Following is an excerpt from a March 1992 booklet, titled The Union Budget 1992-93. Authored by Indian jurist and liberal economist Nani A Palkhivala, the booklet was originally published Forum of Free Enterprise. In the booklet, Palkhivala critically examines India’s first Union Budget post the 1991 liberalisation.
This year’s Budget is not a budget for the greedy, paid for by the needy. The Budget provisions properly so called (as distinct from the proposed amendments to the direct tax laws) are well conceived, and deserve the support of the well informed irrespective of party affiliations.
Four main thrusts of the Budget
The four main thrusts of the Budget are – liberalization, integration of India into the global economy, reduction of taxes, and a stable and healthy balance of payments.
- Liberalization is the key to the Budget. (The only criticism can be that it measures liberalization with coffee spoons.) It is a Watershed Budget which marks the beginning of a new chapter in India’s economic history. We have left behind the terminal stage of our forty-year affair with shabby State socialism. It was our ideological socialism which had been responsible for India remaining the twentieth poorest nation on earth. Our gross domestic product is smaller than that of greater Los Angeles (population 14 million). We have more than 15 per cent of the world’s population, and less than 1.5 per cent of the world’s income. Our per capita income did not even double since we became a republic — it only increased 92 per cent in real terms.
This year’s historic Budget for the first time reflects the consciousness of our government that fast economic growth would be impossible with woolly, outworn socialism which betrays a severe hardening of intellectual arteries and a pathetic lack of knowledge of the revolutionary changes which have recently swept across the world.
During the last 25 years, China’s economic growth, despite its communism, has been more than twice as fast as India’s. The annual investment in China by foreign companies exceeds the total investment in India in the last 44 years. The new foreign investment in China totalled $10 billion last year! There are already more than 2500 foreign enterprises operating in the .27 hi-tech industrial parks recently started in China.
I have the highest opinion of Indian capacity and potential. But I find it impossible to refute the universal criticism that our two besetting sins are self-complacency and obstinate refusal to face the truth. We could have more realistically chosen the ostrich instead of the peacock as our national bird.
The Survey on India, published by The Economist of 4th May 1991, showed the tiger “caged”. It should be made compulsory reading in every school and college, as well as for those adults who choose to enter Parliament or the civil service. The jugular vein of the article is that if India has more than its fair share of the world’s misery, it is not the fault (If former colonial masters or wicked western capitalists or the cruel hand of fate: it is largely India’s own doing.
We are slipping behind the rest of the world — except in population growth. This truth can hardly be better illustrated than by the fact that the present per capita income in South Korea is 13 times, and in Hong Kong 30 times, that of India, though the three countries started at about the same level.
The United Nations Development Report, published last June, ranks the nations of the world by reference to the Human Development Index (HOI). In determining a nation’s position in the list, the HOI takes into account the expenditure incurred by the state on human priority sectors- health, water, sanitation, daily calorific intake, literacy, and education at primary and secondary levels. Having regard to the HOI, India is placed, for the second year running, pretty much at the bottom of the list- 123rd out of 160 countries. Dr. Manmohan Singh has rightly emphasized that unless certain values are adhered to by the nation, it cannot come out of the recession. The Finance Minister has no Midas touch; he has no snake oil which can be used as having a magical healing power in matters economic.
- The proposed integration of India into the global economy has not come a day too soon. The emerging world economy has erased national boundaries. Capital and companies no longer stop at the border. If India is to grow and prosper, it has no alternative but to be integrated into the world economy.
- Reduction of taxes is one of the avowed aims of the Budget. In a global economy, cutting taxes has become a matter of national interest: high tax countries inevitably lose out. The days when the government could adopt any tax policy, as if the nation existed within a vacuum, are over.
- If India is to have a stable and healthy balance of payments, it can only be through increased exports. Our share has dropped from 2.2 per cent of world exports in 1950 to 0.44 per cent. Among the exporting countries, India ranked sixteenth in 1950: today its rank has dropped to fortythird! Even Holland, one of the tiny countries of the world with a population of 15 million, has six times the exports of India! Hong Kong has almost three times the international trade of India, although its population is less than one per cent of India’s – 0.7 per cent to be precise, while its land area is 0.03 per cent of India’s.
The least justified criticism of the Budget is that it has been framed under the dictates of the World Bank and the International Monetary Fund. The censure is levelled by those whose critical perception does not exceed forty watts. They should credit India with enough intelligence to make the right decision for itself after forty years of mistaken policy. Some of the ablest men in the two international institutions are Indians: to say that the Indian Government cannot think for itself is gratuitous self-condemnation.
In any event we must judge the policy underlying the Budget on its merits, and it is wholly irrelevant to be concerned about who suggested the path of wisdom. One of the great failings of democracy is the mistaken belief that it is the duty of the opposition to oppose. Secondly, the fear has been expressed in some quarters that India will be swamped by multinationals. The truth is that India runs no risk whatever of being dominated by foreign corporations. We must get rid of the illusion that we are still fighting the East India Company.
Thirdly, the view has been expressed that the Budget has not done enough to check inflation or to counter recession. To control inflation is possible, but to eliminate it is beyond hope at this juncture. The last time we had “negative inflation” (to use bad English) was when Mr. Morarji Desai was the Prime Minister (1977-79). The spirit of the nation – the spirit of national dedication and confidence which then emerged after the tyranny of the Emergency – had as much to do with the fall in prices as any budget.
Inflation is a worldwide phenomenon. A dollar today is worth only 13 cents in 1945 money; a pound is worth six pence. Even the Deutschemark is only one-third of its value in 1948 when it replaced the worthless Reichsmark.
Again, the world economy is going through a period of recession. The current economic depression in the United States is billed as “the mother of all recessions” -the longest since 1945. General Motors, the giant among corporations, incurred a loss of $4.5 billion in 1991 -unparalleled in the Company’s 84-year history. The critics claim that in Britain the recession is deeper than in any other country. About 20,000 companies went into liquidation in 1991, which works out to one in every 50 British companies.
Read the complete text: The Union Budget 1992-93
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