SPEECH
OF SHRI R.K. SHANMUKHAM CHETTY, MINISTER OF FINANCE, INTRODUCING THE INTERIM
BUDGET FOR THE YEAR 1947-48
(
Original Speech is 22 pages- Excerpts
only given here- RP)
Sir,
I rise to present the first Budget of a free and independent India. This
occasion may well be considered an historic one and I count it a rare privilege
that it has fallen to me to be the Finance Minister to present this Budget.
While I am conscious of the honour that is implied in this position, I am even
more conscious of the responsibilities that face the custodian of the finances
of India at this critical juncture. I have no doubt that in the discharge of my
responsibilities I may count on the sympathetic and wholehearted cooperation of
every Honourable member in this House.
The
partition of the country has cut across its economic and cultural unity and the
growth of centuries of common life to which all the communities have
contributed. The long-term effects of the division of the country still remain
to be assessed and we are too near the events to take a dispassionate view.
When the ashes of controversy have died down, it will be for the future
historian to judge the wisdom of the step and its consequences on the destiny
of one-fifth of the human race. Whatever might be the immediate political
justification of partition, its economic consequences must be fully appreciated
if the two Dominions are to safeguard the interests of the ordinary man in both
the new States. Regions which have functioned for centuries on a complementary
basis have been suddenly cut asunder. To have had as a single economic unit a
sub-continent peopled by a–fifth of the human race meant by itself a great
advantage for the teeming millions of its population–an advantage not fully
realised, and perhaps not properly utilized while the unity was a fact. While
it may be comparatively easy matter to make the necessary political adjustments
resulting from partition, it would require time, patience, goodwill and mutual
understanding to effect the adjustments necessitated by the economic
consequences of partition
Our
economy is more balanced than that of most countries and, in spite of the
setbacks resulting from partition, our large natural resources and sound
financial position will enable us to launch a vigorous economic plan for
substantially raising the living standard of our people.
The
Budget Statement that I am presenting today will cover a period of
seven-and-half months from 15 August 1947 to 31 March 1948.
it
was not possible to reach an agreement on all matters before 15 August 1947
when the two Dominions came into existence and took over the Government of
their respective territories. A number of important points were accordingly
left over for further consideration by the two Dominions and, in the absence of
an agreement between them, for reference to an Arbitral Tribunal which has been
set up. Among the important issues on which it has not been possible to reach
an agreement, I may mention the allocation of debt between the two Dominions,
the method of discharging the pensionary liability, the valuation of the
Railways, the division of the assets of the Reserve Bank and the division of
the movable stores held by the Army
It
has also been agreed that till the end of September 1948 the two Dominions will
remain under a common currency system managed by the Reserve Bank, although
from 1 April next Pakistan will have its own overprinted notes and coin.
There
has been an almost total breakdown of the economy of the East and West Punjabs.
While Government have done and are doing everything possible to relieve the
immediate distress and suffering of the refugees, the formulation of long-range
plans for their rehabilitation raises formidable issues both in the financial
and administrative fields. These problems have imposed a heavy burden on the
Central Exchequer, the magnitude of which it is not possible to assess at
present. The budget of the Central Government for the next few years will be
materially affected by this unexpected development in the country. Our whole
programme of post-war development will have to be reviewed in the light of this
context
The
food position has continued to cause grave anxiety both to the Provincial Governments
and the Central Government. The country has just weathered a serious threat of
a breakdown of its rationing system. The results of the “Grow More Food
Campaign” have been on the whole disappointing
The
various steps necessary for making the country self-sufficient in foodgrains
must now claim the highest priority. The implementation of this policy must
largely depend on the Provincial Governments though the Government of India has
been and will always be prepared to afford all possible help in this direction.
While
the supply position has been deteriorating, increases in wages and salaries
given by private employers and the Government had the effect of augmenting the
purchasing power of the people and widening the gap between current money
income and production of goods. The situation would not have been so bad if the
unbalance between money and goods was confined to these factors only. The most
disturbing factor which affects the situation today is the unspent balances of
individuals and institutions accumulated during the peak years of inflation
which are being spent on the deferred wants of individuals, repairs to industry
and on the building of trade inventory. In other words, the money demand for
goods is colossal compared to their local production
If
the economy of this country is to be placed on a sound footing and maintained
in a healthy condition, it is of utmost importance to increase internal
production. The chances of increasing the supplies of commodities by imports
are not very bright. Until recently we had a fair chance of sizable imports of
consumer goods from the British Commonwealth countries from accumulated
balances, but with the blocking of the major part of these and the growing
adverse balance resulting from the large scale importation of foodgrains, the
hope of procuring supplies from abroad is growing weak. We have, therefore, to
fall back on our own resources
I
have budgeted for a revenue of Rs. 171.15 crore and a revenue expenditure of
Rs. 197.39 crore. The net deficit on revenue account in the period covered by
these estimates will be Rs. 26.24 crore…Customs receipts have been placed at
Rs. 50.50 crore and take into account the effect of the recent restrictions on
imports for conserving our foreign exchange resources. Income-tax is expected
to yield Rs. 29.50 crore on account of Excess Profits Tax (E.P.T.) and Rs.
88.50 crore on account of ordinary collections
Revenue
from the Posts and Telegraphs Department is expected to amount to Rs. 15.90
crore and the working expenses and interest to Rs. 13.90 crore leaving a net
surplus of Rs. 2 crore. The outright contribution of the department to general
revenues will be three-fourths of the realised surplus, the department
retaining the balance. The department will get a rebate of interest on its
share of the accumulated profits in the past which, after allowing for the
portion of the department transferred to Pakistan, is expected to amount to Rs.
7.50 crore. As regards the contribution from Railways we do not expect anything
in the current year
The
total expenditure for the year is estimated at Rs. 197.39 crore, of which Rs.
92.74 crore is on account of the Defence Services, the balance representing
Civil expenditure
The
strength of the Army at the time stood roughly at 4,10,000 troops. After the
completion of the reconstitution of the Army, India will have roughly 2,60,000
troops….The future size and
composition of the Armed Forces have been engaging the attention of the
Government, as it is obvious that they must be related to the altered strategic
needs of the country as well as to its reduced financial resources. Under the
pre-partition demobilisation plan the Army was to be reduced to about 2,30,000
men for undivided India by 1 April 1949 against which we shall have about
2,60,000 men for our share alone after the reconstitution of the Armed Forces
When
the subsequent developments indicated that the Supreme Commander’s office may
not continue beyond 31 December 1947, it was decided to terminate the services
of these British officers by the same date, leaving it to the two Dominions to
offer fresh terms to any British officers they may wish to employ. The British
officers have, therefore, been served with three months’ notice, as laid down
in their present terms of service, with effect from the October 1947. The
number of British officers whom it is essential for India to retain and the
terms of service to be offered are now under the active consideration of
Government and the actual terms under which they have been employed have now
been agreed upon between the Government of India and His Majesty’s Government
in the U.K. It may, however, be stated that the number of British officers to
be retained will be relatively small and it is hoped that all operational
Commands, at least in the Army and the Air Force, will be filled by Indian
officers.
Of
the total provision of Rs. 104.50 crore, Rs. 44.50 crore are accounted for by
the expenditure on refugees and the subsidising of imported foodgrains, leaving
Rs. 60 crore for normal expenditure. This includes Rs. 5 crore for tax
collection, obligatory expenditure of Rs. 22.50 crore on payment of interest
and pensions and provision for debt redemption, Rs. 2 crore on planning and
resettlement and Rs. 12 crore for expenditure on nation-building activities
such as education, medical, public health, the running of scientific
institutions and scientific surveys, aviation, broadcasting, etc., in which the
Centre largely supplements the work of the Provincial Governments by providing
valuable assistance by way of specialised services and research, leaving a
balance of Rs. 18.50 crore for the ordinary expenditure on administration,
civil works, etc. This expenditure only constitutes 18 per cent of the total
civil expenditure included in the Budget. In addition to the expenditure of Rs.
12 crore on nation-building activities mentioned above, provision has also been
made in the Capital Budget for a grant of Rs. 20.39 crore to Provincial
Governments for development and Rs. 15 crore for loans
Our
borrowing programme will be such as will enable us to obtain the funds required
by Government as cheaply as possible without in any way affecting the flow of
investment into industry. It is also my intention to reorganise the small
savings movement which was considerably expanded during the war years, so that
it might be retained as a peace-time organisation with the primary purpose of
encouraging savings among the middle classes. In cooperation with the
Provincial Governments, steps will be taken to place the movement on a permanent
footing. I take this opportunity of appealing to the chosen representatives of
the people in this House to cooperate with Government fully in their borrowing
programme. If the standard of living of our people is to be substantially
raised by undertaking large schemes of development, both the rich and the
middle classes should come forward to place their savings at the disposal of
the Government
From
September 1939 up to 31 March 1946, we earned Rs. 405 crore worth of United
States dollar and spent Rs. 240 crore worth of United States dollar, leaving a
surplus of Rs. 165 crore. On the other hand, in the same period we spent net
Rs. 51 crore worth of other hard currencies, namely those of Canada,
Switzerland, Sweden and Portugal, so that our net surplus on hard currency
account was Rs. 114 crore. During the year 1946-47, we had a deficit in the
balance of payments with the United States of Rs. 15 crore, having earned Rs.
83 crore and spent Rs. 98 crore, and a deficit in the balance of payments with
other hard currency
countries of Rs. 7 crore.
The
House will appreciate that there is a Iarge measure of uncertainty about the
future allocation of resources between the Centre and the Provinces, and till
this is decided it will be difficult to make any forecast of Central resources
or determine the extent to which they will be available for development, and I
hope to take this question of re-examining the development schemes with the
Provincial Governments shortly. Meanwhile, all the approved schemes of development
will be continued and the necessary funds will be made available for them.
Having given this assurance on behalf of the Central Government, I would
earnestly urge on the Provinces the need for conserving all their resources and
securing the most rigid economy in expenditure.
the
House will be interested to know that an agreement has been reached between the
Central Government and the Provincial Governments concerned regarding the
setting up of the Damodar Valley Authority. Another scheme which is likely to
be taken up very shortly is the construction of the Hirakud Dam in Orissa at an
estimated cost of Rs. 48 crore, the benefits from which will include irrigation
for over a million acre, 3,50,000 kilowatt of power and a considerable degree
of protection from floods to the coastal districts of Orissa. It is hoped
shortly to reach an agreement on this project with the Orissa Government and
the Orissa State after which the actual work of construction would begin early
in 1948. It is also proposed to concentrate on the construction of the Bhakra
Dam in the East Punjab.
The
expenditure estimates include Rs. 22 crore for the evacuation and relief of
refugees while subsidies for imported foodgrains are expected to cost Rs. 22.50
crore. Defence expenditure is also considerably inflated due to the slowing
down of demobilization following the partition of the country and the necessity
to maintain larger forces than would normally be necessary. It must also be
remembered that no credit has been taken in the estimates for Pakistan’s share
of the expenditure on pensions and interest. If these factors are allowed for
the Budget deficit of Rs. 26.24 crore will be converted into a surplus
There
is no doubt that economically and strategically the partition of the country has
weakened both the Dominions created by it and it is a truism that an undivided
India would have been in every way a stronger State than either. But the Indian
Dominion with its acceding States would still cover the larger part of our
country, with immense resources in men, material and industrial potential. Our
debt position is also intrinsically sound and for a country of its size, India
carries only a relatively small burden of unproductive debt. Our external debt
is negligible and we have considerable external resources in the accumulated
sterling balances. At the beginning of this year, the total public debt and
interest bearing obligations of undivided India stood at roughly Rs. 2,531
crore of which only Rs. 864 crore represented unproductive debt and Rs. 36
crore external debt, while her external reserves amounted to over Rs. 1,600
crore. The share of Pakistan in these has not yet been determined but it is
unlikely to affect the broad proportions of this picture.
As
regards food, I am sure the House will agree that the country cannot
indefinitely rely on imports. For one thing this places us at the mercy of
foreign countries for our vital necessities and for another large scale imports
of foodgrains seriously effect our foreign exchange position and threaten to
consume the bulk of the available resources which are badly required for the
industrialisation and development of the country. We must concentrate all our
energies on producing as much food as possible within the country
There
is no need for any serious difference of opinion based on mere ideologies.
Whatever might be the ultimate pattern of our economic structure, I hold the
belief that for many years to come there is need and scope for private
enterprise in industry. We cannot afford to lose the benefit of the long years
of experience which private enterprise has gained in the building up of our
industrial economy. I believe that the general pattern of our economy must be a
mixed economy in which there is scope both for private enterprise and for State
enterprise. Before I present the annual Budget to this House next February, I
shall make a careful examination of the consequences of our taxation policy and
endeavour to make any adjustments that may be necessary to instil confidence in
private enterprise. In the meantime, I may assure the House that it is not the
policy of the Government to hamper in any way the expansion of business
enterprise or the accumulation of savings likely to flow into investment.
For
the first time in two centuries we have a Government of our own answerable to
the people for its actions. It is the duty and the privilege of such a
Government to render an account of its stewardship to the representatives of
the people, but the Government has also the right to ask for the cooperation of
the entire community in carrying out the accepted policies. Events of the last
few weeks have unmistakably shown that the political problems arising out of
our status have not yet been fully solved. While we have secured freedom from
foreign yoke, mainly through the operation of world events and partly through a
unique act of enlightened self-abnegation on behalf of the erstwhile rulers of
this country, we have yet to consolidate into one unified whole the many
discordant elements in our national life. This can be achieved only by the
rigorous establishment of the rule of law which is the only durable foundation
on which the fabric of any democratic State can be raised. Respect for law is
essentially a matter of political training and tradition and transition from a
dependent to an independent status always makes it difficult in the initial
stages to secure that unflinching obedience to the rule of law which always
acquires a new meaning in a new political context. If the fabric of the State
is not built on durable foundations, it will be futile to try and fill it with
the material and moral contents of a good life
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