The Budget versus The People is a compendium of speeches delivered by Swatantra Party Members of Parliament like MR Masani and N. Dandekar in the Lok Sabha and Dahyabhai V Patel, M Ruthnaswamy and SS Mariswamy in the Rajya Sabha during the discussion on the Union Budget of 1965-66. Across the five speeches, the MPs were able to highlight some fundamental problems caused by the Congress administration and the lack of emphasis on the Budget on some issues. In contrast, there was an over-emphasis on some others.
Dahyabhai Vallbhbai Patel was a Congressman and an elected member of the Bombay Municipal Corporation in 1939. He was the mayor of Bombay in 1954, and after quitting the party in 1957, he became the vice president of the Maha Gujarat Janta Parishad. He was elected to Rajya Sabha as a Parishad member in 1958. He was elected thrice and remained a Rajya Sabha MP till his death in 1973 at the age of 67. He was remembered in his obit as ‘an outspoken Swatantra leader and a stalwart parliamentarian’.
You can read the original, unabridged version on Page 42 here.
The Budget for next year has provided for a total expenditure of Rs 4,290 crores; of this, Rs 2,116 crores will be in the revenue account and Rs 2,174 crore in the capital account. The total expenditure of the Government will be higher than the previous year’s revised estimate by Rs 216 crores-Rs 117 crores on the revenue account and Rs 99 crores on the capital account. The Budget provides a total defence expenditure of Rs 879 crores in 1965-66 on revenue and capital account, compared to the revised estimate of Rs 835 crores in 1964-65.
The Finance Minister has, however, mentioned that the actual rupee expenditure would not increase much because purchases of stores and aircraft, the total value included in the expenditure estimates, are being made on deferred payment terms. To this extent, the inflationary impact of such expenditure will be less.
The total transfer of resources by the Centre to the States will be Rs 1,307 crores in 1965-66, as against Rs 847 crores in 1961-62, the first year of the Third Plan. teh share of divisible taxes and duties in the Third Plan period has increased by Rs 93 crores, revenue grants by Rs 89 crores, capital grants by Rs 35 crores and loans by Rs 241 crores.
Thus, the States have come to depend more on the Centre for financial assistance. Has not this over-dependence on Central assistance encouraged lassitude on the part of the States and impaired fiscal prudence? It is worth thinking over.
The assurance given at the time of the Chief Ministers’ Conference in June 1964 that the Centre would save Rs 70 crores mainly on non-productive items has not been given effect to, and the total expenditure has actually exceeded the Budget provision.
It has become imperative to achieve greater fiscal discipline and secure better use of funds, for such expenditures generate inflationary pressures and weakens productive enterprise.
The Budget has been formulated on the assumption that balancing the capital expenditure cannot be done entirely by mobilising voluntary savings and external assistance and that it has to be supplemented increasingly by public savings realised through revenue surplus.
The present tax rates have discouraged savings of the people and the corporate sector, and it has not been possible for Government to make good these deficiencies. As a result, the overall savings capacity of teh economy has remained depressed.
A large part of national production, particularly agricultural, is almost wholly unrelated to the Budget. In 1964-65 it was expected that foodgrain production would reach about 87 million tonnes, nearly 8 million more than in 1963-64. This will improve the present food shortage and enable us to accumulate buffer stocks.
Industrial production and growth are, on the other hand, conditioned by Budget operations. In his Budget speech, the Finance Minister accepted the necessity and the urgency for Indian industry to branch out into new and complex lines of development. Still, the Budget itself does not contain any incentives and does not even aim at creating normal conditions in which growth can take place.
The factors which depressed the development of industry in the first four years of the Third Plan continue. The climate for investment is not such as would promote the inflow of private foreign investment in the requisite measure. If at all, the only redeeming factor is the assurance that the “policy of hospitable and fair treatment (to foreign investment) will be continued in future.”
It is further indicated that the “general policy, whether in regard to taxation, industrial licensing or price controls, must be consistent with our desire to harness every possible source of dynamism and enterprise, whether domestic or foreign, public or private, to the task of rapid economic growth.” The last two are quotations from some of the pronouncements made by the Finance Minister.
Referring to the need for significant investments in the public and private sectors during the following Plan, the Finance Minister, in his Budget Speech for the Union Budget for 1965-66, stated:
“The first and foremost precondition for mobilisation of resources for financing these investments is the maintenance of an environment of financial and monetary stability. It is only then that voluntary savings could be encouraged and directed to productive uses. Equally important is a degree of stability in our taxation policies. A greater degree of stability in regard to the structure of direct taxation is of vital importance as it has a bearing on long term decisions in regard to savings and investment.”
He also observed:
“It is equally important to encourage a larger flow of individual savings so as to promote a greater participation by individual citizens in the growth of industry…The primary objective must be to raise the capacity for individual savings and to improve the performance of industry so that it is able to earn and offer an attractive return on the capital invested.”
Despite these observations, like those he made in his Union Budget Speech last year and on several occasions, the Budget proposals he has formulated and announced do not reflect the proper perspective of the principles he has enunciated so far.
The reliefs he has announced have been granted in a halting and hesitant manner. They do not go for enough and have failed to infuse the confidence and vigour the capital market has needed for some time.
The concessions are only marginal and do not relieve the pressures on the industry at the vital spots. With a large surplus of Rs 237 crores next year at the existing rate of taxation and a small overall surplus of Rs 10 crores, the Finance Minister could have given genuine relief to the industry and taxpayers.
Unfortunately, in India, we still seem to be clinging to old notions. India has the unique position of being the most taxed nation in the world.
We have the largest number of taxes, and their complexity is indeed bewildering. Even tax experts sometimes find themselves at sea when trying to correctly interpret the implications of the various tax laws whose rates at certain levels are punitive and confiscatory because they exceed the total income of an assessee. Nowhere in the world does such a situation obtain. Even socialistic countries like Norway, Sweden and Denmark, which are often referred to as ideals to be followed, have a ceiling rate of 80 per cent tax liability on assessable income.
Even compared to other developing countries like Pakistan, Burma, Malaya and Brazil, India has the distinction of having much higher tax rates. It is so in regard to the rates of both personal and corporate taxation.
The revenue surplus for 1963-64 is expected to be as high as Rs 229 crores as against the Budget Estimate of Rs 83 crores. No matter how often it is stressed and who stresses it, even if it be the Public Accounts Committee, the Finance Ministry continues to underestimate its revenues grossly.
If these estimates had been properly made, perhaps the need for imposing such high taxation rates would not have been there. It would be pertinent to quote from the Twenty-Seventh Report (Third Lok Sabha) of the Public Accounts Committee, 1964-65. The Committee stated:
“Even so, it cannot be denied that the estimates of revenue, the estimates of expenditure and the fresh taxation proposals are closely inter-linked; and that the former two serve as some indicators for the quantum of fresh taxation effort necessary. The importance of arriving at accurate budget estimates cannot therefore, be overstressed so as to avoid teh risk of the public being taxed unconsciously more than necessary.”
Despite these observations, wide variations between Budget Estimates and actual collections continue. Next year also, the same story will be repeated. Year after year, the need for restraint on wasteful and avoidable expenditure is emphasised, and the Finance Minister has recognised its validity.
However, it remains a matter of speculation how far Government’s efforts to enforce the economy and avoid wasteful expenditure are fruitful.
We must take note of the observations of Dr Hans Kuntze, leader of the West German Business Delegation, which recently visited India when he said that India was not the only country asking for aid.
He said, “You should remember that other countries are competing with you. I would be delighted if in this competition you beat them all.”
Similar sentiments were expressed at the last sessions of the International Chamber of Commerce, which was recently held in Delhi. The delegates then pointed out that the private investor in developing countries faced several obstacles, including insufficient return on investment, inhibiting tax structures and too many restrictive controls by the local governments.
The Finance Minister has granted concessions regarding excise duties on certain articles consumed by the common man. Still, the burden on the consumers is raised by the increase in the import duty on stainless steel plates and sheers and steel tin plates, etc., which is over and above the regulatory Customs duty at 10 per cent of the value of the imported goods, which was announced a few days back.
It is disappointing to note that despite representations made by the industry and its genuine need, the dividend tax has been retained. Similarly, there has been no change in the capital gains tax, though a marginal relief has been granted in the case of bonus shares.
As pointed out earlier, these taxes have profoundly affected the capital market and the general sentiment of the investing public. They have done incalculable harm to the process of capital formation. The argument of the Finance Minister that the dividend tax has not materially affected the distribution pattern of dividends is fallacious.
The proposal to provide a ceiling limit to the income tax, including the tax charges with reference to the distribution of equity dividends and surtax at 70 per cent of companies’ total income, is illusory.
This high ceiling will be beneficial to a few companies only. It should be reduced to a more rational level, as in the case of other advanced countries.
The proposal to impose an additional wealth tax on urban properties beyond a specific limit comes like the proverbial last straw on the back of the assessees – who are already overburdened by a multitude of taxes of a highly oppressive character.
This is indeed a very harsh step to take and will cause undue hardship. Moreover, it will greatly affect private housing construction in urban areas, aggravating urban housing scarcity.
In India, Government has vast discretionary and arbitrary powers. Due to the licensing and permit system, every citizen of the country has to run from pillar to post to get the necessary clearance for his application. In the circumstances, it appears idle to talk of economic power in anybody’s hands. Economic power rests in the hands of the Government and the Ministers and the enormous bureaucracy that has increased during the last few years.
As long as income-tax rates, the Estate Duty and the Gift Tax remain at the existing high levels, the will to save and invest will be lacking. It is only when these taxes are brought down to more reasonable levels that the investor will feel inclined to work, save and invest in productive enterprises because if, after all his efforts and endeavours, his savings and capital are taken away as a result of confiscatory rates of income-tax, Estate Duty and Gift Tax, he will be left with no initiative.
I would also like the Finance Minister to examine the matter in one way. What is the amount of expenditure the Government must incur to collect small amounts of tax? It will be about Rs 80 to Rs 90 from small assessees yearly.
Is it worth the expenditure? Government has to maintain a large department to do all this. Is it worth all the trouble, the paper and the staff required to collect the money?
Another aspect–I know that he cannot do it by himself–by which the Finance Minister can help the country with his Budget is through greater production. Whether in State enterprises, Railways, or everywhere, the production level is very low. It is so even in the industry.
Therefore, what the Finance Minister needs to do is to increase production everywhere. All Government Departments are known for being overstaffed, for people not having enough work, though many people are kept on the payroll.
Charity should begin at home. The Government should start with Government Department, State enterprises and the Railways. How long will we have this sorry spectacle of State enterprises being deficit institutions? We were just told that our public steel projects, the biggest in the public sector, are still making five per cent losses instead of making that much profit.
Public Sector Obsession
This morning we had a question about the Coal Development Corporation. There too, we are losing Rs 40 lakhs every year. That also adds to our tax burdens. As if this were not enough, this morning’s papers announced that the Government still has the faulty notion of placing small car production in the public sector. I thought the matter had been set at rest a few years ago, but some people revived it. I hope the Finance Minister understands this implication and will not allow this to be done; it will not help the country.
Apart from the Steel and Coal Corporations, we understand that the State Trading Corporation had bought edible oil worth Rs 80,000, which it had to sell for Rs 20,000 recently. If such is the achievement of the State Trading Corporation, can anybody say it is giving us any benefit?
The Government have got a large number of Advisory Committees, but I do not know whether they listen to what is said in these committees. In the Central Advisory Council of Industries, Mr Tata disclosed that taxation confiscated the whole income. Mr Birla said that the Bihar Government was fatally interfering on behalf of labour – particularly for the monopoly of Bihari labour.
Then, of course, we have the burning question of the day what is happening in the great State of Orissa? What do Mr Nanda and the Sadachar Samiti have to say? I will not repeat what I said yesterday on certain provisions of the Bill before us, but is this the way the Sadachar Samiti and the Home Minister are proceeding?
Will the Sadachar Samiti be turned into a Gestapo of the Home Minister? The country is entitled to know why we are being asked to pay more and more if this is how the money will be taken and spent.
Before I conclude, I would also like to add how Departments of Government – it is not only the Finance Department but other Departments also – are being used. I have before me the case of a paper taught was supposed to be started as a weekly by no less a person than a grandson of Mahatma Gandhi.
I hope nobody will say he is not a patriotic citizen. He did not get a license for newsprint. He cannot get it even now, while the allies of the Communists and fellow travellers get the machinery, paper, buildings and everything in this country, in this city of Delhi. Where are we heading?
These are some severe shortcomings that Government should apply its mind to and correct if it wants the people’s confidence. Of course, I have been often held, I have often said, that the policy of the Government, the taxation policy particularly, is oppressive.
It is a policy aimed at crushing the people so that they cannot rise and do nothing but meekly submit.
Before I sit down, I would repeat my appeal to the Finance Minister to reconsider and revise his proposals and give some relief to the poor who have been taxed so much, particularly after the fall in the value of the rupee.
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