Mr. Morarji Desai, the Finance Minister of India, delivered his budget speech while presenting the Union Budget of India, also called the Indian General Budget, for the Financial Year 1970-1971 on Saturday, February 28, 1970 in New Delhi.
Ministry of Finance, Government of India – Finance Minister’s Budget Speech for Financial Year 1970-1971
New Delhi (Delhi, India), August 12, 2018
Mr. Morarji Desai, the Finance Minister of India, delivered his budget speech while presenting the Union Budget of India, also called the Indian General Budget, for the Financial Year 1970-1971 on Saturday, February 28, 1970 in New Delhi.
Budget Speech by Hon’ble Minister of Finance Mr. Morarji Desai on February 28, 1970
Budget Speech – PART A
Mr. Speaker Sir,
Sir, I rise to present the Budget for the year 1970-71. The annual Budget is the most important instrument through which we implement our successive Plans for development.
2. Before I proceed to delineate the broad features of our present economic situation and of the Budget, I should like to spell out briefly the main ingredients of Government’s approach.
3. It is generally accepted that social, economic and political stability is not possible without the growth of productive forces and the augmentation of national wealth. Also, that such growth and increase in wealth cannot be sustained without due regard to the welfare of the weaker sections of the community.
4. Therefore, it is necessary to devise policies, which reconcile the imperatives of growth with concern for the well-being of the needy and the poor. Measures have to be devised which, while providing welfare, also add momentum to productive forces. Any severance of the vital link between the needs of growth and of distributive justice will produce stagnation or instability. Both must be avoided.
5. The provision of adequate employment opportunities is not just a welfare measure. It is a necessary part of the strategy of development in a poor country, which can ill-afford to keep any resources unutilised or under-utilised. Greater attention to dry farming areas is not merely to avoid inequalities in the rural areas. It is also an essential part of any programme to achieve sustained increases in agricultural production. Encouragement to small enterprises and to new entrepreneurs is vital to build up managerial and entrepreneurial talent, which is all too scarce today. Without some restraint on urban land values and individual ownership of urban property, we cannot adequately develop housing and other amenities necessary to wrest the maximum benefit from the vast productive investments already made in our over-crowded towns and cities. The weaker sections of the society are also the greatest source of potential strength. We cannot provide for all the urgent needs of society with our limited resources. But a balance has to be struck between outlays which may be immediately productive and those which are essential to create and sustain a social and political framework which is conducive to growth, in the long.
6. Economic conditions in the country at present permit and indeed require a more vigorous effort to stimulate growth. During 1969-70, the first year of the Fourth Plan, there is every likely hood of achieving an over-all rate of growth of 5 to 51/2 per cent. The modernisation of Indian agriculture is well on its way; and it has led to a substantial recovery in industrial production. There has been a welcome increase in foreign exchange reserves; and the general level of prices over the past two years has been relatively stable. At the same time, it is necessary to set up new capacity in a number of fields in order to sustain growing levels of consumption, exports and employment.
7. If the opportunities for growth, which are now available, are to be seized fully, the Central and State Governments must make adequate provision for developmental outlays in the coming year. Private investment in agriculture, small industry and construction has been buoyant for some time now; and there is a revival of interest in investment in organised industry. A decisive increase in Plan outlay in the public sector will also stimulate productive investment in the private sector.
8. Apart from providing for a significantly higher Plan outlay, the Budget for 1970-71 makes special provision for a number of schemes, which combine an element of social welfare with future growth potential.
9. It is with this positive approach to problems of growth with stability and social justice that we have sought to give new emphasis and a new sense of urgency to economic policy in recent months. The nationalisation of banks, for which there is overwhelming support in this Honourable House and the country at large, will, I am sure, be soon put on a stable footing. The Monopolies Act and the decisions that the Government have already taken in the light of the recommendations of the Industrial Licensing Policy Inquiry Committee should help to avoid the concentration of economic power and provide encouragement to small and new entrepreneuRs. At the same time, well -established industrial companies will be able to participate in the core sector and in industries with export orientation. It has also been decided that Government as well as financial institutions should assume special responsibility to promote industrial development in selected backward areas. The Fourth Plan, as it is now being revised, will take particular care to look after some of the urgent socio-economic requirements, such as the development of suitable techniques for dry farming areas, greater employment opportunities for landless labour, the adequate supply of drinking water and the improvement of urban environment in many of our congested metropolitan areas.
10. According to Revised Estimates, the deficit at the Centre for 1969-70 is now estimated to be Rs. 290 crores as against the Budget Estimates of Rs. 254 crores. The transfer to State Governments, on account of their share in Central taxes and duties, has increased by Rs. 104 crores over the Budget Estimates, largely as a result of the Finance Commission’s award. A substantial provision of Rs. 275 crores by way of non-Plan assistance to the States had also to be made so as to enable them to carry out their Plan programmes. As a result of continued decline in imports, collection under import duties and disbursements under external aid are not likely to come up to Budget Estimates. On the other hand, collections under income-tax and non-tax revenues and receipts from market loans will be larger.
11. Since several States continue to have gaps in resources, it would be prudent to provide in advance for special assistance to them. Accordingly, it is proposed to provide Rs. 175 crores in the Budget next year to cover the gaps in the resources of certain States since otherwise it would be difficult for them to undertake worthwhile Plan programmes. Provision for Plan assistance to the States is also being increased from Rs. 615 crores this year to Rs. 635 crores next year. If State Governments are able to raise additional resources and keep a careful watch on non-Plan expenditure, it should be possible for them to increase their Plan outlay from roughly Rs. 950 crores this year to about Rs. 115 0 crores next year, i. e. an increase of the order of 2 0 per cent.
12. It is proposed to raise Central Plan outlays, including those on centrally sponsored schemes from Rs. 1223 crores this year to Rs. 1411 crores next year, i. e. by roughly 15 per cent. The Centre’s Plan next year provides Rs. 39 crores more for agriculture and allied programmes, Rs. 84 crores more for transport and communications, Rs. 31 crores more for power and Rs. 28 crores more for social services, including family planning. The Plan outlay of the Union Territories is also being augmented from Rs. 66 crores to Rs. 76 crores.
13. Taking the Centre, States and the Union Territories together, the Plan outlay will increase from Rs. 2239 crores in 1969-70 to Rs. 2637 crores in 1970-71 i e. by about Rs. 400 crores. At this stage, this represents a substantial effort to accelerate the pace of development. In addition to the Plan provisions made in the Budget, institutional finance to assist industry and agriculture will also be mobilised on a larger scale next year. With the considerable step up in Plan outlay and the increased provision of institutional finance, there should be significant increase in employment opportunities in the coming year.
14. Programmes of rural development, which will be given special emphasis, with the help of Plan provisions and Institutional. Finance, are summarised in a memorandum, which is being separately circulated to Honourable Members. This memorandum also outlines some of the new initiatives which we propose to take in order to combine growth with a greater regard for the welfare of the most needy sections of society. I shall, therefore, refer to them only briefly here.
(a) Special schemes for small farmers are being taken up in 45 districts and research on dry farming techniques is being accelerated.
(b) It is proposed to provide next year a sum of Rs. 25 crores for selected rural works programmes particularly in areas, which are prone to famine. This provision will be outside the Plan and will form part of the amount set aside for drought relief during the year.
(c) An Urban Development Corporation with an authorised share capital of Rs. 10 crores is being set up. The Corporation will borrow in the market to supplement its share capital and to set up a revolving fund for financing activities, such as slum clearance, housing and urban land development.
(d) A substantial provision has been made in the Fourth Plan for the supply of drinking water. I have written to the Chief Ministers that the bulk of this provision should be used to provide drinking water to those areas, which have no easy access to this basic requirement rather than to improve existing facilities in bigger towns.
To provide more comprehensive benefits to industrial workers, who are liable to pay contribution to the Employees Provident Fund at the rate of 8 per cent of their pay, it is proposed that a part of the contribution of employers and employees should be supplemented by a contribution from the Government to make up a separate fund from which family pensions as well as a lump sum payment in the event of death will be provided.
(f) The minimum pension as also family pension for Central Government employees is proposed to be increased to Rs. 40 per month. This decision will apply to those receiving’ pension at present as well as to those entitled to pensions in future. For industrial employees also, the scheme, to which I referred earlier, provides for a minimum family pension of Rs. 40 per month.
(g) To supplement existing schemes for school-feeding and the like, a beginning is being made with a programme to meet the nutritional requirements of the age group 0-3. A provision of Rs. 4 crores is being made in the Budget for children in tribal development blocks and in city slums. From time to time, the programme will be extended with the help of specially designed schemes to raise additional resources.
15. At the existing rates of taxation, revenue receipts are likely to increase from Rs. 3587 crores this year to Rs. 3867 crores next year. After allowing for statutory transfer to the States, the revenue receipts available to the Centre will increase from Rs. 2965 crores to Rs. 3167 crores. Revenue expenditure next year is expected to increase by Rs. 176 crores, of which Rs. 68 crores is on Plan schemes and Rs. 108 crores on non-Plan items. Total non-Plan expenditure has been restricted to the minimum and will increase by about 4 per cent.
16. Honourable Members will also be glad to note that the internal resources of public sector enterprises, which are available for their expansion, will increase from Rs. 162 crores this year to Rs. 2 02 crores next year. Market loans are estimated at Rs. 162 crores next year as against Rs. 141 crores in the current year. Receipts under PL 480 and other food aid, including some on revenue account, are expected to decline from Rs. 239 crores this year to Rs. 161 crores in 1970-71. Receipts under other aid should be more or less of the same order as this year. Taking account of all other items, including the provision for the Plan and for special assistance to the States outside the Plan, the capital account will show a deficit of Rs. 365 crores. The revenue account is expected to show a marginal surplus of Rs. 15 crores.
17. With growing prosperity in rural areas, it has become all the more important to tap rural savings for further development. Schemes to mobilise savings for a specific purpose are likely to have greater appeal. A model scheme of debentures to be issued by State, sponsored institutions has, therefore, been prepared and it is hoped that rural debentures, floated in accordance with the scheme, will be an additional instrument for the orderly mobilisation of rural savings. The extension of banking to rural areas will serve the same purpose. Even today, our postal system extends to many areas which cannot be covered by banks in the near future. The postal system, therefore, also needs to be harnessed for greater mobilisation of savings. At present our small savings schemes, including Post Office Savings Bank accounts, otter facilities for savings with a number of tax concessions. These tax concessions, however, are not of much interest to the rural population or to low income groups, which by and large, are not subject to taxation of income. To these groups, a higher rate of interest would be more attractive than a lower rate with corresponding tax Concessions. Accordingly, it is proposed to introduce a new series of time deposits, recurring deposits and savings certificates, which will carry higher rates of interest without any special tax concessions. The present tax-free facilities will also be continued with slightly higher rates of interest. The rates of interest on contributions to the General Provident Fund and the Public Provident Fund are also being enhanced slightly. I shall have occasion later to refer to some changes in our direct tax structure, which are designed to promote higher savings. A memorandum giving the full details of all these changes is being separately circulated.
Budget Speech – PART B
18. The expenditure proposals for 1970-71, which I have just presented have been aimed at stimulating growth while providing for some measures of social welfare for the less privileged sections of the community. The same considerations of growth with social justice must govern the manner in which resources are raised to meet the requirements of Government.
19. In a country like India, where Government assumes the major part of the responsibility for the promotion of capital formation, the Government Budget should yield a substantial revenue surplus to take care of a part of the needs on capital account. This is all the more so at a time when net receipts under foreign aid and concessional imports of food grains are declining in keeping with our objective of achieving self-reliance in the shortest possible time. At existing rates of taxation, the revenue account for 1976-71 will yield only a nominal surplus. The ratio of taxation to national income in India is among the lowest in the world and over the recent past, it has declined from the level of a little over 14 per cent which was already reached in 1965-66. There is thus need to enlarge the tax base, so as to meet adequately the continuing requirements of growth and social welfare.
20. In enlarging the tax base, our first concern must be to ensure that the taxes, which are already levied are not avoided or evaded by devices which just manage to keep on the right side of the law. Accordingly, I have tried to plug some major loopholes in our tax system and to withdraw some of the concessions, which have outlived their utility. Taxation is also a major instrument in all-modern societies to achieve greater equality of incomes and wealth. It is, therefore, proposed to make our direct tax system serve this purpose by increasing income taxation at the higher levels as well as by substantially enhancing the present rates of taxation on wealth and gifts.
Because of the urgent need to restrain speculative increases in urban land values and individual holdings of urban property, the taxation of urban land and buildings is being substantially increased. At the same time, the concessions available at present to stimulate savings are being rationalised, so as to make them more effective. Some marginal relief in direct taxation is also proposed for low-income groups. In keeping with the need to stimulate higher production and investment, no significant change in corporate taxation is proposed.
21. Nearly 75 per cent of Central tax revenues are derived from indirect taxation, i.e. from customs and excise duties. Any attempt to impart greater strength to the fiscal system, therefore, cannot disregard the scope for increase in indirect taxation. The proposals in this field are designed primarily to raise additional resources in a manner, which helps our progress towards self-reliance and restrains the consumption of certain commodities. Such restraint is necessary from the economic or the social point of view. By and large, the additional taxation of investment goods or producer goods has been avoided and the bulk of the increase is in respect of final consumer goods. Wherever it has been necessary to touch items of common consumption, an attempt has been made to safeguard the consumption of the poorer sections of the community to the maximum extent possible.
Direct Taxation
22. The marginal rates of income taxation will be increased progressively all personal incomes above Rs. 40,000 per year. With the addition of the surcharge at 10 per cent, the maximum rate of 93.5 per cent will now be reached in the slab over its. 2 lakhs as against 82.5 per cent, in the slab over Rs. 2.21 lakhs at present.
23. Simultaneously, the existing rates of ordinary wealth tax are being, enhanced. At present, these rates vary from 0.5 per cent to 3 per cent. They will now vary from 1 per cent at the lowest slab to 5 per cent at the highest slab. For the individual, who derives his entire income from wealth, the combined effect of income and wealth taxation, as now proposed, will impose an effective ceiling on income after tax, when such income reaches approximately Rs. 25,000 per annum. On the other hand, there will be an inbuilt incentive in favour of earned incomes. When income is wholly earned, for example, there will be no absolute ceiling, as the highest marginal tax of 93.5 per cent will leave some room for increase in income after tax at all levels.
24. Honourable Members are aware that we are at present examining practical means of imposing a ceiling on urban property. While the legal and other aspects of the matter are being examined, it is proposed to increase the additional wealth tax on urban lands and buildings, so that the objective of a ceiling on urban property is achieved, at least in part, within the framework of the powers already available to the Centre. At present, the additional wealth tax on urban lands and buildings is leviable, in the case of individuals and Hindu undivided families, on the value of lands and buildings situated in cities and towns with a population exceeding one lakh and with an initial exemption ranging from Rs. 4 to Rs. 7 lakhs in different categories of cities. The tax is leviable on the balance at rates ranging from 1 per cent to 4 per cent. The maximum rate is reached when the value of urban lands and buildings exceeds Rs. 19 to R s.22 lakhs. It is now proposed to levy a tax of 5 per cent on the value of urban lands and buildings in excess of Rs. 5 lakhs and at the rate of 7 per cent on the value in excess of Rs. 10 lakhs. No distinction will be made in regard to the exemption on the basis of the population of the area, in which the properties are situated. The definition of an urban area is also being enlarged to include areas within the limits of any municipality or other similar authority having a population of 10, 000 or more, with powers to cover by notification areas up to 8 kilometres outside such limits. Business premises will continue to be excluded from the proposed levy as at present. However, guesthouses maintained by those liable to pay this tax will not be reckoned as business premises. Provisions are also being made to prevent avoidance of the tax by transfer, from individual or joint Hindu family ownership, to ownership by partnership firms, associations of persons and closely-held companies. Another measure, which is intended to serve a similar purpose, provides for the taxation of capital gains arising from the sale or transfer of agricultural land situated within urban areas.
25. One of the major devices leading to tax evasion and avoidance is the creation of private trusts. At present discretionary trusts are taxed on their income and wealth at the rates applicable to individuals. These lower rates lead to the proliferation of such trusts. It is proposed that in future, discretionary trusts would be taxed at a flat rate of 65 per cent on their incomes and 1.5 per cent on their wealth or at the rates applicable in the case of individuals, whichever is higher. Provision is, however, being made for exemption from these flat rates for certain categories of existing discretionary trusts.
26. In the case of charitable and religious trusts, exemption from tax would be allowed only in respect of income actually, applied to the purposes of the trust in the same year, or within three months of the close of the year. Further, the exemption will be forfeited altogether if the trust funds, constituting its corpus or income, are invested in a concern in which the author or founder of the trust or any of his relatives is substantially interested and the amount of the investment exceeds 5 per cent of the capital of that concern. These provisions will curb the use of the funds of charitable and religious trusts to acquire control over industry and business. Some changes are also being made to prevent indirect benefits being enjoyed by the authors or founders of such trusts. On the, other hand, the present complete exemption from tax, which applies to Universities and other educational institutions, will also be applied in the case of hospitals and other similar institutions.
27. At present, one residential house is exempted from wealth tax, irrespective of its value, if it is situated in a place with a population not exceeding 10,000. For houses situated in larger towns, the monetary limit for exemption is Rs. 1 lakh. The monetary limit of Rs. 1 lakh will now be applied uniformly irrespective of the location of the residential house.
28. The rates of gift tax are also being revised to bring them more in line with the rates of estate duty and the present exemption limit of Rs. 10,000 in respect of gifts made during a year is being lowered to Rs. 5,000.
29. Those who are united in Heaven should not be put asunder by a mere tax collector. On this view, the income and wealth of husband, wife and minor children should be aggregated for purposes of income and wealth taxation. But in matters like this, enforced unity sometimes leads to sharper division. It is, therefore, proposed to examine the matter in greater detail and to bring forward the necessary legislation subsequently, giving opportunity for discussion in this House and outside.
30. At present, income up to Rs. 1,000 from investment in the Unit Trust and up to another Rs. 1,000 of dividends and shares in Indian companies as well as the whole of the interest earned on a number of small savings schemes and Post Office savings accounts is exempt from income tax. There is no reason why a distinction should be made between such investments, and investments in other financial assets, such as securities of the Central or State Governments, approved rural debentures, deposits in banking companies, cooperative banks and land mortgage or land development banks and the new small savings scheme and Post Office deposit accounts, which are not to enjoy any special tax concessions. It is, therefore, proposed that income up to Rs. 3,000 will be exempt from income tax, provided it is derived from investments in Unit Trust or shares in Indian companies or any of the other categories, which I have just mentioned. The exemption in respect of small savings schemes and Post Office savings accounts, where special tax concessions are available, will continue to be available additionally.
31. Similarly, it is proposed that, apart from the present general exemption of Rs. 1 lakh in the case of individuals and Rs. 2 lakhs in the case of Hindu undivided families and a residential house up to the value of R s. 1 lakh, investments in a wide variety of financial assets up to a total of R s. 1.5 lakhs will be exempt from wealth tax. Even today, investments in specified small savings certificates, Post Office savings accounts and five-year fixed deposits with the Central Government are exempt from wealth tax and anyone who takes the maximum advantage of these provisions can claim exemption up to Rs. 1.2 lakhs. The enlarged limit of Rs. 1.5 lakhs will now include investments in the Unit Trust, shares of Indian companies, securities of the Central or State Governments, approved rural debentures, the new small savings schemes and Post Office deposit accounts and deposits in banking companies, cooperative banks and land mortgage or development banks.
32. Or the other hand, in view of these generalised provisions to encourage savings, there is no reason to continue the scheme of tax credit certificates in respect of investments in new equity issues. These will accordingly be discontinued in relation to new equity issues after 31st March 1970. Existing concessions regarding contributions to life insurance, provident funds, etc., will continue.
33. Suggestions have been made, from time to time, that the exemption limit for income tax should be raised as a measure of relief to lower income groups and in the interest of better tax administration. It has been urged that by removing a large number of small assesses from the scope of income taxation, Income-tax Officers will have more time to devote to larger cases where the gain to revenue would be correspondingly greater. In a poor country like ours, the present exemption limit which varies from Rs. 4,000 to Rs. 4,800 in accordance with the number of dependents, cannot be considered unreasonably low in relation to the average level of income in the country. At the same time, there is considerable force in the argument that tax administration would improve if income tax authorities did not have to devote so much time to smaller cases. Faced with this dilemma, I have decided to appeal to the higher court of family planning, and I propose to do away with the present system where exemption is related to the number of dependents. In future, a uniform exemption limit of Rs. 5,000 will apply in the case of all non-corporate assesses irrespective of whether they are married or have any children. This will make for greater administrative simplicity and give a small benefit to all income tax-payers. The relief will be naturally greater for those who continue to seek relief from matrimony or parenthood as well. The change in respect of the exemption limit would involve some loss of revenue. But I have taken no debit for it as it should be more than offset by the improvement in tax administration resulting from greater concentration on cases involving the bigger assesses.
34. It is also proposed to provide a minimum deduction of Rs. 20 per month in lieu of the cost of travel to work to all salaried assesses. At present, deductions ranging from Rs. 5 per month to Rs. 250 per month are permissible for people who travel to work on a bicycle, motorcycle, scooter, moped or a motor car. The deduction of Rs. 20 per month would be available to those who travel to work on a bicycle or by public conveyance or by any other mode. At the same time, the higher deduction of Rs. 250 per month for a motor par, which is applicable to higher income groups, is being reduced to Rs. 200 per month, as there is no reason why those who presumably own a more expensive car should be given a larger deduction. On balance, the revenue loss from travel concession to the lower income groups would be met by the corresponding gain from the reduction in the concession to the higher income group.
35. It has been decided to leave the present structure of corporate taxation more or less alone in the interest of maintaining a stable climate for investment decisions. The only significant change is that all entertainment expenditure incurred in India in business and. the professions will now be disallowed in computing profits. Similarly, expenditure on guesthouses, other than holiday homes for the benefit of employees on leave, will be disallowed. Those who enjoy the hospitality of their business friends should now no longer find their sense of gratitude diminished by the thought that a part of the hospitality is really paid for by the Exchequer.
36. The combined effect of the increases in direct taxation in a full year would be a gain to revenue of Rs. 36 crores. In fact, when the measures to plug loopholes such as the revised procedure for the taxation of trusts become fully effective, the revenue gain will be substantially larger. The additional revenue from wealth tax will become available only in 1971-72. The additional revenue from income tax also will be available only in part during 1970-71 by way of advance tax and deductions at source. Thus, despite the substantial measures of additional direct taxation, the net addition to the Centre’s resources from these changes in 1970-71 would be Rs. 5 crores only. But it will rise to Rs. 23 crores in 1971-72. The States will gain to the extent of Rs. 10 crores in 1970-71 and Rs. 13 crores in 1971-72.
Indirect Taxation
37. Turning now to indirect taxation, it is proposed to abolish or reduce export duties on a number of items so as to maintain their competitive position in world markets. The duty on jute canvas, jute webbings, jute tarpaulin cloth and manufactures thereof is being reduced from its. 500 to Rs. 200 per metric tonne. The most important change relates to tea, where the export duty is being abolished altogether. At the same time, the excise duty on loose as well as package teas is being raised with the provision for ad hoe rebate on exports at rates varying with the price of exported tea. On balance, the duty burden on the export of all teas will be reduced with a margin in favour of teas fetching a higher value so as to encourage the export of quality teas. The export duty reductions will mean a loss in revenue of Rs. 9.75 crores.
38. In order to give impetus to import substitution, the import duty on machinery is being raised from 271/2 per cent to 35 per cent ad valorem. This increase, however, will not apply to the machinery which is required for the initial setting up of projects, or for substantial expansion of existing projects, whether in the public or the private sector. The import duty on motor vehicle parts, pharmaceutical chemicals and non-electrical instruments, apparatus and appliances will be increased by 10 per cent ad valorem. The duty on certain plastic material and nichrome and other electrical resistance wires will be raised from 60 per cent to 100 per cent ad valorem.
39. There is a proposal regarding customs duties, which is intended neither to replace imports by domestic production nor to produce revenue. In order to curb conspicuous consumption and as a modest gesture of personal, if not political, reconciliation, I propose to increase the duty on whisky, brandy, gin and wines.
40. Inclusive of additional duties, corresponding to the changes in excise duties to which I will soon turn, the additional revenue from, import duties will amount to Rs. 29.75 crores. Thus, the net gain in customs revenue after adjusting the export duty loss will be Rs. 20.00 crores.
41. It has often been suggested that the scope for excise taxation should be widened to include taxation at a low rate of about 10 per cent on practically the whole range of manufactured products. Without going that far, it is proposed to levy a 10 per cent ad valorem excise duty on a number of new items including office machines, metal containers, sparking plugs, stainless steel blades, slotted angles, iron safes and safe deposit vaults. The levy on office machines will cover items like typewriters, calculating machines, cash registers, cheque-writing machines, computers and intercom devices. The duty on metal containers will be confined to those intended for the packaging of goods for sale, including, casks, drums, cans, gas cylinders and rigid containers. The additional revenue from these new duties will amount to Rs. 10. 40 crores.
42. Similarly, among chemical products, duty at the rate of 10 per cent ad valorem will now be levied on calcium carbide, bleaching powder and sodium hydrosulphite and the present duty of 5 per cent on soda ash and caustic soda will be raised to 10 per cent. An excise duty of Rs. 300 per metric tonne is also being levied on synthetic rubber. These changes will bring in an additional revenue of Rs. 5.30 crores.
43. A 10 per cent ad valorem duty was levied last year on prepared and preserved foods. The scope of the duty was, however, limited by notification to preserved and canned fruits, jams, jellies, fruit juices, squashes and certain meat products. I propose now to remove the bias against fruits and meat by extending the scope of the levy to include products such as vegetable juices, synthetic syrups and sherbets, de-hydrated peas, malted foods, instant coffee, instant – tea, jelly crystals, custard and ice-cream powders, biscuits, cocoapowder, drinking chocolate, pasteurised butter, processed cheese, branded aerated waters, glucose and dextrose. I hope Honourable Members will not accuse me of having preferences of my own as even under my proposals aerated waters, biscuits, butter and cheese will be taxed only when manufactured with the aid of power and there will be total exemption from tax for baby foods and branded ‘deshi’ ghee. These proposals will yield an additional revenue of Rs. 8. 68 crores.
44. The duty on sanitary ware and glazed tiles of porcelain will be raised from 15 per cent and 10 per cent respectively to 25 per cent. The duty on room air-conditioners will be raised from 40 per cent to 53-1/3 per cent and a similar increase is also being made in respect of larger refrigerators with a capacity exceeding 165 litres. The duty on parts of refrigerators, air-conditioning plants and machinery is also being raised from 53-1/3 per cent to 66-2/3 percent. Components and machinery required for cold storage plants, air-conditioning of hospitals run by Government, local bodies and public trusts, as well as factory establishments will, however, be exempted from the scope of the increase. It will be seen that small size refrigerators will not be affected. I propose, very reluctantly, to withdraw the exemption in favour of television sets and impose a duty of 20 per cent ad valorem. The gain to revenue from these measures will be Rs. 2.24 crores.
45. In the case of aluminium, the existing specific duties are being replaced by ad valorem duties. With a certain degree of rationalisation, this will produce an additional revenue of Rs. 4.70 crores. The duty on rigid plastic boards and unsupported P.V. C. sheets is also being rationalised by transferring the incidence to the end product and this will yield an additional revenue of Rs. 96 lakhs.
46. It is proposed to increase the basic excise duty on polyester fibre of 2 deniers or less from Rs. 21 to Rs. 25 per kilogram with a corresponding increase in special excise duty. The present nominal duty of 7.8 paise per sq. metre on artificial silk fabrics which include rayon, nylon, terylene, terycot and terywool fabrics is being replaced by ad valorem duty ranging from 3 per cent to 10 per cent. The duty will vary according to the value of the fabric and in the case of the cheaper varieties, whose wholesale price is less than Rs. 2.50 per sq. metre, there will in fact be some relief as compared to the present position. I propose to make no change in relation to cotton fabrics with the exception of a minor measure of rationalisation, whereby certain fabrics at present taxed at specific rates, win be subjected to ad valorem levy. The proposals on synthetic fibre and artificial silk fabrics will yield an additional revenue of Rs. 13. 78 crores.
47. The demand for petroleum products has been increasing very rapidly and it is necessary to exercise some restraint in the interest of saving valuable foreign exchange. It is also necessary to curtail the adulteration of diesel oil by kerosene, which has assumed substantial proportions, and to discourage the use of furnace oil as a substitute for other fuels such as coal. Accordingly, the duty on motor spirit is proposed to be, increased by 10 paise per litre, on superior kerosene by 2 paise per litre and on furnance oil by 2 paise per litre. The additional excise duty on these three items will yield a revenue of Rs. 39.56 crores of which Rs. 21.36 crores will be in respect of motor spirit and Rs. 9.2 crores in respect of kerosene. The increase in the duty on furnace oil will not apply to such oil used in coastal shipping and for electricity generation and there will be no change in the dity on inferior kerosene. Honourable Members will also note that the increase in the price of superior kerosene will be only modest, i.e., 3.5 per cent.
48. I am sorry that the smoker’s pocket has to be touched once again. The duty on cigarettes is being enhanced with the increase ranging from 3 per cent to 22 per cent ad valorem depending on the value slabs. The cheaper varieties of cigarettes will go up by only one or two paise per packet of 10 cigarettes. Assuming that the smoking community remains steadfast in its devotion, the additional revenue from this measure will be Rs. 13. 50 crores.
49. As already mentioned, the excise duty on tea is being raised in order to release larger quantities for export particularly of quality teas. There will be no increase in the duty on loose tea produced in zone one and only a marginal increase of 10 paise per kilo on teas produced in zone two. For other zones, the increase varies from 45 paise to one rupee per kilo. After allowing for the rebate on export, there will be an additional revenue of Rs. 7. 87 crores, which will be more than offset by the loss in revenue from the abolition of the export duty on tea.
50. A uniform duty of 23 per cent ad valorem was levied last year on both levy sugar and free market sugar. Prices of sugar in the free market have declined substantially since then. Accordingly, it is proposed to increase the duty on free market sugar from the present level of 23 per cent to 371/2 per cent ad valorem. In the case of levy sugar, which accounts for 70 per cent of the total, there would only be a marginal rounding off of the present rate from 23 per cent to 25 per cent. In line with the step up on free sugar, though not to the same extent, the tariff rate of duty on khandsari sugar is being increased from 121/2 per cent to 171/2 per cent. But as far as the rates under the compounded levy system are concerned, which most of the producers elect to adopt, there will be a reduction on the present rates which are being revised keeping in view the fall in prices. The net additional revenue from sugar is estimated at about Rs. 28. 50 crores.
51. There are also a number of changes proposed in the excise duty structure by way of rationalisation, simplification or clarification of the present position. The statutory rate of duty on tin plates, for example, is being raised from Rs. 375 to Rs. 400 per metric tonne, in order to remove the present anomaly of the indigenous tin plates paying a higher cumulative duty than the additional duty borne by imported tin plates. The excise duty on paints and varnishes manufactured by units not employing power will be wholly exempted as also the duty on fertilizer mixtures made out of fertilizers, which have already paid duty irrespective of whether such mixtures are produced by power or not. Some relief is also being accorded in the case of strawboards and millboards by revising the excise duty exemption at certain levels of production. These measures of relief in excise duties will involve a loss in revenue of Rs. 43 lakhs. Certain enabling provisions of the Finance Act 1969 are also being continued.
52. The total effect of all these proposals relating to excise duties will be an additional revenue gain of about Rs. 135 crores, of which Rs. 100 crores will accrue to the Centre and Rs. 35 crores will be the share of the States and Union Territories.
Posts and Telegraphs
53. The Posts and Telegraphs Department is likely to be in deficit next year also. Accordingly, postal, telegraph and telephone tariffs will be revised to some extent from dates to be notified. These revisions are outlined in a memorandum being circulated with the Budget papers. Briefly, there will be some increase in postal tariffs in respect of parcels, registration fee, despatch of value payable articles, money order commission, supplementary fee for telegraphic money orders and book, pattern and sample packets. Phonograms and Greetings telegrams win cost a little more. Charges for telephone calls beyond the first 750 ‘calls in a quarter will increase from 15 paise to 20 paise per call. Honourable Members will note that services such as post cards and inland letter cards, which are generally used by common people, are not being touched; in the case of money orders, also no increase is being made up to Rs. 100. The proposed changes will yield Rs. 8. 22 crores in a full year and would leave for next year a surplus of Rs. 1 crore after meeting the anticipated revenue deficit. The effect of these changes has been accounted for in reckoning the total internal resources of public undertakings.
Summing Up
54. To sum up, the measures for the additional taxation proposed will yield a total, revenue of about Rs. 170 crores in 1970-71 of which Rs. 125 crores will accrue to the Centre and.Rs. 45 crores to the States. In subsequent years, when the full effects of the changes in direct taxation will be felt, the gain to Central and State revenues would be larger even without allowing for the normal growth factor. As a result, the budgetary gap at the Centre next year will be of the order of Rs. 225 crores as against the Revised Estimate of Rs. 290 crores for the current year. In view of the recent upward pressure on prices and the substantial increase in money supply over the past year, some reduction in deficit financing is clearly desirable. At the same time, a deficit of the order of Rs. 225 crores should not cause concern in view of the present favourable supply conditions in regard to food grains. The Reserve Bank has already taken a number of steps recently to control credit; and with continued vigilance in this regard, the deficit in the Government Budget now proposed should pose no threat to the general stability of prices. The Central Budget has provided adequately for the Plans of the States not only by increasing Plan assistance and by providing for substantial non-Plan assistance but also by raising additional resources in a manner which would bring considerable gains to the revenues of State Governments. I hope that against this background, the States will be able to look after their Plan and non-Plan needs without recourse to unauthorised overdrafts from the Reserve Bank.
Conclusion
55. Sir, before I conclude, I should like to say that in presenting my first Budget to this Honourable House, I have become acutely aware of the challenges as well as the constraints of the contemporary-epoch of development of our national economy. At the very beginning of my speech, I endeavoured to set out the broad framework within which this Budget is cast. That framework, I believe, is consistent with the political, economic and social realities of our country. Convinced as I am of its essential soundness, there is no alternative but to tread a difficult but determined course. If the opportunities for growth which are so much in evidence are to be seized fully, no effort must be spared in raising resources for the purpose. To flinch from this effort at this stage would be to impose even heavier burdens in the years to come. If we allow the present momentum of growth to wane for the sake of some purely temporary advantage, we will deny ourselves the cumulative benefits of a higher rate of growth for all time to come. If the requirements of growth are urgent, so is the need for some selective measures of social welfare. The fiscal system has also to serve the ends of greater equality of Incomes, consumption and wealth, irrespective of any immediate need for resources. At the same time, the needs of these sectors of our economy, which require private Initiative and Investment must also be kept in mind in the interest of the growth of the economy as a whole. I can only hope that the proposals I have just presented steer clear of the opposite dangers of venturing too little or attempting too much.
Thank you.
Government of India – Income Tax Slab Rates for AY 1971-1972
Personal Income Tax Rates in India for the Financial Year 1970-1971 and Assessment Year 1971-1972
