THE ECONOMIC IMPLICATIONS OF THE UNION BUDGET 1979-80

By Professor Russi Jal Taraporevala

Summary

This pamphlet reproduces the text of a public lecture delivered by Professor Russi Jal Taraporevala under the auspices of the Forum of Free Enterprise in Bombay on 5th March 1979, assessing the Union Budget 1979-80 presented by Finance Minister Charan Singh. In the rendered pages, Taraporevala sets the budget against the macro-economic scenario inherited from 1978-79 — two excellent agricultural years, an industrial recovery, record foreign-exchange reserves above Rs. 5,000 crores, and remarkable wholesale price stability achieved despite a 50 per cent expansion of money supply over three years. Against this favourable backdrop he traces the disappointing per capita growth record of two decades of planning, with per capita GDP at 1970-71 prices rising at just 1.12 per cent annually between 1961-62 and 1976-77 and decelerating to 0.62 per cent in the latter eight years, leaving 46 per cent of Indians below the poverty line.

Taraporevala’s central argumentative thread in the rendered pages is that Charan Singh squandered a once-in-a-million opportunity. Sector by sector — national income, population and family planning, agriculture, industry, employment, savings and investment, prices, money, foreign trade, budget deficit and Plan Outlays — he contrasts the strong inherited indicators with what he sees as a timid and even regressive response. The family-planning effort is judged “modest”; the loss-making Central commercial enterprises (Coal India, the Fertiliser Corporation, Indian Iron and Steel, NMDC) make recent ministerial talk of nationalising private steel, autos and other sectors “strange reading”; the Plan Outlay rises by only 7.4 per cent (or 15 per cent adjusted) over 1978-79, continuing a multi-year deceleration that puts the Rs. 69,000-crore Sixth Plan target far out of reach.

The budget’s fiscal stance comes in for the sharpest criticism in the rendered pages. With price stability, bulging foodgrain bufferstocks of 20 million tonnes and record reserves, Taraporevala argues the Finance Minister could have left the modest “real” deficit of Rs. 697 crores open, or borrowed Rs. 2,000 crores against foreign-exchange drawals, and launched a massive Plan Outlay without any new taxation. Instead the budget loads “a gigantic dose of additional taxation” onto the urban sector while financing only modest increases for agriculture, irrigation, rural electrification, power, oil, steel, coal and a controversial public-sector fertiliser provision of Rs. 254 crores. The rendered pages stop in the middle of the Plan Outlay discussion (printed page 18); later sections on the budget’s tax measures, sectoral implications and concluding assessment are not in this chunk.

Key points

• Taraporevala frames the budget as a missed opportunity: Charan Singh inherited record foreign-exchange reserves above Rs. 5,000 crores, 20-million-tonne foodgrain bufferstocks and 0.9 per cent wholesale price inflation, but chose stereotyped tax hikes and a modest Plan Outlay over a bold pro-growth response.

• Per capita Net National Product at 1970-71 prices stayed near Rs. 600-690 across the 1970s, and per capita GDP grew at only 1.12 per cent per year over 1961-77 — Taraporevala calls this record of two decades of planning evidence that India “remains one of the poorest countries in the world”.

• He treats population growth as the single biggest neglected economic problem: with population rising from 442 million in 1961 to 620 million in 1977, he argues the budget’s family-planning effort is “modest” and risks leaving India running fast “in Alice in Wonderland fashion, to remain in the same place”.

• The deteriorating performance of Central commercial undertakings — losses at Coal India, Fertiliser Corporation, Indian Iron and Steel and NMDC more than doubling to Rs. 200.51 crores in 1977-78 — makes recent ministerial calls to nationalise private steel, automobiles and other industries “strange reading” in his view.

• He flags a striking disconnect: more than 46 per cent of Indians live below the poverty line even as government foodgrain bufferstocks hit a record 20 million tonnes and the Finance Minister stresses promoting agricultural exports.

• Price stability of 0.9 per cent wholesale and 4.4 per cent CPI was achieved despite a Rs. 1,134-crore deficit in 1977-78 and an estimated Rs. 1,500-crore deficit in 1978-79, which Taraporevala reads as proof that “large budgetary deficits do not necessarily lead to inflation”.

• He calculates that the real net 1979-80 deficit, excluding Seventh Finance Commission transfers, is only Rs. 697 crores — modest enough that the Finance Minister could have funded a Plan Outlay near Rs. 15,000 crores without new taxation.

• Plan Outlays show a multi-year deceleration: 31 per cent growth in 1976-77, 27 per cent in 1977-78, 17 per cent in 1978-79 and only 7.4 per cent (15 per cent adjusted) in 1979-80, putting the Rs. 45,000-crore Sixth Plan balance “extremely unlikely” to be achieved.

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