The Union Budget 1977-78

By N. A. Palkhivala

Summary

Palkhivala’s Forum of Free Enterprise booklet on the Union Budget for 1977-78 — the first budget of the post-Emergency Janata Government, presented by Finance Minister H. M. Patel — is markedly more sympathetic than his earlier critiques. Conceived ‘in wholly inadequate time’ on an inherited ‘system which has an in-built unfailing mechanism for ensuring perpetually increasing expenditure’, the budget, he judges, represents ‘a meritorious job’ and ‘the first small step towards achieving the goals and the ideals embodied in the manifesto of the Janata Party’. He likens Patel’s position to Marshal Foch’s First-World-War despatch (‘My left wing is retreating. My soft centre is crumbling. The situation is excellent. I attack!’), and cites Colin Clark’s image of the welfare State as a Father Christmas who pockets a commission for distributing the gifts — India having ‘the top-heavy bureaucracy of a welfare State without the welfare’.

He works through the Janata manifesto objectives the budget addresses — primacy of agriculture (Rs. 3,024 crores, 30.4% of Plan outlay), the right to work and full employment, indigenous technology, wage-goods for mass consumption, and small-scale industry — and then rebuts the ‘misconceived criticisms’ levelled whenever the corporate sector gains a concession, marshalling data that the Government is the corporate sector’s greatest beneficiary (Rs. 780 to the exchequer for every Rs. 100 of corporate profit) and that savings in private hands ‘fructify far better’ than public savings. He welcomes the lifting of compulsory-dividend rules but faults the convoluted Section 72A for sick-unit amalgamations, which ‘will never fulfil its purpose’ because of ‘time-guzzling governmental approval’.

On taxation, he applauds raising the income-tax exemption limit to Rs. 10,000 and a rational reform of capital-gains tax (citing Lord Shawcross’s description of capital-gains tax as ‘the greatest fraud in the history of fiscal legislation’), while warning against any reversal of the previous year’s cuts in confiscatory rates and against retrospective wealth-tax increases that breach Morarji Desai’s own stated principle. He invokes Bernard Shaw, Ludwig Erhard, Colin Clark and Kaldor on the case for a 50% ceiling on personal tax, and Herbert Spencer on the danger of citizens coming to believe ‘everything is to be done for them, and nothing by them’. He defends drawing Rs. 800 crores from foreign-exchange reserves on the ‘great law of the universe’ that ‘everything is yours to use, nothing is yours to keep’, notes the lowest deficit since 1961-62, and closes by asking that the new Janata Government, ‘having restored all the basic freedoms’, be given a fair chance to prove its policies. The rendered pages cover the full address (courtesy The Illustrated Weekly of India) and the FFE colophon dated 20 July 1977.

Key points

• The first post-Emergency Janata-Government budget (FM H. M. Patel); Palkhivala calls it ‘a meritorious job’ and a first step towards the Janata manifesto’s ideals.

• Patel inherited a system geared to perpetual expenditure; his position is likened to Marshal Foch’s ‘The situation is excellent. I attack!’.

• Colin Clark’s welfare-State-as-Father-Christmas image frames India as having ‘the bureaucracy of a welfare State without the welfare’.

• The budget addresses Janata objectives: agriculture (30.4% of Plan outlay), right to work, indigenous technology, wage-goods, small-scale industry.

• Palkhivala rebuts anti-corporate criticisms with data — the Government gains Rs. 780 for every Rs. 100 of corporate profit; private savings ‘fructify far better’ than public.

• He welcomes the end of compulsory dividends but faults Section 72A for sick-unit amalgamations as too hedged with bureaucratic hurdles to work.

• On tax: applauds raising the exemption limit to Rs. 10,000 and rationalising capital-gains tax (Shawcross: ‘the greatest fraud in the history of fiscal legislation’); warns against retrospective wealth-tax breaching Morarji Desai’s principle.

• Defends drawing Rs. 800 crores from forex reserves, notes the lowest deficit since 1961-62, and asks that the Janata Government be given a fair chance.

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