SPEECH OF SHRI Y B CHAVAN
MINISTER OF FINANCE INTRODUCING
THE BUDGET FOR THE YEAR 1974-75
Dated : February 28, 1974
I rise to present the revised estimates for 1973-74 and the budget estimates
for 1974-75.
2. This As the fourth regular budget of the Union Government which I have been
privileged to present to this House. The principal concern of every Central
budget has to be to strike a proper balance between the requirements of accelerated
growth, stability, greater social justice and self-reliance. In the long run,
these objectives are self-reinforcing. In the short run, however, a reconciliation
of these objectives is not an easy task even under favourable conditions. During
the last three years conditions have not been favourable; in fact they have
been far from normal in many ways. In each of these years, we had to face new
challenges of extraordinary dimensions. We have tried to meet those challenges
to the best of our ability. I shall, however, readily admit that, because of
unusually severe strains caused by a combination of certain national and international
factors beyond our control, progress in achieving our objectives has fallen
short of expectations.
3. I would like to state frankly that in the coming financial year the economy
will be faced with even greater challenges. lts strength and adaptability will
be severely tested. The steep rise in the price of crude oil and also some other
commodities has turned the terms of trade sharply against us and has rendered
our tasks exceptionally difficult. Recent developments must, however, be viewed
in a wider historical perspective. Nowhere in the world has the process of social
and economic change been smooth or free from ups and downs. I find no reason,
therefore, to lose heart or to start questioning our basic goals and objectives.
Our socio-economic objectives remain as relevant as before. Our commitment to
our goals is as resolute as ever. We cannot give up the war against poverty,
ignorance and disease because the going is more difficult than anticipated,
though our tactics may need to be readjusted to changing circumstances.
THE STATE OF THE ECONOMY
4. As the House is aware, the Government has been deeply concerned about the
acute inflationary pressures that have prevailed in the economy during the last
two years. The measures that have been adopted to deal with these inflationary
pressures are well known to the Honourable Members. It is a matter of deep regret
to me that despite these measures prices have continued to rise. The House will
appreciate that the pressure on prices was inevitable as a result of the unsatisfactory
performance in the field of agricultural production in two successive years,
1971-72 and 1972-73. The steep fall of 9.5 per cent in agricultural output in
1972-73 was bound to upset the delicate balance between demand and supply. Because
of a much sharper increase in international prices, the substantial imports
of food grains that we arranged were also unable to exercise a stabilising influence
on domestic prices. Even with a more normal kharif crop in 1973, the pressure
on prices has not abated in view of other inflationary forces at work in the
economy.
5. It appears certain that the national income in 1973-74 will record a significant
growth; this will help to neutralise the unsatisfactory behaviour of national
income in the two previous years. It is, however, a matter of deep concern to
us that in the Fourth Plan our overall rate of growth has been much lower than
the Plan target. It is also a matter of deep regret that the upsurge in industrial
production that was evident in 1972 was not sustained in 1973. The available
indicators suggest that there was hardly any increase in the rate of growth
of industrial production in 1973. It will be a major objective of our economic
policy to revive the tempo of industrial activity in 1974. To secure an adequate
rate of growth is the challenge that we face in the Fifth Five Year Plan.
6. As the House is aware, in order to supplement domestic supplies, Government
imported significant quantities of food grains and vegetable oil from abroad
during 1973-74. These imports were necessary for the well-being of the nation,
but have naturally greatly inflated our import bin. Fortunately, our exports
have grown at a satisfactory rate and, as a result, the deterioration in our
balance of payments has been contained within manageable proportions, However,
it is no use minimising the likely adverse effect on our balance of payments
which will inevitably arise as a result of the steep increase in the prices
of crude oil and of commodities like fertilizer and non-ferrous metals. In the
long run, among the most important steps by which our economy can adjust to
this massive structural shift in our terms of trade, without affecting our growth
prospects, is by replacing oil, wherever possible by other domestically available
sources of energy, and by intensifying the programme for oil exploration. In
this context, the highest priority attaches to securing a significant increase
in the production of coal in the shortest possible time. Even so, a large increase
in our import bill is inevitable, and this will necessitate a significant increase
in our export earnings. The oil crisis, while no doubt adding to our difficulties,
has already created new export opportunities in respect of products such as
jute textiles, cotton textiles and leather goods. We must grasp this opportunity
and do everything in our power to maximise our export earnings. A comprehensive
review of our export prospects has been undertaken. This review will enable
us to launch a well articulated programme for exploiting fully our export potential.
7. In my budget speech last year, I had listed control of inflation, promotion
of higher levels of savings and investment, greater viability of our external
payments, and generation of new employment opportunities as the most pressing
immediate tasks before the nation. The steep increase in prices in the last
one year, the severe pressure on the balance of payments that will inevitably
arise in the wake of higher prices of oil and other international commodities,
and the stagnation of industrial production in 1973 have lent an added urgency
to these tasks. The relatively poor performance of the economy last year should
not give rise to a growing feeling of doubt, uncertainty and cynicism. We must
combat these attitudes and preserve the people’s faith in our democratic
polity as an effective vehicle of social change.
REVISED ESTIMATES 1973-74
8. The House will recall that the budget estimates for 1973-74 had envisaged
a deficit of Rs.87 crores. This excluded provision for expenditure arising out
of the recommendations of the Third Pay Commission, since the Commission’s
report was not available at the time of formulation of the budget proposals.
It was anticipated that the acceptance of these recommendations would raise
the budget deficit to a level substantially higher than Rs.87 crores. However,
subsequent events, largely an outgrowth of the steep fall in agricultural output
in 1972-73, have led to a much greater deterioration in the budgetary position
than was originally anticipated.
9. As Honourable Members are aware, extensive drought relief operations, started
on account of the widespread and unprecedented drought in 1972-73, had to be
continued to a large extent in 1973-74 also. At the peak of these operations
1,43,740 relief works were opened over the entire country, and 93 lakhs of people
were employed. It was hoped that with the onset of the monsoon in 1973-74, and
increasing involvement of the labour force in agricultural operations, the number
of people employed on relief works would diminish appreciably. Unfortunately
this did not happen. Consequently the Central Government had to continue massive
assistance to State Governments on this account. Honourable Members will recall
that a sum of Rs.100 crores was provided in the current year’s budget
for this purpose. This provision proved to be wholly inadequate and had to be
stepped up by another Rs.220 crores.
10. In this connection I would invite the attention of Honourable Members to
the observations of the Finance Commission regarding expenditure on relief for
natural calamities. The Commission has urged that instead of incurring expenditure
on relief on an ad hoe basis, provision should be made on a much larger scale
for development of drought and flood-prone areas in the Fifth Plan, both in
the State and Central sectors. Following these recommendations it has been decided
to integrate these programmes with development plans to the extent possible.
11. Apart from larger assistance provided to State Governments for expenditure
on natural cab- amities relief, provision for special assistance to States to
meet gaps in their resources and for specified projects, had also to be increased.
The budget provided an amount of Rs.198 crores for this purpose, and this will
have to be stepped up by nearly Rs.91 crores.
12. The Central exchequer had to bear other burdens as well. The expenditure
on food subsidy will be higher than the provision of Rs.130 crores by Rs.121
crores despite some revision in the issue prices of food grains. This is essentially
due to the high cost of imported food grains.
13. The direct impact of the price rise on Government spending arises from the
increased quantum of dearness allowance provided to Government employees this
year. Honourable Members will recall that in accepting the recommendations of
the Third Pay Commission we had agreed to a liberalised formula for dearness
allowance to enable low paid Government employees to get adequate compensation
for the rise in the cost of living. On this basis, the four installments of
dearness allowance we have sanctioned will cost the exchequer nearly Rs.100
crores.
14. The impact of the recommendations of the Third Pay Commission was estimated
at Rs.150 crores. This was a large commitment, particularly in the context of
the difficult economic situation prevailing in the country, and was based on
the expectation that we would accept most of the Commission’s recommendations.
We have in fact agreed to make some significant improvement’s in the Pay
Commission’s recommendations regarding the pay structure of Government
employees; these improvements alone are likely to cost the exchequer Rs.61 crores
a year on a recurring, and Rs.25 crores on non-recurring basis. The Government
has stretched its resources to the utmost in order to meet the demands of its
employees. I sincerely hope that they will appreciate this, and do their best
to improve their efficiency and productivity.
15. On the receipts side, there have been shortfalls. The stagnation in production
in a number of major sectors of industry, caused by shortage of raw materials
and power cuts, has adversely affected receipts from excise duties. Shortfall
on this account is estimated to be Rs.107 crores.
16. As the Railway Minister stated yesterday, the finances of the Railways in
1973-74 have been under considerable strain for reasons dealt with at length
in his speech. The net additional impact of the financial working of the Railways
on the general budget in the current year is expected to be around Rs.109 crores
17. In order to meet the additional and inescapable demands on the Central Budget,
and to contain the deficit to the minimum, Government had made serious efforts
both to tap additional resources and to restrict expenditures. The net market
borrowing by the Centre this, year will amount to Rs.472 crores, as against
the Budget provision of Rs.326 crores. The expenditure requirements of the various
Ministries were carefully reviewed and savings were located in their administrative
and other non-developmental expenditure. In view of the difficult resource position,
a review of the Plan outlays was also undertaken, particularly in regard to
schemes which were not vital to the core of the Plan.
18. Despite all these efforts, the year-end deficit will be of the order of
Rs.650 crores. We are deeply concerned about the deleterious effects of deficit
financing. But no Government can overlook its obligation to alleviate the hardships
and sufferings of large sections of the people. It is this obligation that has
rendered a larger deficit inescapable.
BUDGET ESTIMATES 1974-75
19. The next financial year is the first year of the Fifth Plan. A significant
step-up in the rate of investment is clearly an essential condition for the
realisation of basic objectives of the Plan. At the same time, the general economic
situation renders the task of raising the needed financial resources more difficult.
The sharp rise in prices in the last two years has greatly increased non-developmental
expenditure, particularly on pay and allowances, thereby reducing the surpluses
for development. In addition, the continued sluggishness of industrial production
has affected the growth of revenues. In framing the budget for 1974-75, we also
have to take into account the likely impact of the oil crisis and very high
prices of many imported commodities on the country’s balance of payments,
the pattern of imports, and the growth of agricultural and industrial output
on government revenues. I would be the last to deny that there are many sources
of uncertainty and anxiety in the present situation. Nevertheless, I am convinced
that a legitimate concern with our immediate problems must not lead to a neglect
of our long-term growth objectives. That would be a self-defeating exercise.
In my view, recent events have only further vindicated the soundness of a development
strategy which must succeed in strengthening the country’s industrial
and energy base.
20. The Budget for 1974-75 provides for a total outlay of Rs.2966 crores for
the Plan. Out of this Rs.911 crores have been provided as assistance to State
and Union Territories Plan, while the provision for the Central Plan is Rs.2055
crores. This provision represents a difficult compromise between two conflicting
considerations, namely to keep deficit financing to the minimum and to keep
the wheels of production moving. Particular care has been taken to make adequate
provision for such industrial and agricultural schemes and projects as are essential
for the future growth of the economy, and are likely to be completed in the
first two years of the Fifth Plan, so that the economy derives the benefits
from investments early enough in the Plan period.
21. The role of coal as the most important source of commercial energy has been
underlined by the current shortage of oil and the resultant energy crisis. The
development of coal has, therefore, been accorded very high priority in the
budget for 1974-75. Rs.97 crores have been earmarked for this purpose. In other
words the outlay on coal has been increased four times as compared to the provision
of Re. 24 crores last year. Later in my speech, I shall outline certain fiscal
measures which are designed to encourage industry to switch over, as early as
possible, from the use of oil to coal as a source of energy.
22. No less critical is the role of steel in our economic development. The availability
of steel has a major influence not only on the pace of industrial development,
bit also on the viability of our international payments. For all these reasons,
the budgetary provision for steel production has been fixed at Rs.162 crores.
If one adds to this figure the internal resources available the total figure
amounts to Rs.276 crores, which is Rs.75 crores more than the total of Rs.201
crores available this year.
23. In order to reduce the country’s acute dependence on imported supplies
of non-ferrous metals it is also necessary to push ahead with the development
of domestic resources as fast as we can. Accordingly, a provision of Rs.75 crores
is being made in the budget for 1974-75 for the development of this vital sector.
This is against Rs.56 crores provided this year.
24. In view of the predominant role the railways play in our transport economy
we have ensured that adequate finances are provided for the development of railways.
As Honourable members are aware, the railways have run into serious financial
difficulties and their own resources may not be sufficient to finance a Plan
of an order which will meet the requirements of our economy. I have, therefore,
considerably stepped -up the budgetary support for the Railways to Rs.342 crores
next year, as against Rs.181 crores in the current year.
25. Power is a vital input for both industry and agriculture. The power shortages
that developed during recent years have had a crippling effect on the economy
and have highlighted the urgent need for augmenting our generating capacity
and improving the operational performance of existing plants. The Fifth Plan
envisages that installed capacity of power generation will be stepped up to
33 million k.w. by the end of the Plan. The strategy is to expedite the completion
of projects which are already under construction, and to go in for new thermal
schemes which have short gestation periods. The importance of rural electrification
in developing the rural economy can hardly be over-emphasised. Though many of
the rural electrification schemes fall in the State Plan sector, as a special
case, I am providing Rs.40 crores for the Rural Electrification Corporation
over and above Rs.790 crores of assistance provided ‘to States for their
Plan. The total budgetary provision for power in the Central Budget during 1974-75
will be Rs.121 crores.
26. Considering the current shortage of fertilizers and difficulties in procuring
these from abroad, the thrust of next year’s Plan will be to maximise
production from installed capacity and to speed up the implementation of projects
already under way. The budget provides Rs.163 crores for this sector as against
Rs.94 crores in the current year which is a substantial increase.
27. While every effort has been ‘made to provide resources to stimulate
industrial production, the requirements of the agricultural sector have not
been ignored. We are providing Rs.246 crores as budgetary support for agricultural
programmes. The behaviour of agriculture has a crucial impact on the growth
of national income, prices, industrial production, balance of payments and the
distribution of income. Accordingly~ shall not allow paucity of resources to
stand in the way of maximising our agricultural output. Honourable Members will
be happy to note that various agricultural schemes which we have undertaken
in the last few years such as schemes for small and marginal farmers, tribal
development, development of hill areas, provision of institutional credits,
drought-prone areas programmes, and the applied nutrition programme are making
satisfactory progress.
28. Within the overall constraints of resources, and after meeting the minimum
needs of the core sectors of development I have attempted to provide as large
funds as possible for social services like education, health, family planning,
social welfare and housing. The provisions made in earlier Plans for meeting
minimum essential needs for social consumption did not achieve the desired results,
mainly because related programmes were not given due priority, and an effective
integration of facilities was not attempted. Honourable Members are aware that
the draft Fifth Plan has provided for a National Programme of Minimum Needs
to achieve a certain minimum level of social consumption in the form of elementary
education, rural health, drinking water, provision for slum clearance, rural
roads and rural electrification. I hope that the State Governments will be able
to ensure effective utilisation of the resources allocated for this programme.
29. The total provision for the Central Plan in the Budget inclusive of Union
Territory Plan of Rs.81 crores will amount to Rs.2136 crores excluding Central
assistance of Rs.830 crores for the Plans of the States. In addition, extra
budgetary resources for financing the Central Plan will amount to Rs.574 crores.
The resources for State Plans for 1974-75 will be of the order of Rs.2059 crores.
Thus, the total Plan outlay during 1974-75 will amount to Rs.4769 crores as
against Rs.4364 crores in 1973 -74.
30. We have decided in favour of a larger Plan outlay to enable us to move faster
towards the twin objectives of removal of poverty and attainment of economic
self-reliance. I am however convinced that Plan investments can yield benefits
on the scale anticipated only if the Plan is implemented efficiently and all
the participants in the productive process-management and labour-accept the
larger obligations they owe to the community. Maintenance of satisfactory industrial
relations particularly in key sectors is absolutely essential if the Plan targets
are to be achieved. Monetary and fiscal policies should also be directed towards
the achievement of Plan objectives. These policies will have to be supplemented
by the adoption of effective management techniques in the allocation of resources,
proper selection and phasing of projects and programmes and close monitoring
of programmes. The productivity of public expenditure programmes can be enhanced
considerably if continuous attention is paid to the flow of expenditure so that
appropriate corrective action is taken well in time to ensure that the benefits
expected are fully realised. This can be achieved only if financial control
and management accounting functions are, dovetailed with the 8 responsibility
for execution of programmes. We are, therefore, contemplating some structural
changes in the financial management system so as to match the authority for
taking decisions with the responsibility for producing results.
31. The new accounting classification prescribed by the Comptroller and Auditor
General relfects more meaningfully the functions, programmes and activities
of the Government. The Budget is framed on the basis of this new classification.
With this, Performance Budgeting, which is already in vogue, will, I believe,
receive a further impetus and it will be made an effective instrument to measure
the efficacy of the allocation of resources and the returns there from.
32. The outlay on Defence has been provided at Rs.1915 crores which includes
the provision for additional funds required on account of the acceptance of
the recommendations of the Third Pay Commission. Keeping in view the large requirements
of national defence and security, the provision for Defence could not possibly
be kept at any lower level.
33. On the side of resources, we have to reckon with the likely adverse impact
of the energy crisis on revenues, though it is difficult to estimate the impact
at this stage with any degree of certainly. As an allowance for this factor,
we have assumed some deceleration in the growth of revenues from excise and
customs. Together, these two sources are expected to yield Rs.3769 crores in
1974-75 as compared to Rs.3608 crores in 1973-74 according to the revised estimates.
The estimated yield from direct taxes is Rs.1423 crores as against Rs.1354 crores
in 1973-74 revised estimates.
34. The progress in small savings collections is gratifying and estimates for
1974-75 are placed at Rs.360 crores. The estimated net receipts from market
borrowings at Rs.498 crores also show a marginal improvement over 1973-74.
35. Taking into account all the provisions for expenditure and the estimates
of resources, the budgetary gap at existing rates of taxes will amount to Rs.311
crores. The House will naturally be anxious to know as to how I propose to meet
this gap. I now turn to this task.
PART B
DIRECT TAXES
36. I come first to the proposals in the field of direct taxes. As Honourable
Members are aware, the Direct Taxes Enquiry Committee has made a number of recommendations
in regard to direct taxes. Several of these recommendations have already been
implemented. Provisions to give effect to some other recommendations are included
in the Taxation Laws (Amendment) Bill, 1973 which is at present before a Select
Committee of this House. One of the important recommendations of the Committee
relates to reduction in the rates of taxes. The Committee has expressed the
view that prevalence of high rates is the first and foremost reason for tax
evasion, because this is what makes the evasion, in spite of attendant risks,
profitable and attractive. The Committee has, accordingly, recommended that
the maximum marginal rate of income-tax, including surcharge, should be brought
down from its present level of 97.75 per cent to 75 per cent. Simultaneously,
there should be a reduction in tax rates at the middle and lower levels. This
recommendation of the Committee has been accepted by Government with minor modifications.
I, accordingly propose to lower taxes at all levels of personal incomes. Under
the proposed rate schedules, no income-tax will be payable by individuals or
Hindu undivided families having income not exceeding Rs.6,000. The marginal
rate of basic income-tax will stand at 70 per cent on the income in the slab
over Rs.70,000. In the case of Hindu undivided families having at least one
member with an independent total income exceeding the minimum exemption limit,
the marginal rate of 70 per cent will be attracted at income levels over Rs.50,000.
The rate of surcharge will be reduced to a uniform level of 10 per cent in the
case of all categories of non-corporate taxpayers. The combined incidence of
income-tax and surcharge, in the case of individuals and Hindu undivided families,
will stand at 77 per cent of the taxable income in the highest slab.
37. In view of the reduction in taxes on personal incomes, I do not think it
is necessary to continue the preferential tax treatment in respect of incomes
derived by non-corporate taxpayers through providing technical ‘know-how’
and technical services to Indian or foreign enterprises. I, accordingly, propose
to withdraw the existing concession in this regard.
38. In order to ensure that the effectiveness of the fiscal instrument for reducing
disparities in incomes and wealth is not impaired, I propose to increase the
rates of wealth-tax on the slabs of net wealth over R8.5,00,000 in the case
of individuals and Hindu undivided families, where no member has net wealth
exceeding Rs.1,00,000. The rate of wealth-tax on the slab of Rs.5,00,001 to
Rs.10,00,000 will be increased from 2 per cent to 3 per cent, and on the slab
of Rs.10,00,001 to Rs.15,00,000 from 3 per cent to 4 per cent. In the case of
Hindu undivided families having at least one member with net wealth exceeding
Rs.1,00,000, the rate of wealth-tax on the first slab of Rs.5,00,000 will be
raised from 2 per cent to 3 per cent and on the slab of Rs.5,00,001 to Rs.10,00,000
from 3 per cent to 4 per cent.
39. I also propose to rationalise some of the exemptions available at present
under the Wealth tax Act. I propose to withdraw the separate exemption in respect
of farm houses. Tax payers will, however, have the option to claim exemption
in respect of one farm house, or one other house property within the existing
limit of Rs.1, 00, 000. Exemption in respect of agricultural land will be linked
with the exemption in respect of specified financial assets, so that the total
exemption in respect of agricultural land and specified financial assets will
be limited to Rs.1,50,000. At present, the value of the taxpayer’s interest
in insurance policies before their maturity is completely exempt from wealth-tax.
A similar exemption is also available in respect of the taxpayer’s right
in any annuity which is not commutable into a lump sum grant. These exemptions
have been exploited by certain individuals by taking out single premium policies
of very large amounts. I propose to modify these provisions so that complete
exemption will be available in respect of insurance monies only where premia
have been paid over a period of 10 years or more. As regards annuities, I propose
to withdraw the exemption in respect of non-commutable annuities if such annuities
have been purchased by the taxpayer himself, or by any other person in pursuance
of a contract with him.
40. The changes in the Wealth-tax Act will yield about Rs.9.5 crores in a full
year, which will accrue in the financial year 1975-76. The reduction in the
rates of income-tax on personal incomes would ordinarily have resulted in a
loss of about Rs.60 crores in a full year and Rs.36 crores in the financial
year 1974-75. I am, however, not taking any loss into account for budgetary
purposes as I expect that the reduction in the rates of taxes will lead to better
tax compliance, and full disclosures of incomes by all taxpayers.
41. In the case of registered firms, two surcharges are presently levied. I
propose to merge the ordinary surcharge payable by such firms with the basic
incometax, and specify only one surcharge at the uniform rate of 10 per cent.
In order to retain the liability in respect of basic income tax in the case
of professional firms as well as other firms at more or less the existing levels,
I propose to prescribe two separate rate schedules in the case of such firms.
42. In my budget speech for 1971-72, I gave notice of Government’s intention
to withdraw the development rebate in respect of ships acquired or machinery
and plant installed after May 31, 1974. It now appears that industry has in
some cases not been able to secure timely delivery of plant and machinery both
from foreign and indigenous manufacturers which has caused a setback to the
timely completion of some of the industrial projects which would in the normal
course have been completed before May 31, 1974. Several unforeseen factors are
responsible for this, such as uncertainty prevailing in the international market,
dependence of indigenous manufacturers on imports in respect of critical parts
or raw materials, difficulties in the availability of shipping space, power
shortage, etc. Relief is deserved in such cases, and I propose to extend the
operation of the development rebate by one year in cases where there is conclusive
evidence to show that contracts for purchase of machinery and plant were finalized
before December 1, 1973. This extension will also be available in respect of
ships acquired up to May 31, 1975, if the contracts for purchase were made before
December 1, 1973.
43. The critical shortage of petroleum products has resulted in an unexpected
crisis as a result of which industry has to be encouraged to switch over to
other sources of energy. I, accordingly, propose to allow development rebate
in respect of coal-fired boilers or any machinery or plant for converting oil-fired
boilers to coalfired boilers where these are installed before June 1, 1975.
44. In order to simplify the assessment procedure in the case of salaried taxpayers,
I propose to substitute the separate deductions in respect of traveling, books,
taxes on professions and expenditure incurred in the performance of duties by
a standard deduction up to a maximum of Rs.3, 500. Simultaneously I propose
to place the valuation of perquisites of employees on a more realistic basis,
I also propose to liberalise the tax treatment of retirement benefits in certain
directions. The retiring gratuities payable under the Payment of Gratuities
Act, 1972 will be completely exempt from income-tax. In the case of employees
not covered by that Act, the alternative ceiling limits on the exempted amount
of gratuities will be raised from Rs.24, 000 to Rs.30, 000 and from 15 months’
salary to 20 months’ salary.
45. In order to enable State Financial Corporations to build up reserves at
an accelerated pace, I propose to raise the ceiling limit in respect of amounts
transferred to tax exempt reserves to 40 per cent of the current profits.
46. There are a large number of public charitable trusts and -registered societies
engaged in the development of khadi and village industries. These trusts and
societies are doing commendable work under the direct supervision of the Khadi
and Village Industries Commission. I propose to exempt all such Institutions
from income-tax provided they are approved by the Khadi and Village Industries
Commission.
47. As a result of the change in pricing policies, some of the industrial companies
are making windfall profits. I feel that the exchequer should also secure a
larger share of these profits. I, accordingly, propose to increase the rate
of surtax from 30 per cent to 40 per cent in respect of chargeable profits of
companies exceeding 15 per cent of the capital. This measure will yield Rs.5
crores in a full year and this will accrue in 1975-76.
48. To sum up, in the field of direct taxes no effect is expected on tax revenues
during the next financial year as a result of the proposals outlined by me.
In the financial year 1975-76, there will be an addition of Rs.14.5 crores as
a result of these changes.
INDIRECT TAXES
49. Sir, I will now move on to the proposals relating to indirect taxes. 50.
As in the past, I have necessarily to rely more heavily on indirect taxes, particularly
excise duties. The scope for raising resources from other measures having become
severely limited, the choice before me has really been between raising indirect
taxes and resorting to deficit financing and the former, I feel, is the better
alternative.
EXCISE DUTIES
51. Taking up Central Excises, I shall first deal with some important measures
for raising resources exclusively for the Centre. Honourable Members are aware
that a new provision was made last year for levying auxiliary duties of excise
on all excisable goods at an amount equal to 20 per cent of the value of the
goods. These levies were restricted to certain selected items at a level needed
to meet the demands of the Centre then. I propose to continue this provision
for another year. While the effective levies on the items chosen last year will
remain unchanged, I propose to add selectively some more to the list.
52. Briefly, my proposal is to levy auxiliary duties at the rate of ten per
cent of the effective basic duty on un-manufactured tobacco, cigarettes, smoking
mixtures, plywood and cement; at the rate of twenty per cent of the effective
basic duty on dyestuffs, optical bleaching agents, gases, rubber products and
plastics; at the rate of thirty-three and one-third per cent of the effective
basic duty on paints and varnishes; and at the rate of fifty per cent of the
effective basic duty on aerated waters, glycerine, cosmetics and toilet preparations.
Through these proposals and as a result of the modifications of the basic excise
duties I am proposing on the existing items, I expect to raise Rs.62.38 crores
in a year, by way of auxiliary duties.
53. In the case of steel as well as other metals, the auxiliary duties are proposed
to be applied only to indigenous production and will not be attracted by way
of countervailing duty on imports, as hithereto. I propose to extend a similar
exemption in the case of plastics.
54. In the sphere of basic excise duties, my proposals naturally cover a wider
range and have been made with the multiple objects of rationalisation, curbing
consumption, mopping up fortuitous gains and, not the least important, I must
confess, raising revenue. In November, 1973, following successive increases
in crude oil prices and cuts in crude oil supplies, and as one of a series of
measures, the basic excise duty on motor spirit was raised from Rs.1000 per
kilolitre to Rs.2000 per kilolitre. In view of the continuing need for exercising
restraint and economy in the consumption of a number of other petroleum products,
and to prevent their misuse, I propose to increase substantially the basic excise
duties in respect of “special boiling point” spirits, raw naphtha
intended for methanol and petro-chemicals, benzene etc. used for a variety of
purposes, asphalt and bitumen, mineral turpentine oil, waxes and blended or
compounded lubricating oils and greases. Through these proposals, I expect to
raise an additional revenue of Rs.22.48 crores from the petroleum group.
55. The rates of excise duty on various types of motor vehicles have remained
unchanged for some years now. I, therefore, propose to rationalise the rates
of duty by replacing the existing alternative rates by ad valorem rates. I intend
imposing a uniform rate of 9 per cent ad valorem on vehicles like scooters,
motor-cycles, mopeds, auto-rickshaws and other three-wheelers. Motor vehicles
of not more than 16 H.P. by R.A.C. rating, which cover passenger-cars, jeeps,
etc., are at present assessable at a rate of duty of 13.33% ad valorem. I propose
to increase this rate to 20% ad valorem in respect of vehicles with body and
to 25% ad valorem in respect of others, including those cleared as drive-away
chassis. Big-sized cars will pay a higher duty at 40% ad valorem.
56. Commercial Vehicles have had the benefit of concessional ‘specific’
rates fixed some years ago. I propose to discontinue these and impose a uniform
ad valorem rate of 121/2 per cent. In that process, certain extra-heavy vehicles,
which are at present paying duty at the tariff rate, will get an incidental
benefit of 21/2 per cent. I do not, however, propose to change the existing
rates on tractors and trailers.
57. The proposals relating to motor vehicles are estimated to net an additional
revenue of Rs.16.25 crores.
58. As part of the socio-economic objectives of the Government, I have some
proposals to restrain consumption by the more affluent section of the community.
The existing rates of duty on refrigerators, air-conditioners, refrigerating
and air-conditioning machinery, appliances, and parts, are being stepped up,
with certain modifications in respect of a few existing exemptions. The present
concessional rates in favour of public-run hospitals, cold-storage plants and
factory establishments are not, however, being disturbed. These changes are
expected to bring in additional revenue of Re.5 crores in a year.
59. Some of the manufacturers of T.V. sets have been regaling us with advertisements
exhorting the public to “budget for a T.V. set to forestall the Central
Government Budget. As a compliment to these soothsayers on the accuracy of their
prediction, I propose to increase the duty on T.V. sets from 10 per cent ad
valorem to 20 per cent ad valorem. Extended play records are also being brought
within the dutiable category. While these proposals will make entertainment
costlier for the wealthy, I am anxious that music, entertainment and knowledge
should reach the less privileged in wider measure at lesser cost. To this end,
I propose to exempt totally all radio-sets produced in the small scale sector
and sold to the consumer at a price of not more than Rs.225 per set. These measures
are estimated to bring in a net revenue of Rs.1.20 crores.
60. I have been avoiding major changes in the rates of duties on various cotton
textiles, including cotton yarn, except to the limited extent of raising resources
for the States. The rates of duty are ‘specific’ and were fixed
in 1969 at a time when the industry was beset with difficulties. There is, therefore,
a clear need for revision, especially as the industry has since recovered. Cotton
textiles being an item of mass consumption, I am quite alive to the need for
forbearance in increasing the rates of duty on certain categories of yarn and
fabrics. My proposals, therefore, cover only superfine, fine and medium-A fabrics,
which are subjected to sophisticated processes, such as, mercerising/shrink-proofing/sanforizing.
In the case of cotton yarn, the escalations are confined to higher count groups.
I have, however, not disturbed the existing exemptions and concessional rates
in respect of yam in straight- reeled hanks mostly consumed by the handloom
sector. I have also rationalised certain exemptions and compounded levy rates.
These measures relating to cotton yarn and cotton fabrics are estimated to yield
an additional revenue of Rs.22.05 crores.
61. As a measure of rationalisation, which will also earn revenue, I propose
to increase the existing two rates of duty on polyester fibre to a uniform rate
of Rs.40 per kilogram. Suitable in creases in the existing rates applicable
to different denier groups of polyester filament yarn, sympathetic revisions
in the rates of duty on staple fibre spun yam, certain categories of blended
yam, and an increase in the rate of duty on resin-bonded slagwool, are also
being proposed. These proposals would bring in an additional revenue yield of
Rs.13.99 crores.
62. In regard to iron or steel, I propose to rationalise certain exemptions
relating to pig iron. steel ingots and products produced with the aid of electric
furnace, and to products made out of duty paid cut-pieces of steel ingots, which
will result in an additional revenue of Rs.7.20 crores.
63. The rates of duty for various categories of paper and board are ‘specific’
and require review from time to time. I propose to make suitable upward revisions
in the existing rates on paper and paper board, apart from rationalising certain
exemptions and classifications. The concessional rate of 15 paise per kilogram
applicable to the commoner varieties of printing and writing paper falling within
the grammage limit not exceeding 65 grammes per square metre, the total exemption
in favour of newsprint, hand-made paper and board, as well as existing concessions
for smaller paper mills and newly established units, will, however, continue.
These measures will result in an additional revenue of Rs.10 crores.
64. As straight revenue-raising measures, I propose to increase by 5 per cent
ad valorem the existing rates of duty an surface active agents, office machines,
metal containers, rolling bearings, welding electrodes, coated abrasives and
grinding wheels, dry batteries, certain categories of glass and glassware, chinaware
and porcelainware and thereby raise an additional revenue of Rs.20.17 crores.
65. As a part of our efforts to mobilise resources, I propose to levy for the
first time excise duties at varying rates an tooth-paste (including dental cream),
electrical stampings and laminations, specified cutting tools, tape and cassette
recorders, castalloy permanent magnets and sensitised photographic paper and
board. In the matter of new levies, Members will be reassured to know that suitable
exemptions for smaller manufacturers have been provided wherever necessary.
These new levies would bring in an-additional revenue of Rs.8.20 crores.
66. Some minor proposals for changes in excise duty will yield an additional
Rs.3.05 crores. The proposals relating to excise duties account for a net gain
in revenue of Rs.191.97 crores in 1974-75, of which Rs.25.92 crores will accrue
to the States and Rs.166.05 crores to the Centre.
Customs Duties
67. In the matter of customs duties, in view of the mounting world-wide shortages
and unprecedented rise in international prices of a wide array of imported goods,
my proposals in regard to import duties are no more than marginal. Briefly,
I propose to continue for another year the auxiliary duties of customs and the
exemptions relating to them, with a slight modification. At present, these duties
are levied at three differential rates of 20%, 10% and 5%. I propose to raise
the rate applicable to the middle slab from 10% to 15%. This modification will
yield an additional revenue of Rs.16 crores in a full year.
68. The only other proposal I have to make concerns whisky, brandy, gin and
certain other spirits by way of an increase in the basic duty from Rs.60 per
litre to Rs.80 per litre. While society at higher levels may, as a result, have
to pay a little more for their’ spirituous relaxation, it will help me
in getting some revenue for the exchequer.
69. Inclusive of additional duties, consequential to the changes in excise duties,
the additional revenue from import duties will amount to Rs.20.05 crores annually.
70. Taking Customs and Central Excise duties together and exclusive of States’
share, the additional revenue accruing to the Centre will be of the order of
Rs.186. 10 crores in a full year.
Posts and Telegraphs
71. I need now to say a word on behalf of my colleague the Minister Of Communications.
As the House is aware, postal rates have not kept pace with rising costs. The
frequent increases in Dearness Allowance and the heavy additional expenditure
incurred on account of implementation of the Pay Commission’s recommendations
have further pushed up the establishment cost in the Postal Branch which is
highly labour oriented. On the Telecommunications side, also, the operational
costs as well as the cost of equipment required for various projects have been
going up steadily. The Department’s developmental programme to improve
the Trunk Telephone Service by provision of high grade media like Microwave
and Co-axial systems, to install new Exchanges and expand existing ones for
meeting the fast growing demand for telephone connections and to expand the
Trunk Dialling and Teleprinter facilities all entail heavy investments. These
various factors necessitate an upward revision of tariffs in the Postal, Telegraph
and Telephone Branches of the Department. A Memorandum showing the proposed
changes in the Posts and Telegraphs Tariffs is being circulated along with Budget
papers. I shall therefore mention only the more important changes.
72. The tariff for Postcards is proposed to be increased from 10 Paise to 15
Paise. Even after this revision, the Department will be incurring a loss of
Rs.2.43 crores per annurn in running this service. It is proposed to raise the
rate of Letter cards from 15 Paise to 20 Paise and that of Letters weighing
upto 15 grams from 20 Paise to 25 Paise. The Registration Fee is being increased
from Re.1/- to Rs.1.25 and the Parcel rate from Re.1/- for every 400 grams to
Rs.1.50 for every 500 grams. The Posting Fee for Value Payable Post and the
tariff for Business Reply Permits are being revised. The minimum charge for
a Non-Press Telegram of ‘Ordinary’ category with eight words or
less is being increased from Rs.1. 20 to Rs.1.50 and for the `Express’
category from Rs.2.40 to Rs.3.00. The charge for each additional word will,
however, remain the same. It is also proposed to increase the rental for telephone
connection both in the ‘measured rate systems’ and the ‘flat
rate systems’. As against this, the number of free calls allowed during
a quarter will be raised from 250 to 300. The rate for each additional call
after 300 will be increased from 20 paise to 25 Paise. The Trunk Call rate structure
is being rationalized. While this will involve increase in Trunk Call charges
for distances between 100 and 1300 kilometers, in respect of calls between stations
within 20 kilometers, only the unit fee of 25 Paise will be charged for an ‘ordinary’
call as against the present 50 Paise for such calls.
73. These tariff revisions are estimated to bring in additional revenue of Rs.57.08
crores per annum. The changes would be given effect to from dates to be notified
after the Finance Bill is passed by Parliament. The yield during the financial
year 1974-75 will be of the order of Rs.42.80 crores.
74. The results of these changes have been accounted for in reckoning the internal
resources of Posts and Telegraphs Department.
75. So far as the Union Budget is concerned, the various proposals would imply,
for 1974-75 additional revenue aggregating Rs.186 crores. The budgetary gap
of Rs.311 crores I had indicated earlier will accordingly be now scaled down
to Rs.125 crores.
76. In conclusion, I would like once again to draw the attention of the House
to the developments of last two years which have shown how certain events can
greatly upset the original budgetary calculations. In the year ahead lie more
sources of uncertainty than ever before, which must be tackled speedily and
with flexibility. I would, however, like to say that we do not propose to allow
these uncertainties to blur our vision of the future. The social and economic
problems that we currently face can be resolved in the long run only in the
frame-work of a rapidly expanding economy with socialist objectives. I trust
this budget is one more step in that direction.