The Union Budget 1995-96

By Nani A. Palkhivala

Summary

In this Forum of Free Enterprise booklet, Nani A. Palkhivala — the Forum’s President — appraises Dr. Manmohan Singh’s 1995-96 Union Budget, the fifth and, in his reading, weakest of Singh’s budgets. He praises the broad continuity of the reform agenda — lower taxes, liberalization, globalization — and rejects the idea that the recent state-election losses were a popular rejection of reform, arguing instead that voters punished corruption and inefficiency. His central criticism is that the Finance Minister failed to advance the reforms: no concrete move to deregulate insurance despite the Malhotra Committee’s recommendations, an inadequate raising of the personal income-tax exemption threshold against rupee erosion, and a fiscal deficit likely to exceed target.

The sharper part of the booklet, reflected in its subtitle ‘Bypassing Parliamentary Select Committee’, is a lawyer’s indictment of specific Finance Bill provisions that, Palkhivala argues, breach faith and good tax law: the withdrawal of investment-allowance and development-rebate reliefs without notice, the proposal to let the Central Government prescribe accounting standards by executive notification under Section 145 (transferring power from the Institute of Chartered Accountants to Finance Ministry bureaucrats), a fourth attempt to insert Section 194J for tax deduction at source on professional fees, and a retroactive change to the capital-gains treatment of bonus shares that overturns settled Supreme Court law. He closes by commending the idea of a two-year budget cycle — noting 21 U.S. states and President Clinton’s intent to adopt it — as a way to save the nation’s time and energy, while warning that ‘the perennial error of our times is to mistake amendment for improvement and change for progress.‘

Key points

• Palkhivala (President, FFE) reviews Manmohan Singh’s fifth budget, calling it a continuation but no advance of reform.

• Argues state-election losses reflected disgust with corruption, not rejection of liberalization.

• Faults the failure to deregulate insurance despite the Malhotra Committee’s recommendations.

• Calls the rise of the personal income-tax exemption to Rs. 40,000 ‘wholly inadequate’ given rupee erosion.

• Attacks Section 145 empowering the Central Government to notify accounting standards as a far-reaching transfer of power to bureaucrats.

• Criticises the fourth attempt to insert Section 194J (TDS on professional fees) and predicts it will drive cash payments.

• Condemns the retroactive change to capital-gains treatment of bonus shares as overturning settled Supreme Court law.

• Endorses a two-year budget cycle, citing 21 U.S. states and President Clinton.

Generated by the v1.5 extraction pipeline. Awaiting editorial review.