The Union Budget 1995-96

By Nani A. Palkhivala

Summary

In this Forum of Free Enterprise booklet, drawn from a Plus Channel / Doordarshan presentation of 18 March 1995 and follow-up newspaper articles, Nani A. Palkhivala reviews the Union Budget of 1995-96 — the fifth framed by Dr. Manmohan Singh, whom he characterises as having shifted from ‘the technocrat’ to ‘the politician.’ He judges the budget’s chief merit to be continuity: it sustains the trajectory of lower taxes, liberalization, and globalization set by the first four reform budgets, with no retreat from those ideals. His central criticism is that the Finance Minister has taken no fresh step forward in any new direction, and he rejects the reading that recent state-election results were a popular rejection of reform, attributing them instead to public disgust with corruption and the inefficiency of those in power.

Palkhivala renews specific tax grievances: the personal-tax exemption threshold (raised only from Rs. 35,000 to Rs. 40,000) remains wholly inadequate against the eroded value of the rupee; the promised deregulation of insurance, recommended by the Malhotra Committee, is not delivered; and the inflation outlook and swelling non-Plan expenditure threaten the deficit target. A long central section indicts the government’s repeated retroactive breaches of faith in tax law — the withdrawal of investment allowance and development reliefs without notice by the Finance Acts of 1986 and 1990 — and revives his call for the doctrine of promissory estoppel to bind the government to its own enactments, citing Mauritius’s constitutional safeguard as a model.

The booklet’s titular complaint is procedural: several far-reaching and controversial Finance Bill provisions — amendments to Sections 145, 194J, and the treatment of bonus shares and chartered-accountant-prescribed accounting standards — ought to have gone through a Select Committee of both Houses rather than being smuggled through as parts of a money bill, a ‘growing tendency’ of bureaucrats to usurp Parliament’s law-making function. He closes by again advocating a two-year budget cycle to save national time and effort, noting that many U.S. states and President Clinton’s administration had moved that way.

Key points

• Palkhivala distinguishes the ‘technocrat’ Manmohan Singh of the first four reform budgets from the ‘politician’ of the fifth.

• The budget’s main virtue is continuity of liberalization, lower taxes, and globalization, with no backsliding.

• His central criticism: the Finance Minister takes no new forward step in any reform direction.

• He rejects the claim that state-election losses signalled a popular rejection of reform, blaming corruption and misgovernance.

• The personal-tax exemption rise (Rs. 35,000 to Rs. 40,000) is condemned as inadequate; promised insurance deregulation is missing.

• He attacks retroactive breaches of faith in tax law (Finance Acts 1986 and 1990) and revives the doctrine of promissory estoppel against the government.

• Core grievance: controversial Finance Bill provisions (Sections 145, 194J, bonus-share treatment) bypass the Parliamentary Select Committee.

• He renews his proposal for a two-year budget cycle, citing U.S. states and President Clinton.

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