and suitably readjusting
the duties on the finished nylon, acetate and polyester yarn and fibres. However,
in doing so, I have ensured that the existing incidence of duty on nylon yarn
used in the manufacture of fishing nets and parachute cords remains unaffected.
74. These measures relating to synthetic yarn and fibres will result in an additional
revenue of Rs.7.85 crores.
75. Keeping in view the need for a higher degree of taxation on luxury articles
used by the more affluent, I propose to increase the duties on a few selected
items. Refrigerators and air-conditioners will pay 60 per cent and their parts,
including parts of their machinery, will pay 75 per cent. The proposed increase
on refrigerators will not, however, affect those of a capacity not exceeding
165 litres which are used by the middle class consumer. Refrigerating and air-conditioning
machinery for industrial undertakings and public-run hospitals are not being
touched. The duty on domestic electrical appliances, as also on decorative plywood,
will be raised to 25 per cent. However, commercial plywood will pay lower rates
of 29 per cent and 15 per cent depending on the square area of such plywood.
Plywood for tea-chests also remains unaffected. The rest of this list of items
consists of motor vehicle parts, instant coffee, shaving cream and long playing
records. The proposed duty on gramophone records will apply to the more expensive
long-playing variety only.
76. These various measures in the aggregate will yield Rs.8.33 crores. 77. My
next proposal is for the addition of a few items to those already in the excise
net, namely caustic potash, carbon black, carbide tool tips, wire ropes, and
certain rubber chemicals. All these, (except carbide tool tips which will pay
20 per cent), will bear a duty at the normal general rate of 10 per cent that
is levied on raw materials in the Central Excise tariff. Glycerine which has
so long been paying specific duty will also join their number. These levies
are expected to yield Rs.3.60 crores.
78. I also propose to modify., enlarge, or rescind a number of concessions that
exist at present. Without cataloguing them in detail, I shall mention a few
of each variety. Some of the existing concessions given for paper mills some
years back have been found to be out-dated. I propose to replace them with certain
others aimed at benefiting future expansions of smaller paper mills and also
attracting new capital investment to the industry. The scope of exemption fixed
on a quantitative basis for paper mills having no bamboo plants attached to
them will also be enlarged. The use of unconventional raw materials like bagasse,
and cereal straw, will be further encouraged by liberalising the existing concession.
Among the list of concessions that are being withdrawn are those relating to
certain producers of rayon yarn and to lowvoltage electric motors, sheet glass
and plate glass. and glass fibre and yarn. Acrylic sheets produced out of duty
paid plastic materials, and p.v.c. films of specified thickness and layflat
tubings produced by the small-scale sector, will be exempted. These diverse
measures will result in an additional revenue of Rs.3.60 crores.
79. Before I go on to deal with customs duties, I would like to make a reference
to a matter which concerns both kinds of duties. Honourable Members are aware
that Parliament has been sanctioning enabling provisions for levy of regulatory
duties of excise and customs on a year to year basis from 1963. Regulatory duties
were intended as special fiscal measures to be resorted to only for certain
purposes. I propose to replace them by new straightforward revenue raising provisions.
For certain reasons it is not possible to incorporate the provisions in rate
tariffs, or make them part of taxation statutes and they would therefore have
to be revived from year to year for the present. The new provisions now proposed
levy auxiliary duties both on excisable goods and imported goods at an amount
equal to 20 per cent of the value of such goods. These levies have however been
limited to a level needed to raise resources for the Centre by granting exemptions
wherever and to the extent warranted, for which suitable provisions have been
made in the relevant clauses of the Finance Bill.
80. I shall wind up my catalogue of excise proposals by referring to how I intend
to resort to this provision m the excise side. In the case of aluminium, jute
yarn and jute manufactures, other than hessian, copper and zinc, the auxiliary
levies will continue at the same levels at which they were hitherto charged
by way of regulatory duties. In the case of steel ingots and iron and steel
products (other than skelp), however, the rate will be 75 per cent of the effective
basic duty as against 50 per cent hitherto levied as regulatory duty. This measure
in the case of iron and steel is necessary in order to bring about a further
reduction in the gap between imported and indigenous prices.
81. In the case of steel as well as all other metals, the auxiliary duties will
apply, however, only to indigenous production, and will not be attracted by
way of countervailing duty on imports.
82. While on this subject I would also like to mention a modification I propose
to make in the exemption on steel products produced by electric furnaces. These
secondary steel producing units which are scrap-based are at present enjoying
an exemption of the ingot stage duty on the products made by them. The extent
of such benefit, which was only 75 rupees per metric tonne prior to December
1971, has nearly doubled since then, and is likely to increase further with
the modification now being made on iron and steel. In the circumstances I propose
to impose on furnace steel a levy of Rs.50 per metric tonne at the ingot stage.
This will, of course, be subject to 75 per cent of this basic duty as auxiliary
duty, in the same way as other steel. I would not consider this impost in any
way inequitable, for it still leaves a considerable advantage in favour of furnace,
steel as compared to what the major steel plants have to pay at the ingot stage.
83. These proposals after setting off the revenue that will be foregone by dropping
regulatory duties, will yield Rs.34.60 crores of which Rs.29 crores will accrue
to the Centre.
IMPORT DUTIES
84. It is time now to turn to customs duties where my proposals can be broadly
categorised under three main heads.
85. The first relates to auxiliary duties, which I propose to apply on the Customs
side by means of three differential rates of 20 per cent, 10 per cent and 5
per cent of the value of imported goods, All those paying an effective customs
duty of 100 per cent ad valorem or more, will pay 29 per cent as auxiliary duties;
those paying 60 per cent ad valorem and more, but less than 100 per cent, will
pay 10 per cent; and the rest of the goods will pay 5 per cent. However, food
rains, books, family planning appliances and a few other selected categories
of goods, as well as three other items to which I shall presently refer, will
be totally exempt from auxiliary duties of customs.
86. After making allowance for the revenue that will be foregone by dropping
regulatory duties this measure is expected to bring in an additional revenue
of Rs.36.50 crores.
87. The second proposal is regarding the modification of the rates of duties
presently bound under the General Agreement on Tariffs and Trade. Pending renegotiations
with the concerned contracting parties we have been permitted to modify the
bound rates under the Agreement to the extent necessary for the rationalisation
of the tariff rate structure. Consequent on this I have decided to revise the
rates of duty on a number of items which among them will include wood pulp,
tallow and a few plastic materials. These revisions of rates are expected to
yield an additional Rs.18.70 crores in a full year.
88. My last proposal relating to customs is a selective revision of the existing
rates of duty on a few items.
89. It is necessary to give a further impetus to import substitution and encourage
more extensive manufacture of machinery in our country. I feel that a fiscal
incentive is needed for this purpose which I propose to administer by making
an across-theboard increase in the rate of duty on all machinery from the existing
level of 30 per cent to 40 per cent. This will be applied also to certain allied
items.
90. Raw cotton has been enjoying a privileged position for a long time with
only a nominal concessional duty of 10 paise per kilogram. Since imported cotton
is used mainly for the production of fine and superfine fabrics and comparatively
expensive varieties of blended fabrics which, in the nature of things, are expected
to be used by the more affluent sections of society, I propose to withdraw this
concessional rate and make raw cotton liable to its 40 per cent statutory rate,
which is the normal level of taxation for raw materials in the Customs Tariff.
91. However, raw cotton along with two other items, amely, tallow and machinery,
will not be subjected to auxiliary duties of customs.
92. Copper which has been paying a rate of duty at 30 per cent will pay 40 per
cent which is the normal rate applicable to nonferrous metals.
93. Since the margin of profit on stainless steel sheets is considerable, I
propose to raise the rate of duty on them from 100 per cent to 200 per cent.
However, the duty on stainless steel plates and strips will be fixed at a lower
rate of 60 per cent.
94. As a measure of assistance to indigenous industry, the concessional rate
of 60 per cent so far applicable to nylon yarn used in tyre manufacture is proposed
to be withdrawn.
95. I also propose to raise the rate of duty on unexposed cinematograph films
from 15 paise to 50 paise per linear metre.
96. These various measures relating. to revisions of rates of customs duties
are expected to yield Rs.97.30 crores in a full year.
97. In addition to this, countervailing duties of customs which will automatically
accrue because of the proposed changes in excise duties will account for an
additional Rs.3.50 crores.
98. To sum up, all the proposals regarding excise and customs duties that I
have listed so far will yield about Rs.274 crores. The measures relating to
customs duties will yield about RS.156 crores. From the excise duties, which
will be of the order of Rs.118 crores, Rs.38 crores will accrue to the States.
99. I may now briefly summarise the revenue implications of the various proposals
that I have outlined earlier in my speech. The additional yield from direct
taxes in 1973-74 will be Rs.18.6 crores. Of this, Rs.4.7 crores will accrue
to the States, leaving Rs.13.9 crores for the Centre. The excise duty proposals
will yield additional revenue worth Rs.118 crores in 1973-74. Of this amount,
nearly Rs.38 crores will go to the States and the balance of Rs.80 crores will
accrue to the Centre. The additional revenue from customs duties will amount
to Rs.156 crores. In all, the Central revenues will benefit from the total package
of my proposals to the extent of Rs.250 crores. As a result, the initial deficit
of Rs.335 crores estimated at 1972-73 tax rates will be reduced to Rs.85 crores.
This however will be increased by the provision which will have to be made in
connection with the report of the Pay Commission.
100. Sir, before concluding I would like to point out that this is the third
regular budget that I have been privileged to present to this august House.
During each of these budgets, I have had to come forward with proposals for
significant amounts of additional taxation. This was not a pleasant task. It
was however inevitable in the light of resources required to meet our basic
commitments to the people and the unprecedented challenges of the difficult
times we have lived through. The poverty and the associated inequalities in
income and wealth that prevail in this country cannot be abolished over night.
But there can never be any doubt about the direction in which the Government
is determined to move to sustain people’s faith in our democratic polity
as an effective vehicle of rapid social change. It is in this context of our
firm commitment to socialism, rapid economic growth and a self-reliant economy
that the budget proposals must be appraised. The building-up of a socialist
society requires a sustained multi- dimensional effort to transform our social
and economic structure. In an economy where a large number of people are ill-fed
and ill-clothed we cannot afford the luxury of maintaining the status quo. Fiscal
policy must assist in this process. This is the vision I have kept in mind in
formulating this year’s budget.
101. The increased provisions for employment programmes and the continuing emphasis
on selected schemes of social welfare are part of an attempt to reduce the existing
inequalities of income and consumption. The partial integration of agricultural
and non-agricultural income, and the imposition of higher income-tax rates on
Hindu undivided families, are designed to make our tax system more equitable
and progressive. The pattern of proposed additions to indirect taxes will also
serve the same purpose. I have made every effort to ensure that additional levies
do not impose an undue burden on the common man. On the other hand, small savers
will benefit positively by the proposed liberalisation of tax exemptions for
contributions to provident funds and life insurance. The introduction of initial
depreciation allowances for selected high priority industries after 31st May
1974 will strengthen this country’s industrial structure and thereby help
in the realisation of the goal of self-reliance. Concessions for research and
development will further stimulate the growth of indigenous technology and contribute
to self-reliance. The enhancement of the weighted deduction presently allowed
in respect of export market development must also be seen in the con~ of the
nation’s determination to move speedily towards self-reliance. Incentives
for industrialisation of backward areas that I have indicated will help to reduce
the existing regional inequalities in the level of development which are clearly
inconsistent with the ideals of a socialist society. As I see it the budget
for 1973-74 represents another major effort on the part of this Government to
get the country moving towards the goal of an expanding self-reliant economy
based on social justice.