SPEECH OF SHRI C D DESHMKH
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1952-53 (Final)
Dated: May 23, 1952
I deem it a
great privilege to present this budget to the first Parliament elected under
the Constitution.
2. As Honourable Members are aware, a budget for the current year was presented
to the Provisional Parliament last February as usual and a vote on account
was obtained from that Parliament to enable the Government to be carried on
for the first four months of the current year. A Finance Act was also passed
by that Parliament continuing, during the current year, the taxes in force
when the budget was presented. I then mentioned that the budget as then presented
will be presented again to the new Parliament with such changes as may be
considered necessary by the new Government. 3. The usual factual information
contained in the budget speech was embodied in a White Paper which was circulated
with the budget last February. I am having this White Paper and the speech
I then made circulated to Honourable Members. I do not propose to go over
the whole ground covered by this White Paper and I shall only deal with the
further changes that have taken place since I presented the budget to the
provisional Parliament.
4. In my speech last February I mentioned, as a welcome development in the
country's economy, the steady drop in prices which had been taking place from
July 1951 onwards. At the end of January 1952 the general index number of
wholesale prices stood at 430.3, a drop of nearly six per cent from the peak
figure of 457.5 reached in April 1951. Between January and March there was
a more pronounced fall in the index number, which dropped to 364.9 points
i.e. by a further fourteen per cent by the middle of March. Since then there
has been a slight upward movement and the index number for the week ended
the third May stands at 369.8 points which may be compared with 301.4, 367.2,
and 393.3, the corresponding index numbers for August 1947, May 1948 and May
1950 respectively.
5. This general fall in prices has, as I had occasion to explain more than
once in the debate following the budget, not been confined to any particular
commodity although in the case of some of them the drop has been rather abrupt.
It has been largely due to the disappearance of several international factors
which led to an artificial rise in prices since June 1950, the impact of the
monetary and credit policy adopted by Government to cheek inflation and the
improvement in the general internal supply position as a result of increased
Production and larger imports. The fall in prices in the case of certain commodities
has, however, been sharper than these factors warranted, but this is mainly
because of speculative overtrading which had led to an artificial increase
in recent months in the prices of these commodities. On the whole, the drop
in the price level in recent months has been beneficial to the country's economy,
although the readjustment necessitated by lack of accord between costs and
prices is bound to cause some unavoidable difficulties to those engaged in
business. In their own interest they must now decide to cut their losses reasonably
and concentrate on economy and efficiency of production.
6. Honourable Members are, aware of the measures taken by Government from
time to time to meet the situation created by the abruptness of the fall in
prices with particular reference to its effect on the country's export earnings.
The export duty on hessian was reduced last February from Rs.1,500 per ton
to Rs.750 per ton and was further reduced a few days ago, as s imply a revenue
duty, to Rs.275 per ton. The duty on sacking was also similarly reduced from
Rs.350 per ton to Rs.175 per ton. Export duties on raw cotton and cotton waste
have also been reduced, while the duties on wool and groundnut oil and some
oil seeds have been abolished. Licensing restrictions on the export of jute
goods have been almost completely withdrawn. In the case of cotton textiles,
in which there has been, as in the other exporting countries in the world,
a sharp reversal of the relative strength of demand and supply, distribution
controls have been relaxed and mills have been allowed freely to sell the
entire production of fine and super-fine cloth and 80 per cent of the production
of coarse and medium cloth. They have also been permitted to export fine and
super-fine cloth freely for shipment upto the end of September 1952. Last
week Government also permitted the free export of coarse and medium cloth
for shipment upto the end of August 1952. Government have also assisted the
industry in purchasing foreign cotton by arranging special credit facilities,
while the concomitant fall in the prices of raw cotton has been arrested by
Government's offer to purchase the cotton at floor prices if necessary, backed
by the necessary organisation.
7. The level of industrial production during 1951 showed a marked improvement
in spite of the special difficulties which some of the industries encountered
in obtaining essential raw materials and the cut in electric power in Bombay.
During the early months of this year the improvement in the production of
important commodities like steel, cement, and cotton textiles has been maintained.
Production of jute goods in the first three months of the year also showed
an increase from the 1st of April the industry has had to reduce working hours
owing to a fall in demand which in its turn is the result of the recent trend
of prices. The abrupt change over from a seller's to a buyer's market is reflected
in the consumer resistance which the products of a number of industries are
encountering at the moment. But once the necessary adjustments have been effected
in production and prices it is hoped that the level of the production will
recover from its temporary set back.
8. The improvement in agricultural production has also been well Maintained
although in the case of foodgrains the additional production from the Grow
More Food schemes was more that offset by the fall in production in large
areas of the country affected by drought or insufficient rains. Jute production
has increased to 46.8 lakh bales, nearly thrice the quantity produced in 1947-48.
Although the cotton crop was affected by adverse seasonal conditions, the
yield is estimated at 33 lakh bales compared with 24 lakhs bales in 1947-48.
The production of sugar has shown a remarkable increase and it estimated at
131/2 lakh tons as against 101/4 lakh tons in 1947-48. As the House is aware,
a committee under the Chairmanship of Shri V.T. Krishnamachari is enquiring
into the achievements of the Grow More Food campaign and the results of this
enquiry are being awaited with keen interest.
9. The question has been frequently asked in recent weeks whether the fall
in prices over the last few months is not an indication of the onset of a
recession or even a depression. Personally I do not think that this is so,
although I confess that in this matter, where so much depends on unpredictable
world developments it is hazardous to prognosticate. But I believe that most
competent observers are of the view that the fall in prices represents in
a sense the phase in which the inflationary trends which have been such a
marked feature of world economy for the last so many years have been spent
out and in our country, countered by measures deliberately adopted to curb
them. I do not subscribe to the view that at the present juncture the fall
is a portent calling for the reckless injection of purchasing power into the
country's economy. While it would be premature to talk of anything in the
nature of a recession it is clear that prices have now reached a more stable
level. I venture to suggest that a fall in prices is not per se a thing to
be feared especially if it can be brought about in an orderly manner. It is
only when it is of such a nature as to lead to a reduction in production and
employment that it contains a threat to the country's economy. I need hardly
assure the House that Government are most keenly alive to this danger and
that they would take adequate steps, so far as lies in their power, to see
that the level of production and employment is not adversely affected by a
disorderly movement of prices.
10. I shall now digress to deal briefly with the country's balance of payments.
Honourable Members may remember that both in the White Paper on the interim
budget and in my speech last February I drew attention to the fact that the
balance of payments position during last year was not as favourable as in
1950. After taking into account the amounts drawn from the American Wheat
Loan the deficit on current transactions for that year is likely to be of
the order of Rs.30 crores. This deficit has continued during the first four
months of the current year and is reflected in the drop of Rs.81 crores in
the amount of our Sterling balances, between the end of December 1951 and
the end of April 1952.
11. I do not want the House to gather the impression from this that this position
was wholly unforeseen. Under the stimulus of the devaluation of the rupee
and the boom in prices which followed the out break of the Korean war we had
accumulated a substantial surplus in our balance of payments during 1950 and
the early months of 1951. During this period we could not import as much as
we could wish owing to the difficulty of obtaining supplies from abroad. In
consequence, the domestic stocks of essential supplies had fallen to a low
level and it became essential to take measures to restore the stocks by reducing
exports as for example of cotton textiles, oil and oil seeds, and by stepping
up imports of raw materials and essential consumer goods. We also had to pay
higher prices for whatever supplies we could obtain. The unavoidable increase
in the import of foodgrains also contributed to the large import surplus during
this period. It is not, therefore, a case of frittering away the 'country's
assets; the deficit could be said to be, in a sense, a planned deficit. I
might mention in this connection that till the end of last month the deficit
on current transactions had been met wholly from the surplus accumulated by
us in 1950 and early 1951 and we had not to draw on the release of £
35 million for the year ending June 1952 under the Sterling Balances Agreement.
12. During recent months the rate of the deficit in our balance of payments
has risen owing to a change in world conditions and the fall in the demand
for some of our principal exports and their prices. I mentioned earlier the
various steps taken in the field of export duties for stimulating exports
and maintaining our export earnings. We have also considerably relaxed the
procedure for the licensing of exports. It is difficult, when conditions are
so fluid, to forecast the future trends which are affected as they are bound
to be, by conditions in world markets. But the House may rest assured that
Government will take all possible steps to arrest and reverse the recent trends
and maintain the deficit in the overall balance of payments within the amount
available to us from the accumulated sterling balances.
13. A brief account of the deterioration during 1951 in the dollar position
of this country and of the Sterling Area as a whole and the measures taken
to stop the drain on the Central reserves has been given in the White Paper
circulated with the budget papers. Although the measures taken by the Commonwealth
Governments, following the meeting of their Finance Ministers in London last
January, have not taken full effect, the rate of decline in the gold and dollar
reserves of the Sterling Area has come down considerably in March 1952. In
our own case, it may be expected that the present relatively improved position
in the stocks of wheat and raw cotton should enable us to reduce our dollar
expenditure to some extent in the second half of this year. It is also likely
that the recent reduction in the export duty on hessian will stimulate exports.
If the negotiations for loans from the International Bank for Reconstruction
and Development, which are in train, result in the grant of loans, this will
also assist the country's dollar position.
14. I shall now pass on to the changes made in the budget as presented to
the Provisional Parliament. But before I do so I should like to mention a
change in procedure in regard to the preparation of the demands for grants.
It has been the practice so far, where any recoveries are, under the accounting
rules, taken in reduction of the expenditure, to ask Parliament to vote the
net sum under the demand. The recoveries so included in these demands became
in effect available for expenditure although they may have no direct relation
to the sum actually spent during Vie year. This procedure has recently been
examined in consultation with the Comptroller and Auditor-General and it has
been decided that in future the demands for grants should be presented for
the gross amount of the expenditure, without regard to the recoveries that
may come in during the course of the year. These recoveries will continue
to be adjusted in the accounts as at present in reduction of the expenditure
but, so far as the spending authorities are concerned, these will not be available
to them and they will be answerable to Parliament for the gross amount of
expenditure, which in a sense represents the real outgoings from the Consolidated
Fund for which the authority of Parliament is required. I need hardly mention
that this change does not involve any actual increase in expenditure. It is
only a change in the method of presentation and I hope that the elimination
of these recoveries from the budgets of spending authorities will result in
an improvement in the control of expenditure. A note explaining the changes
made on this account in the demands for grants is being circulated with the
budget papers.
15. The budget presented last February provided for a surplus of Rs.18.73
crores on revenue account and an overall deficit of Rs.56.35 crores, taking
the revenue and capital budgets together. I now estimate that the revenue
surplus will be Rs.3.73 crores and the overall deficit Rs.75.6 crores. The
fall of Rs.15 crores in the revenue surplus is mainly due to a drop of Rs.25
crores in the receipts from customs owing to the recent reduction in the export
duty on hessian and sacking, raw cotton and cotton waste, and the abolition
of the export duties on raw wool, groundnut oil, seeds, etc. This will be
partly counterbalanced by an improvement of Rs.5 crores in advance collections
of income-tax. On the expenditure side, I expect a drop of Rs.5 crores in
civil expenditure, made up of a reduction of Rs.10 crores in the provision
for food subsidies set off by a provision of Rs.5 crores for grants, of which
Rs.3 crores represents the Central share of the expenditure on community development
schemes sponsored under the indo-U.S. Technical Co-operation Agreement and
Rs.2 crores is for subsidising industrial housing. I do not propose any other
change in the revenue budget at this stage. In the capital budget I expect
a worsening of Rs.4. 25 crores due to an additional provision of Rs.10 crores
for loans to finance minor irrigation projects, Rs.5 crores for loans for
industrial housing, Rs.6 crores for loans for the community development projects
mentioned earlier and Rs.25 lakhs for investment in a machinery manufacturing
corporation, which Government have under consideration, partly set off by
the receipt of Rs.10 crores from the sale of American wheat carried over from
last year, Rs.5 crores from the sale proceeds of materials likely to be received
under the Technical Cooperation Agreement and Rs.2 crores of short term loans
returned by the State Governments. I do not think that the f1guires under
the other heads in the budget require to be changed.
16. Hon’ble members will notice that I propose to retain only a sum
of Rs.15 crores in the budget for food subsidies out of the provision of Rs.25
crores made in the budget last February. This amount will, I expect, be sufficient
for meeting the expenditure in accordance with the policy announced last February
and the subsequent reduction in the price of milo. This reduction in food
subsidies has led to protests and demonstrations from the sections of the
public affected in the States. As I explained to the House at some length
last Tuesday, after giving the most anxious consideration to these criticisms
Government feel that the policy adopted by them is inescapable and will prove
to be beneficial in the long term interests of the country. With the rise
in the prices of imported supplies we shall require something of the order
of Rs.60 crores a year if, in addition to subsidising milo, we are to maintain
the subsidies in the industrial areas as in last year and last year's price
level elsewhere. This by it self, would place an impossible burden on the
financial resources of the Centre. Even last year some States criticised vigorously
the subsidisation of industrial urban areas while in the rural areas outside
prices remained high. In the circumstances of the current year this gap would
have been widened and there is little room, for doubt that once a full subsidy
for industrial urban areas is conceded there would be an equally claimant
demand for a corresponding subsidy for rural areas. If the subsidy is to give
the whole range of consumers prices charged in industrial areas in 1951, the
cost would amount to something like Rs.90 crores a year, I am sure that there
will be widespread agreement with the view that with so many competing claims
upon our resources, particularly for development of our economic resources,
calculated to secure more lasting benefits, it will be wasteful to spend sums
of this order on consumption by subsidising food. It has also to be remembered
that the increase in the price of food grains has to be considered against
the back ground of the reduction in the general price level of other commodities,
the benefit of which goes to the consumer. The movements in the working class
cost of living indices at the various industrial urban centres show that the
compensatory fall in the aggregate on these other commodities has been substantial.
There is bound to be some measure of hardship, owing to the disturbance of
family budgets, until the necessary adjustments are made. But this hardship
is inevitable and Government are doing their best to mitigate for the lower
class by subsidising milo, wherever it is consumed. I regret I cannot hold
out any hope of a relief, in the form of the restoration of any system of
subsidies committing the Central exchequer to bring about an approximation
between the prices of imported and internally procured grain. But as mentioned
by the President in his Address to Parliament, Government are anxious that
no distress should be caused and will do all in their power to prevent this
from happening.
17. I shall now summarise the result of the changes which I mentioned earlier.
The total revenue for the year is now estimated at Rs.404.98 crores and the
expenditure met from revenue at Rs.401.25 crores (of which Rs.197.95 crores
will be on Defence Services and Rs.203. 3 crores under civil heads) leaving
a surplus of Rs.3.73 crores an revenue account. The capital and ways and means
budget is expected to snow a deficit of Rs.79.33 crores, leaving an overall
deficit of Rs.75.6 crores, taking the budget as a whole. This, will leave
at the end of the budget year, a closing balance of Rs.8 3. 08 crores, of
which roughly Rs.40 crores will be the unspent balance of foreign aid received
by us the rest representing what any prudent management of the exchequer would
need as a minimum bank balance for the order of financial operations involved.
18. Although the estimated revenue surplus has now been reduced by Rs.15 crores
and the overall budgetary deficit increased by Rs.19.25 crores, I do not propose
to make any changes in taxation. I expect I shall hear, in the course of the
next few weeks, complaints both from Members of Parliament and from the public
that I have given no concession to the tax-payer. The problem before me now
is really not one of having any money to give away but of how to make good
the net loss of resources which the changes I have proposed involve. In present
circumstances when for the first time in four years the ordinary citizen finds
the price levels a little less irksome, there is so much to be accomplished
for the development of the country and there is no clear indication of impunity
for deficit financing. I do not feel that any one would seriously suggest
a reduction in taxation. In the last two years our revenues have been buoyant
largely on account of fortuitous and by no means welcome international developments
while the calls on our resources for essential expenditure have been steadily
rising. The recent developments in the economic situation, which have affected
substantially our revenues from customs, underline the need for strengthening
the country's revenue position as far as possible it will be dangerous at
this stage to do anything to weaken Government's revenue position and I have
no doubt that there will be understanding support for this view.
19. This leads me to the question of economy in public expenditure to which
Government's attention is being continuously drawn both in Parliament and
outside. So far as the expenditure on Defence is concerned, while it is not
possible to secure any further appreciable reduction in the size of the Defence
budget without a reduction in the size of the Army, which the needs of the
country's security rule out for the present, the search for economy in this
expenditure has been continuously going on. As I mentioned when I presented
the budget last February, a critical examination of the organisation and equipment
of the Armed Forces, as they exist today, has been undertaken. This examination,
which is progressing satisfactorily, is expected to be completed in the next
few months. The progress made in this examination and the tentative conclusions
on some of the matters considered indicate the possibility of effecting some
savings. A firm estimate is still not possible but I hope to be in a position
to give the House an indication of this saving when I place before it, in
due course, the revised estimates for this year.
20. I also mentioned that I had deputed one or two senior officers to conduct
a similar enquiry into civil expenditure. This enquiry is still going on and
it may be some time before its results are available. But I must make it clear
that in an expanding economy like ours any saving realised in administrative
expenditure is likely to be more than absorbed by increasing demands for developmental
expenditure. It will be unwise to think that there is sufficient scope for
economy to make possible a substantial reduction in taxation. While the departmental
search for economy continues, I also look forward to continuing assistance
from the labours of the Public Accounts and Estimates Committees in securing
that, within the four corners of the policy laid down by Parliament, the moneys
authorised to be spent by it are utilised to the best possible advantage and
without avoidable waste.
21. As I mentioned earlier, at the end of the budget year Government's cash
balances would have dropped to approximately Rs.8 3 crores, a drop of about
Rs.200 crores from the accumulated cash balances immediately after the partition.
The bulk of this money has been spent on essential purposes and on the development
of the country, and although there may be a difference of opinion as to whether
every rupee of it has been well spent, few will deny that the expenditure
has substantially been for the security or benefit of the country. The existence
of these accumulated balances was a reserve which will not be available in
future years, as the level of the free balances which we shall have reached
at the end of March 1953, after omitting the unspent balance out of the foreign
assistance, will, as I have already pointed out, leave Government only with
the minimum balance which they ought to keep for the future. Therefore on
the assumption that the various indices do not point to the onset of persistent
recession, we shall have to raise currently all the money that we may need
for meeting public expenditure and for the execution of the five year plan.
On any view of the future which one could take, there con be no room for complacency
or for the relaxation of the efforts to raise the maximum amount of resources
for the country's development. The Planning Commission has drawn up a realistic
plan which would take us a definite step forward in the realisation of the
larger and fuller life, without which freedom would be devoid of zest. We
have received assistance from abroad for our development plan in recent months
through the U.S. Technical Co-operation Agreement the Ford Foundation, the
Colombo Plan and so on. But while all this to welcome and while one may hope
for an increasing flow of such assistance in the future, we have largely to
rely on ourselves. The edifice of our prosperity cannot be built on props
of outside assistance without sacrificing something vital in the nation's
spirit but can rebuilt enduringly only by the efforts of our own people. If
the budgetary burdens are sometimes found to be irksome, I trust those who
find it so in this House and outside will remember that we carry these burdens
for ourselves and our children and not for some one else. I have no doubt
that the realisation that the people of this country are doing the utmost
in their power to help themselves will widen the flow of assistance from our
friends outside.