The Economic Implications of the Union Budget, 1972-73

By Professor Russi Jal Taraporevala

Summary

Professor Russi Jal Taraporevala’s lecture, delivered under the auspices of the Forum of Free Enterprise in Bombay on 24 March 1972 and printed as a Forum booklet, analyses the Union Budget of 1972-73 against the backdrop of an exceptionally difficult year. He opens by surveying the abnormal conditions of 1971-72: an unprecedented influx of over ten million refugees from East Pakistan, droughts in Maharashtra and Andhra Pradesh, a cyclone in Orissa, floods in Uttar Pradesh, Bihar and West Bengal, the Indo-Pakistan war, and the sudden suspension of U.S. aid. Against this strain, he reads moderate growth in national income (around 4 per cent), a record food-grains harvest, and a creditably contained price level as evidence of structural resilience — but he is sharply critical of industrial stagnation, with growth at around 3 to 3½ per cent and corporate savings at an all-time low.

The core of the lecture is a methodical walk through the budget’s revenue and expenditure sides. Taraporevala notes that three budgets in 1971 had already imposed roughly Rs. 500 crores of fresh taxation, that revenues for 1971-72 yielded buoyantly above estimate, and that the new budget proposes additional taxation of Rs. 183 crores (Rs. 133 crores net to the Centre). He documents how the Finance Minister has chosen to spread indirect taxation thinly across customs and a vast range of excise items — tobacco, art-silk fabrics, synthetic-fibre yarns, steel, aluminium, kerosene, fertilisers, power-driven pumps — minimising direct inflationary impact while gathering revenue. Plan outlays are budgeted at Rs. 2,307 crores (a 27 per cent jump) to spur growth, with the Centre-States-Union Territories total at Rs. 3,973 crores.

The author’s classical-liberal anxieties surface most pointedly in his treatment of direct and corporate taxation. He defends the abolished priority-industries concession in principle (small-scale and infant industries deserve a fresh list), warns that the rising surcharge and discontinued deductions will further erode private corporate savings, and treats the very ‘rationalisation’ of excise slabs as a euphemism for additional yield. His conclusion is wary rather than condemnatory: the strategy of growth through large plan outlays may launch a new development cycle, but the Finance Minister’s hint at fresh end-of-year imposts — clubbing of family incomes, harsher taxes on the Hindu Undivided Family, refusal to act on the Wanchoo Committee’s recommendations for lower rates — would, if executed, ‘deal a death blow’ to the very acceleration the budget set out to achieve.

Key points

• Frames the 1972-73 Budget against an unusually battered 1971-72: ten-million-strong refugee influx from East Pakistan, war, drought, cyclone, floods and the suspension of U.S. aid.

• Reads moderate aggregate growth (~4% national income, record food-grains, contained 3.9% price rise in 1971) as evidence of structural soundness, while flagging industrial stagnation at 3-3½% as the real worry.

• Quotes the Government’s own Economic Survey to argue that what truly impedes industrial growth is neither procedure nor policy but a generalised dearth of savings — corporate savings at an all-time low.

• Tracks the buoyant revenue side: Rs. 3,846 crores collected in 1971-72 against an estimate of Rs. 3,608 crores, with Rs. 4,228 crores projected for 1972-73 at existing rates; an extra Rs. 183 crores of new taxation proposed.

• Notes that plan outlays are scaled up 27% to Rs. 2,307 crores (Centre) and Rs. 3,973 crores (Centre + States + UTs) as the budget’s chosen instrument of growth, in lieu of tax incentives.

• Itemises indirect taxation: customs (+Rs. 8.60 crores), tobacco/cigarettes (+Rs. 14 crores), art-silk fabrics (+Rs. 8.59 crores), synthetic-fibre yarns (+Rs. 6.50 crores), excise ‘rationalisation’ (+Rs. 10.70 crores), steel (+Rs. 36.20 crores), aluminium (+Rs. 4.18 crores), kerosene (+Rs. 29.80 crores) and a fertiliser excise hike from 10% to 15% (+Rs. 12.50 crores).

• Defends the case for a priority-industries tax concession in principle and criticises the blanket abolition; argues that small-scale and infant industries should have been given fresh priority status.

• Warns that the marginal direct-tax additions, the continued 2½% corporate surcharge and the threatened end-of-year impositions (HUF, Wanchoo Committee rejection, income-clubbing) will erode private savings and undercut the budget’s own growth ambitions.

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