SPEECH OF SHRI MORARJI R DESAI
MINISTER OF FINANCE
INTRODUCING THE BUDGET FOR THE YEAR 1960-61
Dated : February 29, 1960
I beg to present the statement of the estimated receipts and expenditure of
the Government of India for the year 1960-61.
2. The usual Economic Survey reviewing the major developments in the
economy during the current year and indicating broadly the outlook for the coming
year has been circulated along with the budget papers. I propose here to dwell only on
such aspects of the economic situation as have a direct bearing on the budget for the
coming year.
3. Agricultural production recorded a large increase in 1958-59 and there
has been a marked recovery in industrial production in recent months. Despite these
encouraging trends in production, both wholesale prices and the cost of living have
shown a significant rise. The foreign exchange reserves held by the Reserve Bank
have maintained a measure of stability during the year. There has been some
improvement in export earnings and some reduction in imports, but the major factor
in the stability of our foreign exchange position has been the larger availability of
external assistance. The trends in money supply and credit indicate that the expansionary
impulse in the economy has been fairly strong. The stock markets have been buoyant
particularly throughout the year. These pointers, taken together, indicate the need in
the coming year for active vigilance in regard to domestic price trends and continued
austerity in imports backed by accelerated effort to step up exports.
4. The investments undertaken in the last few years are beginning to yield
results and we should expect substantial increases in output in the coming years. At
the same time the demands for domestic consumption and investment are increasing
while the urgent need to build up exports remains. It is essential in this situation to
ensure to the maximum extent possible that aggregate demand does not outstrip the
supplies available. 1960-61 is the last year of the Second Five-Years Plan, and care
must be taken to see that the economy is in a state of healthy balance when the year
ends and the Third Plan commences.
PRODUCTION
5. The prospects for agricultural production in the current year are good. Despite
floods in some parts of the country and drought in some others, the Kharif crop
is expected to be about as good as last year, and the Rabi sowings so far have
been satisfactory. Food production in 1959-60 will, it is hoped, be around the
same high level as last year, although some reduction in the output of raw cotton
and jute is likely.
6. Industrial production has shown an increase of about 7.4 per cent over the
first ten months of 1959. This is a substantial improvement over the rate of
increase of 1.7 per cent in 1956 and 3.5 per cent in 1957. A notable feature
of the year was the increase in the production of iron, steel and aluminium
which together accounted for over a third of the rise in the index of industrial
production. Among the other industries which recorded substantial increases
in output were automobiles, diesel engines, machine tools, sugar machinery,
superphosphates, soda ash, cement and paper and paper board. The output of mill
cloth was about the same as in 1958, although the offtake was distinctly larger
partly on account of the revival of export demand. The production of handloom
and powerloom cloth went up by about 100 million yards. The production of jute
manufactures over the year was slightly lower than that in 1958, but it has
been looking up since September last. Although the foreign exchange position
continues to be tight, It has been possible to ensure, by and large, that industrial
production is not hampered on that account. Actually, the increase in industrial
production has been larger than the index would suggest, as the industries which
have come into existence after 1951 are not included in that index.
7. In part, the increase in industrial production mentioned earlier has been
on account of fuller utilisation of capacity. But there has also been expansion
in installed capacity in a number of industries such as iron and steel, aluminium,
paper, basic chemicals, cement, power-driven pumps, sewing machines and bicycles.
Progress is being made in the production of finished machinery and equipment
as well. The construction of the first phase of the heavy electrical project
at Bhopal is nearing completion and it has been decided to accelerate the remaining
phases of the project and to provide for substantial expansion. The capacity
of the heavy machinery project at Ranchi is also to be expanded so as to produce
80,000 tons of machinery a year. A number of plants for fertilisers, drugs and
pharmaceuticals and intermediates are also being established and will go into
production during the Third Plan period. The industrial potential of the country
has grown considerably over the last few years, and is becoming rapidly more
diversified. Government are anxious to see this process carried through further.
Small-scale industries have also continued to receive encouragement and support
from Government, and certain steps to assist banks to make larger loans to small
industries are under consideration.
8. Indian shipping continued to expand steadily during the year. The total gross
tonnage under the Indian flag at the end of 1959 was about 7,40,000 which is
expected to reach the Plan target of 9 lakh tons by the end of 1960-61. With
the establishment of the Shipping Development Fund in the current year, Indian
shipping companies have now a permanent source from which to obtain rupee finance
for their development. In the present context of a shortage of foreign exchange,
it is important to develop the Merchant Fleet and save the large amount paid
as freight in foreign exchange. I hope that in this effort we shall receive
co-operation and assistance from foreign ship-owners, who have had an earlier
start and that restrictive practices, which hamper the full utilisation of our
shipping tonnage will be given up.
MONETARY TRENDS
9. The rate of increase in money supply which had slowed down in 1958 picked
up again in 1959, the increase in the course of the year being Rs.170 crores,
as compared to Rs.76 crores in the previous year. The increase in bank credit
to Government was smaller in 1959 than in the previous year. On the other hand,
the contractionist effect of the transactions of the private sector with the
banking system was smaller and the foreign exchange reserves which had shown
a decline in the previous year went up in 1959.
10. The deposit resources of scheduled banks increased by Rs.254 crores in 1959.
The addition to the investment of these banks in government securities was Rs.151
crores as compared to Rs.204 crores in 1958. The net borrowings of the scheduled
banks from the Reserve Bank were small and except during periods of pressure
for funds, money rates generally tended to remain at lower levels. The maximum
deposit rates fixed in October 1958 under a voluntary agreement among the larger
banks’ were lowered by 1/2 per cent in September 1959.
11. The stock markets were buoyant for most of the year and the gilt-edged securities
maintained a firm trend. Several of the new industrial issues during the year
were over subscribed. The index of variable dividend industrial securities,
which had risen by 14 per cent in 1958, rose further by about 17 per cent during
1959. While, in a growing economy the capital markets should reflect confidence
and optimism, it is essential to keep a watch on any unhealthy speculative tendencies.
PRICES
12. The general index of wholesale prices has shown a rise of about 41 per cent
over the twelve months ending January 1960. The index for rice came down from
108 in November 1958 to 92 in March 1959, but it rose again to 112 by October.
There was a seasonal decline to around 101 by December 1959. The index was 104.3
at the end of January 1960. Wheat prices at the end of last month were about
25 per cent lower than about a year ago. While on the whole, the indices for
cereals and pulses have shown a fall, ‘food articles’ as a group
have gone up, mainly because of the rise in the prices of edible oil, gur and
tea. Industrial raw materials went up more sharply and the index for manufactures
has also shown an upward trend in recent months. The All-India cost-of-living
index for December 1959 was 124 as compared to 122 a year earlier.
BALANCE OF PAYMENTS
13. As I mentioned earlier, the Reserve Bank’s sterling assets have been
relatively stable, their level on 19th February 1960 being Rs.203 crores, as
compared to Rs.211 crores a year earlier. During this period we made the gold
payment towards the enlargement of our quota in the International Monetary Fund
and repurchased from it rupees equivalent to $20 million. Welcome as this improvement
is, it must be borne in mind that basically our current earnings are far short
of, our payments, and the gap is being met by foreign loans and credits.
14. For the year 1958-59 the current account deficit in the balance of payments
was Rs.339 crores as compared to Rs.476 crores in 1957-58. Imports were lower
by Rs.157 crores; imports on private account showing a fall of Rs.176 crores
while Government imports rose by Rs.19 crores. Export earnings in 1958-59 were
about Rs.19 crores less than in 1957-58 due mainly to recessionary conditions
abroad. Receipts on account of official donations and other invisible items
were less in 1958-59 by a crore as compared to 1957-58. The current account
deficit of Rs.339 crores was met by capital inflow of Rs.320 crores and by a
drawing down of foreign exchange reserves by Rs.19 crores. Allowing for a net
outflow of Rs.23 crores on account of miscellaneous transactions the total fall
in reserves, however, came to Rs.42 crores.
15. For the first half of 1959-60 the current account deficit was Rs.142 crores
as compared to a deficit of Rs.211 crores in the first half of 1958-59. The
improvement was accounted for by an increase in export earnings of the order
of Rs.19 crores and a reduction in imports amounting to Rs.53 crores. The receipts
on account of official donations were, however, Rs.3 crores less. As against
a deficit of Rs.142 crores, foreign exchange reserves were drawn down by Rs.27
crores, the balance being met mainly by external assistance.
16. While on the subject of the balance of payments and foreign exchange reserves,
I would like to mention that we had drawn in 1957 from the International Monetary
Fund, a credit of $ 200 million, including a stand-by-credit of $ 72.5 million.
Under the Fund rules, a stand-by-credit is repayable within three years. We
have, therefore, repaid $ 50 million during this month and propose to pay the
balance of $ 22.5 million in June 1960.
FOREIGN ASSISTANCE
17. As the House is aware, a Conference of friendly countries was convened by
the World Bank in March 1959 to discuss how India could be assisted to meet
the foreign exchange requirements of the current Plan. Following this Conference,
the United Kingdom Government granted a loan of £ 19 million, about Rs.25
crores. The United States Government sanctioned a further loan of $ 20 million,
about Rs.91/2 crores, from the Development Loan Fund in July 1959 for the import
of steel for projects in the private sector. An agreement under P.L.480 was
signed with the United States Administration in November 1959 for import of
foodgrains, and other agricultural commodities valued at $ 257 million, about
Rs.122 crores. Canada has authorised grants totalling $25 million, about Rs.11
crores for import of wheat, raw materials, fertilisers and scientific equipment.
During the current financial year the World Bank sanctioned further loans totalling
$ 85 million, about Rs.401 crores. Three agreements were signed during the year
with the U.S.S.R., for loans and credits totalling 1680 million roubles, about
Rs.201 crores. The bulk of this assistance is towards the Third Plan. The Government
of Czechoslovakia and Yugoslavia have also agreed to extend credits upto Rs.23
crores and Rs.19 crores respectively during the Third Plan period.
18. As in previous years, we have continued to receive assistance under the
Colombo Plan from countries like Australia, Canada and New Zealand. We have
received technical assistance from the United Nations Expanded Programme of
Technical Assistance, other specialised agencies of the United Nations and the
Indo- French technical co-operation programme. We have on our side, also given
assistance to friendly countries. Our economic and technical assistance to Nepal
under the Colombo Plan is expected to amount to R9.1.33 crores during the current
year. We have provided scholarships and training facilities for overseas students
and sent a large number of experts to help the Governments of these countries.
19. I attended the annual meetings of the Boards of Governors of the Bank and
the Fund in Washington in September-October 1959. At their meeting, the Board
of Governors of the Bank adopted the U.S. proposal asking the Bank’s Executive
Directors to consider the broad principles on which an International Development
Association as an affiliate of the World Bank should be established and to formulate
the Articles of Agreement of this Association for submission to the membergovernments.
The purpose of the Association would be to promote economic development in less
developed areas by providing additional finance on terms which will bear less
heavily on the balance of payments position of the borrowing countries. The
Articles of Association for the International Development Association have now
been drafted and will be considered by member-governments.
FINANCIAL YEAR 1959-60
20. I shall now deal with the revised estimates of the current year and the
budget estimates of the coming year.
21. The budget for the current year estimated the revenue at Rs.780.10 crores
and expenditure met from revenue at Rs.839.18 crores leaving a revenue deficit
of Rs.59.08 crores. On the trend of actuals the revenue is now estimated at
Rs.838.66 crores and expenditure at Rs.854.05 crores, leaving a deficit of only
Rs.15.39 crores.
22. The improvement of Rs.58.56 crores in revenue is due mainly to better collections
under Customs and Union Excises. Customs receipts are now estimated to go up
from Rs.132.77 crores to Rs.160 crores; our original estimate, based largely
on the trend of actuals for 1957-58, has proved to be too conservative. Union
Excises would yield Rs.350.82 crores against the budget estimate of Rs.324.32
crores. With the progressive increase in production the revenue has shown an
all round improvement,’ notably under steel ingots, cement and tyres and
tubes. The enhancement in the duty on mineral oils during the year has also
contributed to this improvement. The revenue from income Tax including Corporation
Tax is likely to go up by Rs.5 crores but the yield from Wealth Tax, Expenditure
Tax and Gift Tax taken together, will be less by Rs.1.6 crores. The surcharge
on iron and steel which is transferred to the Iron and Steel Equalisation Fund,
is likely to yield Rs.9 crores more while grants from the U. S. Government under
the PL 480 programme will be Rs.13 crores less.
23. Civil Expenditure this year is now estimated at Rs.610.35 crores against
the original budget of Rs.596.50 crores and Defence Expenditure at Rs.243.70
crores against the original estimate of Rs.242.68 crores.
24. The increase of Rs.13.85 crores in Civil Expenditure is the net effect of
variations over a number of heads. Debt services are now estimated to cost Rs.7.26
crores more due chiefly to larger payments for interest on external loans. Transfer
to the Steel Equalisation Fund of the surcharge on Iron and steel accounts for
an increase of Rs.9 crores. Expenditure on displaced persons is more by Rs.5.48
crores due to the conversion of certain outstanding loans into grants and to
larger provision for transfer of sale proceeds of evacuee property, which are
taken in reduction of the Capital expenditure on the payment of compensation
to displaced persons. Payment of States’ share of Union Excise Duties
is now expected to exceed the budget provision by Rs.2.30 crores following the
expansion of revenue. Provision has also been made for payment to the States
of a grant of Rs.3.46 crores to compensate them for the loss in their share
of income-tax following the changes in the company taxation this year. These
increases would be partly counterbalanced by a drop of Rs.13 crores in the grants
from U.S.A. under P.L.480 programme to be transferred to the Special Development
Fund
25. The revised estimate of the net Defence expenditure on revenue account during
the current year shows an increase of Rs.1.02 crores over the budget. This is
made up of an increase of Rs.6 crores under the Air Force, offset by reductions
in the Navy and in Non-effective charges and by a slight increase under “Receipts
and Recoveries”. The increase in the Air Force budget is mainly due to
liabilities carried over from 1958-59 m stores purchased from abroad and new
proposals sanctioned during the course of the year. The reduction in expenditure
on the Navy is mainly due to less expenditure m stores. The provision made for
temporary increases in pensions of Service personnel under “Non-effective
Charges” is unlikely to be required this year and has been included in
the budget for the next year.
FINANCIAL YEAR 1960-61
26. Before dealing with the estimates for the coming year, I would like to mention
one or two matters which affect the estimates of that year. The first relates
to a major change in the financial arrangements between General Revenues and
Posts & Telegraphs. The surplus of Posts and Telegraphs Department, after
payment of interest on the capital at charge, has so far merged in the General
Revenues. Part of the surplus is treated as an outright contribution to General
Revenues and the balance is retained pro forma by the Department on which an
abatement of interest is allowed. These arrangements were recently reviewed
particularly against the background of the need to encourage the Department
to build up adequate reserves against its growing capital investment. With rapid
expansion and technological advantage, the pace of capital investment of the
Department has increased considerably in recent years, the total capital at
charge having risen from Rs.38 crores in 1948-49 to Rs.121 crores at the end
of last year. But the accretions to the Renewals Reserve Fund have not been
adequate with the result that replacements have to be partly financed from interestbearing
capital. It has, therefore, been decided to place the P&T Department with
effect from next year in the same position as the other great commercial department
of Government, viz. Railways vis-a-vis General Revenues. The Department would
in future pay a dividend to the General Revenues at the rate in force from time
to time for the Indian Railways on the mean capital at charge during the year.
The balance of the surplus after payment of the dividend, will be retained by
the Department for strengthening its Reserves, particularly the Renewals Reserve
Fund.
27. The second matter concerns the Central Pay Commission. The Commission which
was appointed in August, 1957, to enquire into the structure of emoluments and
conditions of service of Central Government employees submitted its Report in
August, 1959. The decisions of Government on some of the major recommendations
of the Commission were announced in Parliament on the 30th November, 1959. The
other recommendations of the Commission are being examined and Government’s
decisions thereon will be announced as early as possible. The annual expenditure
for Government as a whole on the Implementation of the recommendations of the
Commission, including the interim relief already granted, is of the order of
Rs.44 crores, which is likely to rise ultimately to Rs.55 crores roundly per
annum. The recommendations of the Commission accepted by Government take effect
from the 1st July, 1959, but no provision is being made in the revised estimates
for the current year on this account as the payments will all be made in 1960-61.
The budget for that year thus includes more than a year’s provision for
this expenditure.
28. Honourable Members had expressed some concern last year about the growth
of Civil expenditure. The question of securing maximum possible economy consistent
with efficiency and avoiding wastage in public expenditure has continued to
receive close attention. The reports of the various teams of the Committee on
Plan Projects and the Special Re-organisation Unit of the Ministry of Finance
have been made available to Parliament from time to time. A continuous watch
over the growth of expenditure, particularly non-developmental expenditure,
is kept by the Central Economy Board and the Internal Economy Committees set
up in the various Ministries. Studies of particular sections of activity in
each Ministry have been initiated with a view to improve the methods of work
and secure economy with efficiency. Government have imposed a ban for one year
m the creation of fresh posts and the filling up of vacant posts unless they
are related to the Plan or are required for security purposes. Ad hoc cuts have
also been made in the provision for travelling allowances.
29. For the next year, on the basis of existing taxation, the revenue is estimated
at Rs.896.45 crores and expenditure at Rs.980.35 crores, leaving a deficit of
Rs.83.90 crores on revenue account.
30. The revenue from Customs has been assumed at the same level as the current
year’s revised estimate of Rs.160 crores. Union Excise Duties are estimated
at Rs.358.91 crores, an increase of Rs.8.09 crores over the revised estimate,
which allows for the progressive increase in production and a full year’s
revenue from the increases levied during the current year. The receipts from
income Tax and Corporation Tax are likely to improve by Rs.10 crores. Revenue
from Wealth Tax will decline by Rs.5 crores due to the merger of the tax on
companies in their income tax. Apart from the increase of Rs.1.43 crores in
the sale proceeds of opium, the revenue from the other principal heads is not
expected to differ materially from the current year’s revised estimates.
Interest receipts would go up by Rs.7.44 crores mainly due to the anticipated
receipt from two steel companies and the Khadi and Village industries Commission.
Of the other major variations, mention may be made of an increase of Rs.7 crores.
In the receipt from the surcharge on iron and steel and Rs.8 crores in grant
from the U. S. Government under the P. L.480 programme. But these increases
will be partly set off by a drop of Rs.4 crores in the contribution from the
Posts & Telegraphs following the revised arrangements mentioned earlier.
The share of income-tax payable to the States next year shows a decrease of
Rs.27.26 crores as a result of the merger of company income tax in Corporation
Tax, but as I mentioned in my speech last year, it is the intention to make
good the loss to the States by a specific grant till the next Finance Commission
reports on the allocation of income-tax and necessary provision is being made
in the expenditure estimates for this purpose. The profits of the Reserve Bank
have been taken at Rs.40 crores, the same as in the current year.
31. Expenditure nextyear is estimated at Rs.980.35 crores of which Rs.272.26
crores will be on Defence Services and Rs.708.09 crores under the Civil heads.
32. Civil Expenditure next year shows an increase of R9.97.74 crores over the
revised estimates. Expenditure on Debt Services is likely to be Rs.9.45 crores
more on account of the progressive increase in the internal and external debt.
Development and Social Services, including Community Development, are expected
to cost Rs.27 crores more in the terminal year of the current Five Year Plan.
The two self-balancing items of surcharge m iron and steel and grants from the
U. S.A. under P.L.480, for which corresponding credits are assumed in the revenue
estimates, account for an increase of Rs.15 crores. Ad hoc grants to the States
to compensate them for the’ loss in their share of income tax next year
would be Rs.28 crores more. The rest of the increase is spread over a number
of heads. Detailed explanations for these variations have, as usual, been given
in the Explanatory Memorandum.
33. Defence expenditure next year is estimated at Rs.272.26 crores against the
revised estimate of Rs.243.70 crores, an increase of Rs.28.56 crores. Army estimates
show an increase of Rs.26.75 crores and Navy estimates Rs.3.46 crores, while
the expenditure on Air Force will be Rs.2.94 crores less. Non-effective charges
show an increase of Rs.1.29 crores. The overall increase in the Defence expenditure
is mainly due to the additional commitments of the Armed Forces, the further
expansion of the Territorial Army and the National Cadet Corps and the provision
for increased payments to Defence personnel on the basis of the recommendations
of the last Pay Commission. As I have mentioned elsewhere, the provision included
in the current year under noneffective charges for an increase in the rates
of small pensions to Service personnel has been carried over to the coming year.
The reduction in the Air Force estimates is mainly due to the inclusion in the
current year’s revised of substantial amounts m account of liabilities
carried over from the previous year.
34. The estimates of the Defence Services have been prepared against the background
of the present threat to our borders and I am sure the House will not expect
me to dilate at any length on the measures which have been taken and are under
consideration for safeguarding the territorial integrity of the country. It
may be that later in the year, if circumstances necessitate It, I may have to
come before this House for additional funds; but I have no doubt that Government
will have the support of all sections of this House in taking all the measures
necessary for ensuring the security of the country.
CAPITAL EXPENDITURE
35. I shall now give a brief account of the provision made in the estimates
for capital outlay. The current year’s budget provided for a total capital
outlay of Rs.420.14 crores, excluding the adjustment for the transfer of capital
assistance from the United States to the Special Development Fund which is notionally
treated as capital expenditure. The revised capital requirements are now estimated
at Rs.362.85 crores, a decrease of Rs.57.29 crores. The savings occur mainly
under two heads. The Railways now expect to spend only Rs.85.03 crores against
the original estimate of Rs.121.81 crores. Net expenditure on purchase of foodgrains
shows a fall of Rs.21.01 crores due mostly to larger sale proceeds and recoveries.
36. Against the revised estimate of Rs.362.85 crores for capital outlay this
year, the next year’s provision stands at Rs.370.84 crores. If the special
item of Rs.95.24 crores in the current year for payment of additional subscription
to the International Monetary Fund is excluded, the capital requirements next
year exceed the current year’s revised estimate by Rs.103.23 crores. This
increase is spread over a number of heads and reflects the additional allotments
to fulfil the Plan targets during the last year of the Plan. Outlay on industrial
development, mainly on coal and oil development, would cost Rs.30.56 crores
more. The Railways and Posts and Telegraphs would also be spending Rs.35.78
crores and Rs.3.60 crores more respectively than in the current year. Foodgrains
transactions would also involve an increase in the net outlay of Rs.19.41 crores.
37. In addition to the direct capital outlay just mentioned the estimates provide
Rs.283.18 crores this year and Rs.331.51 crores next year for loans to States
and Rs.221.74 crores this year and Rs.176.74 crores next year for loans to other
parties including Port Trusts, Government owned Corporations and foreign Governments.
38. Next year’s estimates include a total provision of Rs.889 crores for
implementing the Plant Rs.173 crores in the revenue budget and Rs.716 crores
in the Capital budget. Out of this provision, Rs.64 crores in the revenue budget
and Rs.175 crores in the capital budget are for assistance to the States. In
addition, the Railways will be spending Rs.34 crores from their own resources
and the States Rs.251 crores. Thus the total Plan outlay in 1960-61, including
interest on loans on river valley projects which are added to capital during
the period of construction and short-term loans, will amount to Rs.1,174 crores.
39. During the three years ending 1958-51 the total Plan outlay by ‘ the
Central and State Governments together was of the order of Rs.2,450 crores.
The budget provision on this account for the current year is Rs.1,121 crores
and the next year’s outlay as mentioned already is estimated at Rs.1,174
crores. After allowing for the usual shortfall in expenditure, the actual outlay
in the public sector over the five-year period will be near about Rs.4,600 crores.
Investment in the organised private sector is expected to reach the total envisaged
in the Plan; it may even slightly exceed this. In irrigation, power, industry,
mining and transport as also in the field of social services, the achievements
will, I feel sure, be impressive.
WAYS AND MEANS
40. The current year’s budget provided for a net expansion of treasury
bills of Rs.237 crores of which Rs.15 crores were expected to be issued to the
public. On the latest trends, the net expansion is now estimated at Rs.190 crores.
The improvement of Rs.47 crores is due to several factors.The revenue deficit
is now expected to be Rs.44 crores less than estimated. Capital expenditure,
as explained earlier, will show a saving of Rs.57 crores and other debt heads
an improvement of Rs.32 crores. This improvement of Rs.133 crores will be partly
counter balanced by a decrease of Rs.71 crores in external loans and additional
provision of Rs.15 crores required to raise the closing cash balance to the
normal level of Rs.50 crores.
41. The borrowing envisaged by the budget was carried through successfully.
In the budget I had taken credit for a market loan of Rs.225 crores; the actual
receipts amounted to Rs.229 crores. Two loans were floated in July 1959; the
31/2 per cent Bonds 1969 at an issue price of Rs.98.85 and the 4 per cent Loan
1979 at par. Conversion facilities were offered to the holders of the 3 per
cent Second Victory Loan 1959-61 and the 21 per cent Hyderabad Loan 1954-59
which were due for repayment during the year. The total subscriptions to these
loans amounted to Rs.184 crores, of which Rs.89 crores came by way of conversion.
Later, to meet the demand for investment from the market, it was decided to
create further issues of 3J per cent Bonds 1969 for Rs.25 crores at Rs.99.4
and of 33/4 per cent Loan 1974 for Rs.20 crores at Rs.99.65. In accordance with
the usual practice, these issues were taken over by the Reserve Bank on its
investment portfolio for being sold in the market later.
42. Hon’ble members will recall that in the Budget Speech for 1958-59
mention was made of the proposal for the gradual funding of a part of the Treasury
Bills held in the issue Department of the Reserve Bank. A beginning was made
in July 1958 when, in consultation with the Reserve Bank, Treasury Bills of
the value of Rs.300 crores were funded. This process was continued during the
current year when a further Rs.150 crores worth of Treasury Bills were funded
into dated securities.
43. Small Savings have shown a steady Improvement in recent years. The net collections
of Rs.78 crores during 1958-59 were the highest reached so far. This year they
are expected to go up to Rs.82 crores against the budget estimate of Rs.85 crores.
While the response has been encouraging, the collections are still far short
of the average of Rs.100 crores a year envisaged in the Plan. The Small Savings
movement is more than a routine device for mobilising savings. It has a great
psychological appeal in providing an opportunity for the ordinary man and woman
to participate in the national effort for development. I would, therefore, appeal
to every family in this country to save more and contribute its share in making
the movement a greater success.
44. I may mention, at this stage, certain steps taken by Government during the
year to popularise the savings movement. The House will remember that in the
last session, legislation was promoted to provide the facility of nomination
to depositors in the Post Office Savings Bank and holders of Savings Certificates.
A new Pay Roll Scheme has been introduced for the benefit of the employees in
large establishments and factories which permits deduction to be made from the
wages, with the consent of the employees, for investment in Small Savings. The
National Savings Advisory Committees at the Centre and in the States have been
merged with the Savings Boards of the Women’s Savings Campaign and constituted
into composite Boards, one at the Centre and one in each State, with adequate
representation of women workers. The various agency systems for the sale of
Savings Certificates have been reviewed and rationalised and a standardised
agency system, both for the urban and rural areas is expected to be introduced
shortly. The Commission due to the agents is at present claimed and disbursed
through the treasuries which are always not easily accessible, particularly
in the rural areas. To meet this difficulty, the responsibility for the payment
of the commission is proposed to be transferred to the post offices in the coming
year.
45. In response to suggestions made from various quarters from time to time,
Government have decided to issue Prize Bonds. The notification setting out the
terms will issue tomorrow and the Bonds will be placed on sale from the 1st
April next. The issue will be in the form of bearer bonds in two denominations
of Rs.100 and Rs.5. The bonds will not carry interest and will be repaid after
five years but the holders will participate in quarterly drawal of prizes, which
will be free of income tax. The total number of prizes to be awarded every quarter
will be 40 in respect of each series of one lakh units of Rs.100 bonds, the
prizes ranging between Rs.25,000 and Rs.500. In the case of each series of ten
lakh units of Rs.5 bonds, the number of prizes offered every quarter would be
278, the prizes ranging between Rs.7,500 and Rs.50.
46. For the next year’s budget, credit has been taken for a market borrowing
of Rs.250 crores including the receipts from the prize bonds which I just mentioned.
The net credit from Small Savings has been taken at Rs.90 crores allowing for
a small increase of Rs.8 crores over the likely receipts this year. According
to the latest information available, foreign assistance next year is expected
to amount to Rs.362 crores.
47. The overall budgetary position next year may now be summarized. At the existing
level of taxation, there will be a revenue deficit of Rs.84 crores. Capital
outlay will amount to Rs.371 crores, loans to State Governments and others to
Rs.531 crores and debt repayments to Rs.140 crores. This total disbursement
of Rs.1.126 crores will be met to the extent of Rs.250 crores from market borrowing,
Rs.90 crores from Small Savings, Rs.362 crores from foreign assistance, Rs.128
crores from loan recoveries and Rs.119 crores from miscellaneous receipts, leaving
a deficit of Rs.177 crores, which will be met by the expansion of treasury bills.
DEVELOPMENTAL PLANNING
48. Before I deal with the problem of covering the large revenue deficit in
sight, I should like to say a few words on the implications of planning for
development; for, It is in relation to these that all our budgets have to be
framed. The essential objective of our plans is to lift the economy from stagnation
and to get it moving forward to higher levels of production and better standards
of living. We embarked on this task some ten years ago, and we shall be completing
the Second Plan by the end of the next fiscal year. In this period, our economy
has made notable advances in several directions. One has only to look at the
major industrial projects which are coming up and see something of the varied
programmes of rural development that have been and are being implemented to
realise the growing dynamism of the economy. Economic development is not, for
us, a vague or remote ideal; it has to be part of our daily thought and work.
Undoubtedly, we have had our share of difficulties, and, I have no doubt, we
shall continue to have some hereafter. These difficulties and stresses and strains
are a part of the process of economic and social growth.
49. At the end of the Second Plan the country would have reached a level of
development at which it can hardly afford to halt. It is vital that the pace
of development is not merely maintained but accelerated. This is the essential
task of the Third Five Year Plan. The first pre-requisite of success for this
is increased agricultural production. This is axiomatic and we cannot afford,
even for a moment, to lose sight of it. But, other sectors of the economy, like
industry, mining, power, transport and communications have also to be developed
rapidly if the economy is to grow at a rapid enough pace over the next 10 or
15 years. The Third Five Year Plan has to keep this perspective in view.
50. It is perhaps a platitude to say that in this country we face all the time
a crisis of resources in developing our economy. But I would be failing in my
duty if I do not stress the point that mobilising the resources required for
this is not going to be easy and will entail progressively harder work and larger
sacrifices by all sections of the community. There will be need also for substantial
external assistance. We are anxious to make the period of dependence on special
external assistance as short as possible. I am not referring here to the normal
flow of external capital, this, I hope, will continue. Private capital is apt
to flow in more readily when the foundations of development have been well laid
out. The scope for foreign investment in India will thus grow. But, our aim
is to get as early as possible to a stage where the bulk of our investment programmes
is based on the domestic output of capital goods and equipment. How far we can
advance in this direction depends upon a number of factors, of which the availability
of sufficient foreign exchange in the next few years is the most crucial. I
feel I am right in saying that the needs of developing economies are now increasingly
appreciated in the more advanced countries, and I am confident that, provided
we as a nation put in the best effort we can, the necessary support from abroad
will be forthcoming. What is vital, at this stage, is a clear recognition of
the urgency of economic development, for preserving and strengthening the democratic
values we cherish and the realisation that such development is not possible
unless some restraint is kept on consumption and we submit ourselves to a high
degree of fiscal and monetary discipline.
51. I now turn to the proposals for dealing with the revenue deficit for the
coming year.
PART B
52. Honourable Members may recall that while presenting the budget proposals
for the current year, I placed before the House certain broad considerations
which Government took into account in deciding the extent to which the revenue
deficit of a year should be covered by additional taxation. I suggested that
the long era of revenue surpluses was perhaps coming to a close; for the first
time the actuals for 1958-59 have disclosed a small revenue deficit of Rs.5
crores. I also suggested that exceptional circumstances affecting the deficit
of a year should be taken into account in deciding upon the extent to which
the deficit should be covered and that due regard should be given to the amount
of additional taxation raised in recent years. I also ventured to underline
the need for the continuous mobilisation of resources for financing the increasing
needs of planned development. The considerations I placed before the House last
year apply with equal force to the budget of the coming year and although the
large revenue deficit next year is due, in the main, to larger outlay on development
in the last year of the present Plan and the increased requirements of Defence
in the interests of national security, I am convinced that a part of the deficit
should be covered by additional taxation. As in the current year, I propose
that about a fourth of the deficit in sight, may be covered by new taxation.
53. In framing the taxation proposals for the coming year, I have had in mind
something more than the immediate needs of that year. I mentioned earlier the
continuous need to raise additional resources for development. In the context
of planned development, it is essential, in dealing with the budgetary needs
of each year, to think in terms of broadening and adjusting the bases of taxation
so that the revenue raised continues to expand with the years. The proposals
for the coming year, particularly those widening the base of taxation, have
been formulated with the needs of the Third Plan in view. While direct taxation
will be kept under constant and continuous review so as to make it yield the
maximum resources, the bulk of the expansion in taxation will have to come from
indirect taxation.
INDIRECT TAXATION
54. In the field of indirect taxation, my proposals cover both the adjustment
of rates of existing taxes and the levy of taxes on certain new commodities.
The proposals are explained in detail in the memorandum circulated with the
budget papers and I propose to mention them only briefly.
55. My first proposal is to levy a duty of Rs.200 per metric tonne on tin plates
and tinned sheets. Suitable adjustments would be made where duty paid steel
is used in their manufacture. The yield in a full year is estimated at Rs.208
lakhs.
56. My second proposal is to impose a small duty of Rs.10 per metric tonne on
pig iron. Pig iron used in the manufacture of steel will be exempted from the
duty, which is expected to yield Rs.60 lakhs a year.
57. My third proposal is to levy a duty of Rs.500 per metric tonne on aluminium
steets and circles and Rs.300 per metric tonne on aluminium ingots. Necessary
adjustments will be made in the duty on circles, sheets, etc., when duty paid
ingots are used in their manufacture. The estimated yield is Rs.86 lakhs.
58. My next proposal is to levy a duty of 10 per cent ad valorem on all types
of internal combustion engines used as prime movers for transport vehicles.
A lower rate of 5 per cent ad valorem will be charged on stationary types of
these engines which are generally used in industry and for agricultural purposes.
The yield is estimated at Rs.107 lakhs a year.
59. I also propose to levy a small tax m certain essential cycle parts. A duty
of Rs.2 on each free wheel and Rs.4 on each rim will be levied. This will ensure
the realisation of Rs.10 of each completed cycle without bringing into the excise
net a large number of small assemblers of cycles and manufacturers of cycle
parts. The annual yield is estimated at Rs.100 lakhs.
60. Electric motors and parts thereof are not now subject to tax. It is proposed
to levy a duty ranging from 5 per cent to 15 per cent ad valorem on various
types of motors used for different purposes., The revenue from this is estimated
at Rs.46 lakhs a year.
61. A duty on exposed cinematograph films is also being levied. It will vary
from 10 naye paise per metre to 50 naye paise per metre depending on the type
of the films. News reels and shorts would be subject to the lower rate of duty.
The yield from this is estimated at Rs.75 lakhs.
62. My last proposal for new excises relates to silk fabrics m which a duty
of 30 naye paise per square yard will be levied. The handloom sector will not
be affected by this measure which is expected to yield Rs.30 lakhs.
63. I shall now turn to the readjustments in the existing rates of duty on certain
commodities.
64. The House will remember that in 1956 an excise duty was levied on the larger
passenger motor cars while all commercial vehicles and small and medium cars,
motor cycles and scooters were not taxed. I now propose to levy a duty ranging
up to 15 per cent ad valorem on all types of motor vehicles. The total revenue
is estimated at Rs.625 lakhs.
65. Refined diesel oil was made subject to duty in 1956 when a tax at 25 naye
paise per imperial gallon was levied. Although the tax has since been raised
to 80 naye paise per imperial gallon, the consumption of this commodity has
been increasing rather rapidly. The growing imbalance between the internal production
and consumption of this commodity is causing a considerable drain on the foreign
exchange resources of the country. I, therefore, propose to raise the basic
rate of duty by a further 25 naye paise per imperial gallon. This will bring
in a revenue of Rs.504 lakhs a year.
66. Complete footwear manufactured in power operated factories was subjected
to an excise duty in 1955 but a large number of small scale units were kept
out of the scope of the taxation. Some of the larger units are reportedly adopting
a deliberate policy of decentralisation to evade taxation. Mainly to protect
the revenue, I propose to levy an excise duty on machine made soles and heels
made of materials other than leather or wood. The rate of duty win be 15 per
cent ad valorem and will yield a revenue of Rs.20 lakhs a year.
67. In the field of textiles, I propose to make two changes with some revenue
significance. I propose to remove the existing total exemption on fabrics produced
from staple fibre yarn and cut pieces of cotton textiles, the so-called fents.
The former win now be treated on par with artificial silk fabrics. In the case
of cut pieces, the present definition is being revised and small specific duties,
at levels substantially below the fabric rates, will be levied. These changes
are estimated to yield Rs.195 lakhs a year of which Rs.65 lakhs will accrue
to the States.
68. Electric fans, bulbs and batteries were first made subject to excise in
1955 and no change has since been made in the rates of duty on these commodities.
The production trends indicate that these lines are expanding and they can bear
an increase in taxation. I propose to raise the existing duties by 50 per cent
with a suitable increase in the duty on components. These changes will yield
a revenue of Rs.90 lakhs a year.
69. The tea industry has been complaining of the difficulties caused to it by
the imposition of a number of taxes at various stages by different agencies.
We propose to explore the possibility of removing this hardship by a suitable
readjustment of the excise duty, bearing in mind the financial interests of
the State Governments concerned, and the need to secure that their resources
are not adversely affected. To enable this to be done, we are raising the permissible
maximum limit of the excise duty from 19 naye paise to 30 naye paise per lb.
This is merely an enabling measure and does not involve any change in the effective
rates of the duty now imposed ranging, as the House is aware, from 2 naye paise
to 12 naye paise per lb.
70. A few other minor readjustments are also being made about which 1 need not
weary the House. The total financial effect of these changes is to bring in
an additional revenue of Rs.27 lakhs a year of which Rs.5 lakhs will accrue
to the States.
71. The net affect of the various measures which I have mentioned is to increase
the revenue by Rs.21.73 crores, of which Rs.70 lakhs will accrue to the States.
72. With regard to customs duties, I propose to make no change except for an
increase in the duty on wines and spirits and other alcoholic liquors. Following
the changes in excise duties, provision is being made, wherever necessary, for
the levy of a countervailing import duty, so that the indigenous producer is
not placed at a disadvantage. The changes in the customs levy are estimated
to yield a revenue of Rs.2.5 crores in the coming year.
DIRECT TAXATION
73. I now turn to direct taxation. I do not propose to make any change in the
rate structure of personal income tax. With regard to company taxation, steps
are being taken to implement in its entirety the new scheme of company taxation
introduced in the current year’s budget. Formal action is being taken
to abolish the Wealth Tax on companies and the tax relating to excess dividends
with effect from the financial year commencing on the lst April, 1960.
74. The House will remember that last year, for purposes of advance payment
for the assessment year ending the 31st March, 1961,1 had provisionally adopted
a rate of 45 per cent for company taxation. We have not had sufficient experience
of the effect of this rate. I do not, therefore propose to make any change in
this rate but to adopt it as the final figure. Smaller companies with a total
income not exceeding Rs.25,000 will continue to be assessed at a figure 5 per
cent less. Last year I had promised to consider certain matters connected with
the new system of company taxation, and I am making two provisions in the Finance
Bill, one relating to the assessment of dividends paid out of profits taxed
in the past and the other relating to taxes on companies holding less than 50
per cent share in the capital of another company, and have taken them into account
in my estimates of revenue.
75. I propose to make two changes in regard to the deduction of tax at source.
The House will remember that it was decided last year that tax should be deducted
at source at a rate of 30 per cent on dividends paid to resident individuals
and at 45 per cent on dividends paid to Indian companies. It has been represented
that this difference in the rate of deduction at source has given rise to some
difficulties. I therefore, propose to apply a uniform rate of 30 per cent for
deduction of tax from both the individuals and companies. In order that this
change may not affect the revenue receipts, I propose to amend Section IBA so
as to enable Government to collect from Indian companies the remaining 15 per
cent as advance tax on the dividends received by them.
76. The existing provision with regard to the deduction at source from dividends
paid to preference shareholders also appears to be causing some difficulty.
The amount of the dividends which companies are required to pay to the shareholders
is governed by the terms of their contract with them and Government would not
like, as the current Finance Act implies, to make any assumptions regarding
such amounts. I accordingly propose in the Finance Bill to provide for the deduction
at source from the payments to these shareholders as in the case of any other
dividends, leaving the actual amounts of these dividends for the companies themselves
to decide.
77. I would now briefly refer to a few other proposals to amend the incometax
Act. The period for which exemption is available under section 15C to new industrial
undertakings is proposed to be extended by a further five years. The limit up
to which donations for charitable purposes qualify for exemption from tax is
proposed to be increased from 5 per cent of total income or Rs.1,00,000 whichever
is less, to 71 per cent of total income or Rs.1,50,000 whichever is less. At
present, the amounts paid to scientific research associations and educational
institutions to be used for scientific research are allowed as deductions in
computing the business income of the donor if the scientific research is related
to the class of business carried on by him. It is proposed to allow this deduction
even if the scientific research is not related to such business. In respect
of properties constructed before 1st April, 1950, the full amount of taxes levied
by a local authority and borne by the owner, is proposed to be allowed to be
deducted in computing the taxable income from the property, as against half
the amount of such taxes allowed at present. My next proposal is with regard
to the taxation of cooperative societies. At present, the business income of
such societies is exempt from tax. This exemption is justified having in view
the objective of the Co-operative Societies Act of 1912, namely, to facilitate
the formation of co-operative societies for the promotion of thrift and self-help
among agriculturists, artisans and persons of limited means. However, as the
House is aware, of late, co-operative societies have widened their fields of
activity and are carrying on substantial business involving transactions of
a large scale with non-members. There is no justification for a complete tax
exemption of business profits in their case. It is, therefore, proposed that
while the business incomes of co-operative societies connected with agriculture,
rural credit and cottage industries should continue to be wholly exempt from
tax, the business incomes of other societies should be exempt only up to a sum
of Rs.10,000. These proposals will not materially affect the revenue.
78. A few amendments of a comparatively minor character are proposed to Expenditure
Tax and Gift Tax Acts. The amendments to the Expenditure Tax Act provide for
allowances for expenditure incurred on leave travel in India as well as education
of children in India. It is also proposed to allow in full the taxes paid by
an assessee to a foreign government instead of only a portion as at present.
The amendment to the Gift Tax Act provides that the advance tax payable will
be at the same rate as the tax payable on regular assessment. These changes
are not expected to have any significant effect on revenue.
NET EFFECT OF PROPOSALS
79. I may now summarise the net effect of the budget proposals. The changes
in the Union Excise duties, exclusive of the revenue accruing to the States,
are expected to bring in an additional revenue of Rs.21.03 crores. Changes in
the customs duties, largely consequential on the changes in Union Excises, are
expected to bring in Rs.2.5 crores. The total additional revenue would thus
stand at Rs.23.53 crores, reducing the revenue deficit from Rs.83.9 crores to
Rs.60.37 crores and the overall deficit from Rs.177 crores to Rs.153 crores.
I propose to leave the revenue deficit uncovered; the overall deficit will be
met by the expansion of treasury bills.
CONCLUSION
80. Next year’s budget would cover the last year of the current Plan and
1 would like to mention briefly what the position at the end of that year would
be so far as the implementation of the present Plan is concerned. In an earlier
part of my speech, I mentioned that at the end of the budget year, the total
Plan outlay would have reached a figure of about Rs.4,600 crores. During the
current Plan period, we have, at the Centre, raised substantial sums of revenue
for meeting our Plan commitments including the assistance provided to the States
from the revenue budget. Over the period of five years covered by the Plan,
I expect that we would have an accumulated revenue surplus of over Rs.50 crores,
after meeting all our commitments for the Plan and providing very substantial
assistance to the States for implementing their Plans. I know that there has
been some criticism about the extent to which we have had to resort to deficit
financing for meeting the capital expenditure of the Plan. Even here, I venture
to suggest that our record has not been as bad as some of our critics make out.
In the first three years of the Plan, the total amount of deficit financing
amounted to Rs.885 crores or so. In the current year, assuming that the State
Governments do not contribute to this in any significant measure and they are
unlikely to do so, the amount of deficit financing is likely to be Rs.190 crores.
Taking a figure of Rs.153 crores for the coming year, the total amount of deficit
financing during the Plan period would have amounted to only a little over the
sum of Rs.1,200 crores envisaged in the Plan. Although our performance in the
matter of savings has not been as, good as we could wish, our record in the
matter of raising resources and limiting deficit financing to the minimum amount
possible and practicable, has, I think, been quite good.
81. There is, however, no reason to take a complacent view of the situation.
The end of the Second Plan merely marks the beginning of the Third Plan which
will require greater efforts and larger sacrifices on the part of the community
if the country has to sustain, as it inevitably must, a larger Plan. The path
of our progress is bound to be difficult until our economy gets over the hump
and becomes self-generating. Until this position is reached, which one might
hope may be at the end of the next Plan, we shall have to strain every nerve
to mobilise the maximum resources, from both taxation and savings, to enable
the country to make the progress that is imperative to our survival. It is perhaps
a truism to say that no one, much less an under-developed country like ours,
can stand still or stay stagnant. We have to move forward and make whatever
sacrifices are necessary for this. I have no doubt that this will be done and
I would ask the House to consider the budget, which I am placing before it,
against this background.