The Union Budget 1974-75

By N. A. Palkhivala

Summary

Palkhivala’s Forum of Free Enterprise address on the Union Budget for 1974-75, delivered in Bombay on 5 March 1974, is unusual in his series for opening with praise. He calls the reduction of the top personal income-tax rate from 97.75% to 77% ‘the only streak of light, the only ray of mercy’ — ‘a re-entry after nine years into the realm of rationality’ and ‘an act of faith’ by the Finance Minister that citizens have a public duty to justify through more honest returns. But that, he argues, is the Budget’s sole virtue; the rest is ‘as pedestrian in its outlook as its predecessors’.

He sets India’s five major problems — poverty, unemployment, stagnant production, inadequate savings, and double-figure inflation — against staggering figures: per-capita real income falling after 1970 (below the 1964-65 level), unemployment rising at 10,000 a day, industrial growth collapsing to nil in 1973-74, and India ranking 103rd in per-capita GNP. He cites McNamara on absolute poverty and the Bhagwati Committee on unemployment. The corporate sector, he complains, got no relief: unlike West Germany, Sweden, Japan, Canada and the U.S.A., where ministers cut corporate tax alongside personal tax, Y. B. Chavan left corporate rates ‘higher than those in any progressive country’ and let the development rebate lapse.

The address culminates in a sustained meditation on inflation as ‘the single gravest danger facing India’ — self-accelerating, ‘the most ruthless, relentless and remorseless’ of economic phenomena, and a devourer of democracy, twice quoting Keynes on debauching the currency and on the futility of wage demands without productivity. Palkhivala insists ‘you cannot divide more than you produce’ and calls for ‘a U-turn in our fiscal policy and economic ideology’ and a Budget ‘conceived in a large, far-seeing spirit’. He ridicules the Planning Commission with a Financial Times fable of a lion who advises a mouse to become a lion but leaves the how to the mouse (‘I formulate the policy’), and closes with the lament that ‘while formerly we used to suffer from social evils, we now suffer from the remedies for them’, sealed by a verse on preferring ruin to change. The rendered pages cover the full address and the FFE colophon dated 20 May 1974.

Key points

• The Budget’s one virtue is cutting the top personal income-tax rate from 97.75% to 77% — ‘the only ray of mercy’ and a return to rationality after nine years.

• Citizens have a public duty to justify the Finance Minister’s Rs 60 crore revenue gamble through more honest income returns.

• India’s five major problems — poverty, unemployment, stagnant production, low savings, double-figure inflation — are documented with stark figures (per-capita income falling, 103rd in per-capita GNP).

• McNamara is cited on absolute poverty and the Bhagwati Committee on 18.7 million (now 25 million+) unemployed.

• Corporate tax was left untouched, unlike West Germany, Sweden, Japan, Canada and the U.S.A. where personal and corporate cuts went together; the development rebate is allowed to lapse.

• Inflation is ‘the single gravest danger’ — self-accelerating, a devourer of democracy; Keynes is quoted on debauching the currency and on futile wage demands.

• Palkhivala calls for a ‘U-turn in our fiscal policy and economic ideology’ and a far-seeing Budget that harnesses citizens’ enterprise in an atmosphere of trust.

• A Financial Times lion-and-mouse fable mocks the Planning Commission; the address closes on ‘we now suffer from the remedies’ and a verse on preferring ruin to change.

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