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