The Union Budget 1982-83 and A Budget of My Dreams

By N. A. Palkhivala

Summary

This Forum of Free Enterprise booklet pairs two pieces by N. A. Palkhivala. The first, ‘The Union Budget 1982-83’, is his annual critique of the Budget presented by Finance Minister Pranab Mukherjee. Palkhivala concedes some good points — a higher standard deduction, reliefs on insurance premia and provident-fund contributions, excise relief for increased production, and incentives to attract investment from non-resident Indians — but judges the Budget a profound disappointment that ‘leaves untouched the major and urgent economic problems of India’, calling it ‘the budget of a grocery store, not of a great nation on the march.’ He argues that corporate taxation is unchanged, personal tax rates remain punitively high (the lowest income-tax rate still 33%, against 1% in Sweden or 12% in the United States), and that the Budget is ‘deliberately designed to suck away more and more funds from private hands into the hands of the Government’ through devices like Capital Investment Bonds and Social Security Certificates.

Palkhivala marshals data to show the public sector’s chronic unproductiveness (a 0.2% pre-tax return on Rs 18,231 crores of public investment versus ~10% in a random private-sector sample) and warns of a fourth consecutive deficit budget feeding roughly 10% inflation. He laments that ‘excessive taxation and insensate controls’ have turned ‘the Land of Opportunity’ into ‘the Land of Opportunism’, breeding a black market and corruption.

The second piece, ‘A Budget of My Dreams’, is a counterfactual reform budget in which Palkhivala casts himself as Finance Minister and sets out nine essential points for ‘a complete break with the past.’ In the rendered pages these include fixing direct and indirect tax rates for three years to give fiscal stability, embedding rates in the Income Tax Act rather than the annual Finance Act, slashing the Income Tax Act to a quarter of its size, insisting that ‘the Government has no right to live beyond its means’, pruning the bloated bureaucracy through a five-year recruitment freeze, and securing fast growth through ‘massive tax cuts’ on the premise that ‘incentives are the prizes in the game of life’. The booklet runs to 29 pages; the rendered pages cover the full first piece and the opening points of the dream budget.

Key points

• Two-part single-author FFE booklet: a critique of Pranab Mukherjee’s 1982-83 Budget, followed by Palkhivala’s own ‘Budget of My Dreams’.

• Verdict on the actual Budget: ‘the budget of a grocery store, not of a great nation on the march’; it leaves major economic problems untouched.

• Personal tax rates stay punitive (lowest rate 33% vs 1% in Sweden, 12% in the US); corporate taxation unchanged.

• Budget is ‘deliberately designed to suck away more and more funds from private hands into the hands of the Government’ via Capital Investment Bonds and Social Security Certificates.

• Public-sector investment earned a 0.2% pre-tax return on Rs 18,231 crores (1980-81) vs ~10% in a random private-sector sample.

• Fourth consecutive deficit budget; new levies expected to fuel ~10% inflation again.

• Dream budget’s nine points (rendered): three-year fixed tax rates; rates in the Income Tax Act not the Finance Act; Income Tax Act cut to a quarter; government must live within its means; five-year recruitment freeze to shrink bureaucracy; massive tax cuts to drive growth.

• Diagnosis: excessive taxation plus ‘insensate controls’ turned ‘the Land of Opportunity’ into ‘the Land of Opportunism’, breeding black markets and corruption.

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