Mr. Yashwantrao Balwantrao Chavan, 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 1971-1972 on Friday, May 28, 1971 in New Delhi.
Ministry of Finance, Government of India – Finance Minister’s Budget Speech for Financial Year 1971-1972
New Delhi (Delhi, India), August 12, 2018
Mr. Yashwantrao Balwantrao Chavan, 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 1971-1972 on Friday, May 28, 1971 in New Delhi.
Budget Speech by Hon’ble Minister of Finance Mr. Yashwantrao Balwantrao Chavan on May 28, 1971
Budget Speech – PART A
Mr. Speaker Sir,
Sir, on the 24th of March this year, I had presented to the Honourable House an interim Budget for 1971-72. I had then assured Honourable Members that the Budget proper to be presented in the current Session will provide for a significant increase in the outlays on development and social welfare over and beyond what the interim Budget had indicated. It is in fulfilment of this commitment that I rise before you today.
Economic Conditions
2. Earlier this week, the Government have laid on the floor of the Honourable House the Economic Survey for 1970-71. The Survey shows that the economy presents in general a promising picture indeed and that it is now better poised to tackle the tasks ahead than at any other time in recent years. We have once more been able to fulfil during 1970-71 the target set in the Fourth Plan with respect to the overall rate of economic growth. In agriculture, progress has been maintained; food grains production has continued to expand at a most satisfactory rate. In the industrial sector, lack of certain essential raw materials has hampered production in some areas and there is still under-utilisation of capacity in a few other areas. But new grounds have been broken in our import substitution efforts, and recovery from the years of recession in the middle 1960’s is considerable. Besides, the growth in the small-scale sector is most encouraging. Enough symptoms abound which indicate that once a significant improvement occurs in the scale of public investments, industry as a whole will surge forward. After a few initial setbacks, there has been a remarkable spurt in exports towards the later months of the year. Better organisation is, however, still the major outstanding task for both industry and exports. Apart from raw material shortages and procedural delays, we have also to face problems of low scales of operations and high unit cost in some industries. Cost reduction and improvement in efficiency are thus vital for imparting a new dynamism to industrial growth and exports.
3. In agriculture too, there is yet no occasion to relent on our efforts. We must continue the search for high-yielding varieties of paddy, which will prove durable in our varying agro-climatic conditions. Irrigation facilities will have to be expanded to ensure the extensive propagation of double cropping. Our search for better pestresistant qualities of seeds for millets must go on. The greatest area of responsibility will lie in improving the productivity per hectare of pulses and the cash crops, including cotton, oilseeds and jute. During 1970-71, there was a marked stability occasionally even a certain fall-in food grain prices. In fact, but for the Government’s price support operations intended to protect the farmers, there would have been a steeper order of decline in these prices. Despite this, there was an overall increase in the general price level largely induced by the shortage in the availability of commercial crops. Against this background, we cannot accelerate our rate of growth with price stability unless we raise the output of commercial crops.
4. On the external side, while we can take credit for repaying our outstanding obligations to the International Monetary Fund, our balance of payments is not as satisfying as it was at the end of 1969-70. Exports have shown a remarkable improvement. At the same time, with the rising tempo of industrial activity, imports have been going up. Outstanding import licences suggest that there will be a further increase in imports during the current year. Because of shortage in steel, cotton, oils and oilseeds, we have had to plan for much larger imports than originally envisaged. Fresh aid allocations have declined during the past year even as the burden of debt servicing has continued to mount. Net aid available to finance imports has, therefore, shrunk. Thus we can scarcely afford to relax in the matter of a prudent management of our balance of payments.
Reorientation of Policies
5. The massive mandate, which this Government received from the people three months ago, was a mandate for socialism, a mandate for rapid economic growth matched by increased social justice. There can be little doubt that social justice must begin with increasing the opportunities of job and work for everyone. A good deal has been done in the course of the past year to initiate measures for creating gainful work for the urban unemployed as well as the rural under-employed. During the past year, the nationalised banks have expanded their scale of operations so as to provide more credit to the hitherto neglected sectors and for purposes of self-employment. They intend to do much more in future. A crash programme for rural employment has been announced and the Government’s broad objective is to ensure employment to at least one person in each family in all parts of the country. At the same time, the Government is determined that such schemes for creating employment do not take the form of ad hoe measures but contribute to the accretion of additional physical assets in the countryside in the form of new roads, land reclamation, land development, drainage, etc.
6. Honourable Members will also remember that special works programmes were introduced last year to improve job opportunities in the countryside, particularly for the small farmers and in the backward areas. These schemes will continue. In addition, as I shall describe presently, we propose to make a special budgetary provision for assisting the educated unemployed in their search for a constructive opportunity to serve the nation.
7. The largest stimulus to employment can, however, come only by increasing the tempo of economic activity all round. It is therefore essential that expenditure under the Plan is maintained on projected levels and that no shortfalls occur. I am afraid that our performance in 1970-71 in this respect leaves much to be desired. While I am proposing to increase significantly the Plan outlays over what was allocated last year, the emphasis has to be even more on the timely implementation of Plan projects for which budgetary provision is being made.
8. Faster growth and greater social justice will be elusive goals unless pursued in a milieu of relative price stability. We can scarcely ignore the adverse effects of unabated price increases on both investment and income distribution. Inflation also dislocates attempts to increase the efficiency of production and to lower unit cost, which in turn affects exports. There is therefore need for continuous vigilance. The drive for a faster rate of growth in this sense, therefore, blends with the parallel goal of achieving Price stability. In this task, we must also keep under examination the operation of the monetary forces.
9. Our procedure for formulating annual Plans is itself in the nature of a reassessment of Plan priorities and objectives. At the present juncture, when we have just received a new mandate, it is also necessary to make a fresh appraisal of the Plan as a whole. The emphasis from now on has to be on measures, which will speed up the process of implementation of projects, foster the expansion of employment opportunities and reduce disparities, including regional disparities. Honourable Members are aware of the various steps taken in recent years for encouraging growth, including growth of industry in the backward areas through allocation of Plan assistance and similar fiscal and other means. The same objective has to be kept in mind in the allocation of our foreign exchange resources including those mobilised through external assistance. Schemes intended for backward areas have to be given due consideration at the stage of the formulation of the Plan itself, so that in the general allotment of internal and external resources under the Plan, the different parts of the country, and particularly the retarded regions, get their due share.
10. Our public sector enterprises have deepened and widened the industrial base of the economy and achieved certain basic social objectives. Efficient performance on the part of these enterprises is crucial for the Government’s overall development effort. The extent of buoyancy that can be added to the economy each year will be largely related to the ability of the – public sector to implement the Plan proposals. Administrative and procedural delays, which hold back progress of these enterprises, are thus matters of considerable concern. Similarly, the public sector has to yield a sizeable sun- plus, since this surplus is a key source of future growth. During the past year, a number of steps have been taken to raise the general efficiency of public enterprises. Increasing attention is being devoted for the proper maintenance of inventories as well as of plant and machinery in each public sector unit, and towards tackling the problem of personnel management and industrial relations. In regard to the latter, we would certainly like to have the advice and counsel of trade unions. They have an equal stake in the efficiency of the public sector. I hope that, with their cooperation, it will be possible to initiate a new chapter of industrial relations in our public enterprises.
11. A large segment of the commercial banks is also now a part of the public sector. Here too, I would seek the cooperation of the trade union leaders to improve the efficiency of the banking system. A beginning was made recently when I initiated a dialogue with the employees and the management of the banks; our discussions covered such areas as credit planning and deposit mobilisation. I propose to continue this practice. The new Boards of Directors, the composition of which will be announced soon and which will include representatives of the Award staff and officers, will, I hope, carry forward the task of improving the procedures and policies, of the banks along intended lines.
12. Each of the nationalised banks has been urged to have an annual credit plan, which could ensure that the credit apportioned to the different sectors, and particularly the sectors neglected hitherto, is in conformity with their needs and at the same time within the norms of monetary expansion. The Committee appointed by the Reserve Bank of India to suggest credit schemes for promoting self-employment has made a number of valuable suggestions, which are being given shape to by the commercial banks. Another committee, which was asked to recommend a scheme of differential lending rates for helping the smaller borrowers and the weaker sections of the community has just submitted its report. A Credit Guarantee Corporation has been set up with effect from first April to underwrite the advances offered by banks to small borrowers. Honourable Members are also aware that the Government have recently framed the guidelines for the conversion into equity of loans offered by public financial institutions. These guidelines should go a long way to promote the establishment of a joint sector to which we attach considerable significance.
13. Honourable Members, I am sure, are happy with our decision to take over the business of general insurance in the country. This decision marks a culmination of the process, which was started when we nationalised the Imperial Bank of India and the life insurance business and to which we gave a major thrust less than two years ago through nationalisation of major commercial banks. With these measures, virtually all the savings of the people mobilised by financial institutions can now be deployed in accordance with national priorities.
Revised Estimates, 1970-71
14. In the Interim Budget, I had indicated that the year 1970-71 will close with an overall deficit of Rs. 230 crores. The Budget documents I am presenting today repeat from the Interim Budget the Revised Estimates for 1970-71, since actuals are not yet available in most cases. According to the latest indications, however, the overall deficit for 1970-71, I am afraid, may be of the order of 270 crores.
15. While presenting the Interim Budget, I had occasion to express concern over the fact that a number of States were overdrawing their accounts with the Reserve Bank of India. I regret to say that despite the increased special assistance of Rs. 195 crores to the States during 1970-71, there has been no abatement in the States’ recourse to overdrafts from the Reserve Bank as will be evident from the fact that, at the end of last March, as many as 14 States had overdrafts aggregating to Rs. 260 crores. The special assistance to States, which was designed to help them to fulfil their targets of Plan outlays, is to taper off in the coming years. In this context, the problem of overdrafts assumes an additional gravity. I would appeal to the States to maximise their efforts for raising additional resources and to enforce the strictest discipline on the growth of non-Plan expenditure.
Budget Estimates, 1971-72
16. Honourable Members will recall that in the Interim Budget I had provided a sum of Rs. 1,195 crores for the Central Plan for 1971-72, that is, at the same level as in the Budget for 1970-71. I had then stated that the provision for the Central Plan for the current year was to be augmented following a review of requirements and resources. I propose to raise the outlay under the Central Plan by Rs. 155 crores, that is, to Rs. 1,350 crores. This represents an increase of more than Rs. 300 crores over the likely actual level of expenditure in 1970-71. The more important areas where the budgetary provisions have been significantly raised over what was provided in the Interim Budget include shipping (Rs. 16 crores), ports (Rs. 13 crores), roads (Rs. 10 crores), mines and metals (Rs. 9 crores), health and family planning (Rs. 12 crores), Posts & Telegraphs (Rs. 11 crores), agriculture (Rs. 32 crores) and food procurement (Rs. 18 crores). I had already provided in full in the Interim Budget the sum of Rs. 785 crores towards Central assistance for the Plans of the States and the Union Territories, as against a provision of Rs. 711 crores in the Budget for 1970-71.
17. For creating immediate employment opportunities, even a larger Plan outlay may not be enough in the short period. I have therefore decided to add a further trust to the public sector outlay, which could both generate additional employment and provide relief to the weaker sections of the community. For the crash programme for rural employment a provision of Rs. 50 crores was already made in the March Budget. BM the problem of unemployment is equally acute among our educated young men and women. We are determined not to permit them to be a lost and frustrated generation. We propose to assist them actively so that they might set themselves up in gainful creative endeavours, which would at the same time, accelerate the pace of economic progress of the country. To this end, in the Budget I am now presenting, we propose to allot a further sum of Rs. 25 crores for schemes specially designed to suit the educated unemployed including engineers and technicians. The details of these schemes are being worked out in consultation with the Planning Commission and the Ministries concerned.
18. Honourable Members will be glad to know that the provision of Rs. 4 crores made in the Interim Budget for a nutrition programme for children is now being raised to Rs. 10 crores, and included in the Plan. I have no illusion that even this larger provision will mean much more than a beginning in the task of protecting and nurturing the health and welfare of the poor children. I do hope that, in this matter, we will be in a position to do substantially more in the coming yeaRs. I might also mention here that we propose to reserve 25 per cent of fresh admissions to public schools for meritorious candidates, who will be offered Government scholarships.
19. The special provisions made last year for improvement of slums are being maintained. The work of the Calcutta Metropolitan Development Authority will be pursued with vigour. I would also like to state here that the Government would consider sympathetically proposals for a similar improvement in living conditions for slum dwellers in other metropolitan cities and towns; if State Governments and municipal bodies could initiate viable schemes for this purpose, we will consider the question of financial accommodation.
20. Finally, I have to refer to the tragedy that has been enacted over the past two months in East Bengal representing some of the darkest episodes in human history. Already, some three million evacuees have crossed over the borders. It is our hope and endeavour that all these unfortunate people will be able soon to return to their homes and hearths in dignity and honour. Meanwhile, we shall do our utmost to offer succour and relief to all those who have taken temporary shelter with us. It will clearly be beyond our capability to meet on our own the financial burden involved we regard it as the responsibility of the international community to share with us this burden. In the Budget, I have tentatively made a provision of Rs. 60 crores for providing relief to the evacuees from East Bengal. For the present, we have taken credit on the revenue side to the extent of Rs. 20 crores, which we expect will accrue to the Budget by way of external assistance for the relief of the evacuees. In addition, it is our hope that substantial supplies from abroad will be available for providing relief without being routed through the Budget. Honourable Members will note that the provision we have made will suffice only for a limited period and that a considerably higher order of assistance from the international community will be necessary.
21. Let me now sum up the overall budgetary picture as it emerges following the increase in the Plan outlay, the provision for employment assistance, and certain inescapable additions to the non-Plan items of expenditure since the presentation of the Interim Budget in March. Apart from the provision for evacuee relief, I might mention in particular the addition in the expenditure on account of food subsidy, which is now placed at Rs. 30 crores instead of Rs. 10 crores as indicated in the Interim Budget. On present reckoning, the revenue receipts in 1971-72 are likely to be of the order of Rs. 3,562 crores. Expenditure to be met from revenue will amount to Rs. 3,587 crores. Thus the revenue surplus, placed in the Interim Budget at Rs. 114 crores, will now turn into a deficit of R s. 25 crores. On the capital side, collections under the various small savings schemes are now expected to be Rs. 180 crores as against Rs. 155 crores indicated in the Interim Budget; correspondingly, however, loans to the States will also go up by Rs. 16 crores, so that the net increase under this head will be only Rs. 9 crores. I have also taken credit for an additional accrual of Rs. 40 crores under PL 480 receipts representing largely the spillover from 197 0-7 1. Total capital receipts, inclusive of loans and advances and transactions under various debt deposit heads- are now placed at Rs. 2,024 crores and total capital expenditure, including loans and advances, is estimated at Rs. 2,396 crores. The capital budget will, therefore, show a deficit of Rs. 372 crores as against Rs. 354 crores in the Interim Budget. The over-all budgetary gap, taking revenue and capital accounts together, will now be of the order of Rs. 397 crores. This takes into account the effect on the Central Budget -of the changes in Railway fares and freight rates announced a few days ago and of changes in the Post and Telegraph tariff to which I will refer a little later.
22. Honourable Members, I am sure, would not like me to leave uncovered a deficit of this magnitude in the Budget. I will, therefore, seek their indulgence if I have now to turn to what all of you, I am sure, are waiting for, namely, proposals to bring down the deficit to a more tolerable order.
Budget Speech – PART B
23. The task of raising additional resources through fresh imposts on the people is the least enviable of a Finance Minister’s responsibility. If I still have to approach this House with proposals to raise additional resources, it is because of the imperatives of the situation, including the need to augment the Plan outlay, to create additional employment opportunities and to offer succour to the evacuees from East Bengal.
General Principles
24. In framing these proposals, I have endeavoured to follow certain broad principles. These are:
(a) The tax structure must be simplified and rationalised in such a way that the burden of assessment for the assessee as well as the tax collector and the opportunities for evasion are minimised;
(b) The overall burden of taxation must be distributed amongst the different sections of the community in such a manner that, in the process, there is an appreciable scaling down of the concentration of economic power and reduction in the inequalities in income and wealth; and
(c) The incidence of the fresh imposts should not, as far as possible, disturb the general level of prices of essential goods.
25. Accordingly, the concentration of the additional tax effort, to the extent feasible, should be on direct taxes, particularly on the affluent groups, and on such categories of indirect taxes as affect the luxury and near-luxury commodities. In so far as we succeed in limiting the burden of indirect levies on the ‘ latter group of commodities, we are also able to achieve in part the other objective of improving the structure of income distribution in society.
Tax Administration
26. The tightening and streamlining of tax administration has two facets. First, it helps to garner additional yield from the existing tax sources and thus makes it less necessary to look for fresh tax heads every year. Second, since it is generally the well-to-do and the rich who avoid and evade taxes, a tightening of tax administration, including closing of loopholes, would compel them to part with a larger proportion of their incomes and assets and would therefore further one of the overriding objectives of fiscal policy.
27. Under valuation of property has been one of the means to evade wealth tax, capital gains tax and stamp duties. It has also been an important avenue for the circulation of black money. This practice could be greatly discouraged if Government had the power to acquire properties at prices that correspond to what is recorded in sale deeds. Accordingly, we propose to move a Bill during the current session to acquire this power. I hope it would not be considered dishonourable to take a dishonest man at his word.
28. In pursuance of the Administrative Reforms Commission’s recommendations, it is also proposed to sponsor legislation in the current session to discourage benami holding of property. If, at the time of assessment, a person fails to declare income from a piece of property or the property itself so as to evade payment of income and wealth taxes, the intended legislation will debar him from enforcing his claim to such property in a court of law.
29. Pursuant to the recommendations of Administrative Reforms Commission, we further propose to transfer the work of recovery of arrears of estate duty from the State Governments to the Income Tax Department at the Centre. Since, in this matter, we can move only with the concurrence of the State Legislatures, a Bill is being drafted for circulation among the States.
30. It is proposed to strengthen the Valuation Cell located in the Central Board of Direct Taxes for making valuation of buildings in order to enable it to extend its activities and speed up valuations in cases involving the assessment of wealth tax. For assessment of income tax, under the new procedure which has come into effect from the current year, summary assessments will be completed in most cases which do not involve substantial points of dispute, and only a small proportion of the cases will be subjected to a sample scrutiny subsequently. This will enable the Income Tax Officers to devote correspondingly more time for cases involving substantial revenue.
31. In the field of excise duties, I propose to set up a Committee to review the Self Removal Procedure scheme, which has been in operation for the last two to three years, with a view to suggesting improvements, which could reduce leakage of revenue. A Study Team, which considered the issues relating to over and under- invoicing, have made a number of suggestions for checking the leakage of foreign exchange through manipulation of invoice values. The Government will give early consideration to implement its recommendations. With a similar purpose, a comprehensive review is being undertaken of the Foreign Exchange Regulation Act; and we propose to introduce soon a Bill to amend several provisions of this Act.
Consultation with States
32. In the past, at the Centre, we have taken several fiscal steps to discourage the growth and concentration of excessive income and wealth in a few hands in the urban areas. The constitutional prerogative of the Union Government to initiate measures for similar reforms in the countryside is however severely restricted. But this does not mean that some of the present anomalies must continue, or that we can be oblivious of growing inequalities in rural areas. Ultimately, the basis of tax has to be the size of income or wealth irrespective of whether it is derived from agricultural or non-agricultural sources.
33. Similarly, there are constitutional limitations on the powers of the Centre to tax services even when these are of a luxury or semi-luxury character. As the States and the Centre have to share the responsibility of raising resources for economic development, it is the duty and obligation of the Centre to point out to the States untapped resources for mobilisation where the Union Government itself is precluded by the constitutional provisions to impose any levy. It is my intention to consult and seek the advice of the State Finance Ministers on the entire range of these issues and to remain in continuous touch with them so that a concerted view is taken.
Direct Taxation
34. I now come to the new proposals in respect of direct taxation. If we are going to make an effective dent on the problem of income inequalities in our society, we cannot possibly flinch from deploying increasingly the instrument of direct taxation. The proposals that I am outlining will have only a limited yield of revenue in the current year. Over a number of years, however, the cumulative effect of these proposals will be to raise revenue of a considerable order; what is much more significant, they will bring about a significant change in the distribution of disposable income and wealth.
(a) Taxation on Income and Wealth
35. In the field of personal income taxation, the rate of surcharge in the case of individuals as well as Hindu undivided families is being increased from 10 per cent to 15 per cent provided the total income exceeds Rs. 15, 000 per annum. In a full year, the impact of the proposal will be to provide an additional Rs. 20 crores to the exchequer; for 1971-72, the revenue yield is expected to be around Rs. 12 crores.
36. I also want to take this opportunity to increase the tax on capital gains, which are a species of unearned income. The deduction from long-term capital gains allowed in computing the taxable income of non-corporate assessees is being reduced from 45 per cent to 35 per cent where such gains relate to lands and buildings and from 65 per cent to 50 per cent in respect of other capital gains.
37. The incidence of tax on long-term capital gains will be increased in the case of companies as well. This increase is being brought about by raising the rates of tax from 40 per cent to 45 per cent in respect of gains relating to lands and buildings and from 30 per cent to 35 per cent in respect of other gains.
38. I have some fairly stiff proposals regarding wealth tax. If a significant reduction in the concentration of wealth is to be brought about, it is essential that the taxation of wealth is made more rigorous. Honourable Members will recollect that last year’s Budget made a beginning in this direction by raising the rates of additional wealth tax on urban property. This year, I propose to raise drastically taxation on slabs of net wealth above Rs. 15 lakhs, where the rate of tax will now be uniformly 8 per cent as against the current rates of 4 per cent on net wealth between Rs. 15 lakhs and Rs. 20 lakhs and 5 per cent on net wealth above Rs. 20 lakhs. I also propose to include in net wealth for purposes of taxation the first Rs. 1 lakh of wealth in the case of all individual assessees and the first Rs. 2 lakhs for Hindu undivided families. Thus, while no wealth tax will be leviable unless the net wealth exceeds Rs. 1 lakh in the case of individuals and Rs. 2 lakhs in the case of Hindu undivided families, once they are liable to tax, it will apply to their entire wealth. However, the exemptions in respect of approved financial investments, owner-occupied house and agricultural assets will continue.
39. To tighten the incidence, the exemption from wealth tax currently available for household or personal jewellery and for shares forming part of initial capital issues is being withdrawn. In the case of conveyances, the exemption will now be limited to Rs. 25,000 in the aggregate. The existing provision in the Wealth Tax Act excluding from aggregation the assets transferred by an individual to the spouse or minor children to being done away with. A similar provision to being made in respect of conversion of assets of individuals into those of Hindu undivided families. While all these changes will not naturally yield any revenue this year, in future, the annual additional yield from these measures affecting wealth tax could be around Rs. 14.5 crores. What is more important, they will impose a virtual ceiling on individual wealth at a much lower level than at present.
40. As a further measure to discourage evasion of tax, conversion of the separate property of an individual into property belonging to a Hindu undivided family will be brought within the ambit of the gift tax.
(b) Taxation of Companies
41. I am proposing several structural changes affecting the incidence of company taxation. While the rates of taxation on the ordinary income of companies are being maintained at existing levels, except for the rates on capital gains, the rate of surtax on company profits will be increased from 25 per cent to 30 per cent in the case of chargeable profits in excess of 15 per cent of the capital.
42. The practice of offering a development rebate in respect of new investment has had, I feel, a full play. I am accordingly serving the required notice that no development rebate will be allowed on ships acquired or machinery or plant installed after May 31, 1974. Whatever the revenue implications of this step-and they are sizeable- will be fully revealed only after 1974-75, i.e., from the Fifth Plan onwards. But I shall consider myself amply rewarded if advance notice of this change quickens the pace of investment in the remaining years of the Fourth Plan.
43. At present, in the case of new industrial undertakings, ships and approved hotels profits upto 6 per cent of the -capital employed are entitled to tax exemption for a period of five yeaRs. Since debentures and long-term borrowings do not in any manner represent risk capital and interest thereon is in any case deducted, it was generosity on the part of the Government to extend the tax holiday provision even to such constituents of capital. I now propose that in calculating the limit of 6 per cent of the capital for purposes of tax- exemption,’ debentures and long-term borrowings will be excluded. This single measure will provide the exchequer with Rs. 10 crores during the current year; the yield for a full year will be of the order of Rs. 14 crores.
44. Priority industries currently enjoy a special tax exemption upto 8 per cent of their profits. I am proposing that the special exemption be reduced to 5 per cent of such profits. In addition, we have also decided to shorten the list of priority industries by excluding aluminium, motor trucks and buses, cement and refractories, soda ash, petro-chemicals and automobile ancillaries. The general economic conditions are now such that it is not necessary that these industries should continue to enjoy special benefits, which were accruing to them hitherto. The two ‘measures in relation to priority industries should yield Rs. 8 crores in future years; in 1971-72, the yield is likely to be about Rs. 6 crores.
45. The deduction of income upto Rs. 3, 000 in the aggregate from investments in specified financial assets which was provided for last year will from now on be admissible only to individuals and Hindu undivided families.
46. The concessional tax treatment of dividends received by foreign companies from a closely held Indian company engaged in a priority industry will be discontinued; the foreign companies will be subjected to tax on such dividends at the usual rate of 24.5 per cent.
47. I am firmly of the view that the fiscal instrument must be deployed to discourage payment of high salaries and remunerations, which go ill with norms of egalitarian society. I accordingly propose to impose a ceiling on the remuneration of company employees, which would be deductible in the computation of taxable profits. The ceiling is being set at Rs. 5, 000 per month. Together with the existing ceiling of As. 1,000 per month in the case of perquisites,, the allowable overall ceiling on remuneration and perquisites, for purposes of taxation, will be at Rs. 6,000 per month. In addition, I am proposing to reduce the tax-deductible limits of daily allowance to employees while on tour.
(c) Miscellaneous Concessions
48. Having already delivered the rough tidings, let me now detail some of the smoother ones. I propose to raise the standard deduction currently allowed for the computation of taxable income of employees who own a motor-cycle, a scooter or a moped from Rs. 60 to Rs. 75 per month; for others, who do not possess any of these, the standard deduction win be raised from Rs. 35 to Rs. 50 per month.
49. The quantum of deduction in respect of long-term savings through life insurance, provident fund contributions, etc., is being substantially modified. At present, 60 per cent of the first Rs. 5,000 together with 50 per cent of the balance of such long-term savings are tax exempt. I am now proposing that for the first Re. 1,000 of such savings, the quantum of deduction should be 100 per cent. On the next Rs. 4,000 of the qualifying savings, the proposed deduction will be 50 per cent, and on the balance 40 per cent. The limit for the savings qualifying for deduction will be raised from Rs. 15,000 to Rs. 20,000 in the case of individuals.
50. As a result of the changes in the standard deductions allowable for conveyance and long-term savings, an employee with an annual income of Rs. 6,000 will be exempt from income taxation provided he saves at least Rs. 400 in the approved form.
51. The tax concessions for promoting development and export of technical know-how and technical services, which have been available only to companies, will from now on also apply to individuals, Hindu undivided families and partnership firms. Certain further tax concessions are also at present available for expenditure on research and development. A Committee has recently been set up by the Government to review the position and make recommendations regarding further fiscal incentives that could be offered to encourage industrial research. The recommendations of the Committee will be given due weight.
52. The special deduction of income up to Rs. 3,000 from investments in specified financial assets available to individuals and Hindu undivided families would henceforth also cover interest on deposits with a cooperative society made by its members. Moreover, the interest paid by a cooperative society to its members on deposits made by them will be exempted from the requirement of deduction of tax at source. Shares of, and member-deposits with, a cooperative society will be regarded as approved investments which are exempt from wealth tax up to Rs. 1.5 lakhs. But I propose to withdraw the exemption in respect of such investment in the case of discretionary trusts which are subject to taxation on their net wealth at the flat rate of 1.5 per cent, or at the rate applicable in the case of an individual, whichever is higher.
53. There are certain minor concessions, which I would now mention together. Cooperative societies of workers or those engaged in fishing and allied activities will be exempted from tax on their entire business income. Local authorities deriving income from the supply of water or electricity to villages outside their jurisdiction will be exempted from tax on such incomes. A member of a cooperative housing society, to whom a building or a flat has been allotted under a house-building scheme of the society, will be regarded as the owner of that piece of property for purposes of wealth tax.
54. The Housing and Urban Development Finance Corporation will be exempted from tax on its income for a period of ten years; the tax-exempt status of the Deposit Insurance Corporation will be extended by a further period of five years.
55. This brings me to the close of the various proposals relating to direct taxation. After taking into amount the concessions, the net yield from the new direct tax measures from 1972-73 will be of the order of Rs. 57 crores. For 1971-72, however, the realisation is unlikely-to exceed Rs. 27 crores.
Indirect Taxation
56. I now turn to indirect taxes. My proposals regarding customs duties belong broadly to two categories. The first set of proposals is aimed at rationalising the rates structure of import duties. The other group of proposals is related to, and consequent on, the arrangements reached with a number of foreign countries who have agreed to release us from the bindings under the General Agreement on Tariffs and Trade in the matter of import levy on certain commodities.
(a) Import Duties
57. The existing rates structure of import duties, I confess, forms a complicated pattern. As of now, there are seven ad valorem rates of duty in force: 15 per cent, 27.50 per cent, 35 per cent, 40 per cent and, finally, 100 per cent in order to introduce an across-the per cent, 50 per cent, 60 board simplification and to remove existing anomalies, I propose to have only four effective rates of import duty, namely, 30 per cent, 40 per cent, 60 per cent and 100 per cent.
58. I propose to bring in all items of machinery within the orbit of 39 per cent import levy. While this would imply a marginal increase of 21.50 percentage points in the rate of duty in respect of project imports, the decrease of duty by 5 percentage points in respect of machinery in general would provide relief to smaller industrial units and units manufacturing equipment who import a part of the components and to all those who need to import small items of machinery by way of spares or balancing equipment. The equalisation of rates for all kinds of machinery would also simplify assessment and, I hope, speed up assessment work. Items such as agricultural machinery and implements, dairy and poultry farming appliances would also now attract duty at the rate of 30 per cent instead of 15 per cent.
59. Certain basic raw materials and non-ferrous metals will from now on be liable to duty at the uniform rate of 40 per cent iron and steel and unwrought copper will, however, attract the lower duty of 30 per cent.
60. It is proposed to eliminate the present rate of duty of 50 per cent and levy instead a higher rate of 60 per cent on most items. A similar upward revision has already been made in the course of the past two years with respect to the duty on chemicals, drugs, medicines, electrical and non- electrical appliances. What I am proposing now, therefore, is to bring all similar items together under the umbrella of the same rate of duty.
61. Till now, certain items used by the more affluent sections of the community, such as automobile components and dry fruits, were liable to a duty of 60 per cent instead of 100 per cent, which is the standard rate for most imported consumer goods. This anomaly is now being removed. In addition, in view of the increase in the c.i.f. price as well as the high margin of profit, the specific rate applicable to cloves is being increased from Rs. 18 per kilogram to Rs. 60 per kilogram.
62. As a result of the release from the GATT bindings, we are now in a position to either impose a duty, or raise the existing rates of duty, on a number of items, including agricultural tractors, earth-shifting machinery, staple fibre excluding yarn, raw wool, unwrought copper, zinc and pig lead. I propose to avail of the opportunity. In view of the high margin of profit on imported staple fibre. I am proposing that the duty on it be fixed at 100 per cent. On unwrought zinc, pig lead and raw wool, the duty will be 40 percent, and on copper, 30 per cent. Given the large disparity between the prices of imported and indigenous tractors, I have also decided on a levy of 30 per cent on imported agricultural tractors. The same rate of duty will apply on earth-shifting machinery.
63. Taking into account Vie affect of the rationalisation of import duties as well as the adjustments following from the release from the GATT bindings and the countervailing levies related to changes in excise duties to which I would soon turn, we should be able to get additional revenue to the extent of nearly Rs. 54 crores during the remaining part of the year.
(b) Excise Duties
64. I now come to the proposals with respect to excise duties. Pursuant to the decision to continue the scheme of levying additional excise duties in lieu of sales tax on sugar, textiles and tobacco, we are committed to raise the over-all incidence of these additional duties to 10.8 per cent on the value of clearances by the end of the Fourth Plan period. Since this target has to be attained by 1973-74, it has become necessary to make a substantial beginning in the current year itself. For the present, I have decided to concentrate on cigarettes and, to some extent, on textiles.
65. There comes perhaps a time in the life of every smoker when the concern for his own health begins to outweigh the loyalty to an old and faithful companion. For those who cannot shake off their consuming passion, there is at least the consolation that the more taxes they pay, the more they serve the common cause. I am, therefore, fortified in my decision to increase once again the taxation on cigarettes by the thought that whichever way my smoking friends react, there would be a net gain to national welfare. In place of the existing three slabs of duty on cigarettes, I propose to havefive. By suitable adjustments of the basic and additional duties on these slabs, I hope to raise during the current year Rs. 33.20 crores of which Rs. 16.40 crores would go to the States by way of additional excise in lieu of sales tax. The effect of the proposals would be a marginal increase in the price of the cheaper varieties of cigarettes, but a much sharper increase for the more expensive varieties.
66. Textiles, particularly coarse and medium varieties of cloth, are a basic necessity, and their prices rose rather inordinately in 1970-71. Despite other constraints, I have therefore decided that the impost on textiles should be modest this year. I propose to step up slightly the additional excise duties on medium A and medium B varieties of cotton textiles from 4.8 paise to 6 paise per square metre and also to round off the additional duty leviable on coarse cloth from 3.6 paise to 4 paise per square metre. With respect to superfine and fine cloth, however, I propose to go much further, and raise the rates of the additional excise duty to 25 paise and 15 paise respectively per square metre. These several measures should fetch an additional revenue of Rs. 4.90 crores which will accrue entirely to the States.
67. My other major proposal in regard to excises is in the area of motor spirit, solvents and a number of other minor lubricants. In view of the rise in international oil prices, there is need for the maximum economy in the utilisation of petroleum and petroleum products if we are to conserve our scarce foreign exchange resources. No doubt, there will be a certain hardship involved in this, but I am afraid it has to be borne by our people. To curb consumption, I, therefore, propose to increase the duty on motor spirit by Rs. 200 per kilo litre or 20 paise per litre. This measure will fetch an additional revenue of Rs. 36. 30 crores in the current year.
68. There is extensive misuse of certain special boiling point spirits, otherwise known as solvent oils, as adulterants for motor spirit. To discourage this practice, I propose to raise the duty on solvents from the present rate of Rs. 45 per kilo litre to Rs. 845 per kilo litre. This measure will yield Rs. 4. 25 crores during the current year.
69. Similarly, to prevent the adulteration of mineral turpentine oil with superior kerosene, an extra duty of Rs. 100 per metric tonne is being imposed on the former. In the case of liquid petroleum gas, I am proposing to abolish the ad valorem duty of 20 per cent and, instead, impose a specific duty of 25 paise per kilogram. The rate of duty, which at present obtains on lubricating stock oils and greases directly derived from refined petroleum would also from now on apply to blended lubricating oils, greases and calcined petroleum coke. However, the base petroleum products used in the manufacture of the latter items would be given a credit for the duty that might already have been paid. I expect these measures to yield an additional revenue of Rs. 9 crores during 1971-72.
70. At present, carbon dioxide is liable to duty, but other gases, such as oxygen, chlorine, ammonia and refrigerant gases are exempt; these exemptions are being withdrawn. However, oxygen for medicinal use and ammonia used in the manufacture of fertilizers would continue to be exempted from duty. This measure is expected to yield Rs. 1.60 crores.
71. I also propose to raise the basic duty on glassware to 20 per cent and on sheet and plate glass to 15 per cent. Glass shells, glass globes and laboratory glassware would be left untouched. While the duty on sanitary and glazed wares was revised last year, tableware and china were left undisturbed. This deficiency I propose to make good this year; both these items will now attract a uniform duty of 20 per cent. These two changes are estimated to provide us this year with additional revenue of around Rs. 3.15 crores.
72. While air-conditioners pay a duty at the rate of 53.3 per cent, till now, the evaporative type of coolers have been exempt from duty. This discrimination deserves to be removed. However, I am proposing a duty of only 25 per cent on them and, at the same time, exempting them from the payment of the special excise duty. Vacuum flasks, similarly exempt till now, will also have to bear a levy of 15 per cent ad valorem. The gain to revenue would be Rs. 54 lakhs in the current year.
73. It is proposed to revise the duty on soap from the present effective rate of 11.4 per cent to 15 per cent. This would result in only a marginal increase in the price of toilet soaps. Household and laundry soaps are being left untouched. Because of partial exemption, the effective rate of duty on surface active agents works out to even less than that on ordinary household and laundry soaps. It is therefore proposed to abolish the partial exemption and restore the full statutory rate of duty on these products. These two revisions- relating to soap and surface active agents-are likely to yield a revenue of Rs. 2.55 crores for the rest of the year.
74. It is also proposed to tax certain other luxury items. Latex foam sponge, used extensively in the manufacture of foam mattresses, bears at present a relatively low basic rate of duty of 20 per cent ad valorem; I propose to double this rate of duty. A similar levy will be imposed on polyurethane foam as well as certain products made out of this particular foam. The basic rate of duty on plates, sheets and strips of rubber is also being stepped up from 20 per cent to 25 per cent ad valorem. These measures would bring in Rs. 2.60 crores of additional revenue in 1971-72.
75. The duty on crown corks and pilfer-proof caps is proposed to be raised from 1 paise to 2 paise each. This measure is expected to yield Rs. 1.90 crores.
76. A few other changes are being proposed by way of rationalisation. These include an excise levy on dehydrated canned and bottled vegetables and on preparations of glucose and dextrose, the removal of the special concession of 50 paise per kg on the basic excise duty for certain varieties of staple fibre, the rounding off of the duty on cement from 23,76 percent to 24 percent, revising the duty upwards on woollen yarn and shifting a portion of the incidence to wool tops, revising the rates of duty on electric lighting bulbs other than those of 60 Watts and less, revising the rates for flourescent tubes as well as for electric fans and industrial fans other than those of a diameter not exceeding 16 inches, and removal of the concession of Rs. 500 per tonne on copper used in the manufacture of wires and cables. These assorted measures would yield a combined revenue of over Rs. 6 crores.
77. I have talked earlier about the need for the rapid reduction of income inequalities not only in the urban areas but also in the countryside. One way in which this could be brought about is through levying selectively indirect taxes on products and equipment used in agricultural operations by the richer sections of the peasantry. I propose, therefore, to tax agricultural tractors by charging a duty of 10 per cent ad valorem; this levy is likely to fetch a revenue of Rs. 3.40 crores in the current year.
78. To augment revenue, several new items are being introduced into the orbit of Central excise taxation. The commodities and the rates of duty are being so chosen that the net effect of these, imposts on the price level will be negligible. The items I propose to bring in include perfumed hair oil, shampoos, lipsticks, pressure cookers, playing cards, zip fastners, photographic cameras, cinematographic projectors and linoleum. Very few of us perhaps would like to venture an opinion on the contribution made by perfumed hair oil, lipsticks or playing cards to the style, pace and quality of living in modern India. But Honourable Members will, I am sure, agree with me that most of these commodities constitute the appurtenances of high living; excise levies on them will have little effect on the level of living of the overwhelming mass of the community.
79. For the same reason, I am proposing a levy on certain ready-made garments, which are mostly purchased by the well-to-do. However, in order to protect the small manufacturers, this levy will be confined to ready-made garments manufactured with the use of power and sold under registered trademarks or brand names. As a further concession to the small producers, clearances up to a specified value would be excluded from the excise provided the aggregate annual output in the unit concerned does not exceed a ceiling.
80. I also propose to introduce, an excise levy on a number of producer goods such as ball and roller bearings, bolts, nuts and screws, electric insulation and non-medical adhesive tapes, welding electrodes, grinding wheels and motor starters, as it is difficult to tax the end-products of these items and we are currently losing some potential revenue. The rate of -duty will be 10 per cent. It is also proposed to charge a duty of 10 per cent on electric supply meters, typewriter ribbons, mosaic tiles, forklift and platform trucks and certain motor vehicle parts and accessories. Wherever necessary, the interests of the small producers will be protected by a. concession similar to the one I have mentioned in the context of ready-made garments.
81. Four more chemicals are being added to the list of excisable chemicals, and will be liable to duty at 10 per cent. A similar levy will also be imposed on camphor and menthol.
82. These various measures of new excise levies together are likely to yield Rs. 15 crores.
83. I, now want to announce an important new measure intended to meet the cost of the programme for children health and nutrition. I propose to levy a duty of 10 paise per kg on Maida processed by roller flour mills in the organised sector. This particular flour is usually consumed by the richer sections of the population and otherwise used in the manufacture of sweets; the consumption of bread, another item in the manufacture of which Maida is used, is again mostly confined among the higher income am sure the slight additional expenditure which this levy would imply would be cheerfully borne by these consumers since the resultant revenue of Rs. 7.4 crores which will accrue to the Centre will be earmarked for being spent on the welfare of children. In addition, the States also will receive nearly Rs. 1.8 crores from this measure.
84. I will now refer to a few excise concessions, which I have considered desirable. To promote the use of minor oils in the manufacture of soap and thereby reduce our dependence on imported tallow and oils, I propose to reduce the incidence of the duty on soap where-ever there is certain minimum use of minor oils like neem and sal. The rate of duty on sodium silicate will be reduced to encourage the output of cheaper varieties of soap in the small-scale sector. in order to foster the greater utilisation of cottonseed oil, the existing excise rebate for using this oil in the manufacture of vanaspati will be increased. A similar concession is also proposed to be accorded to rice-bran oil.
85. With a view to providing some relief to the small and marginal units using powerlooms for manufacturing cotton fabrics, I propose to reduce the rate of compounded levy on units where not more than 4 powerlooms are installed from Rs. 50 to Rs. 10 per loom per annum. In the case of units employing more than 4 powerlooms, the compounded levy will be half of the existing rates. The concession at present available to independent processors, will be rationalised. There are also a couple of marginal concessions for the manufacturers of embroidery and leather cloth.
86. All these relief’s and concessions together would cost the exchequer around Rs. 1.50 crores for the remaining part of the year.
87. This brings me to the end of the rather long enumeration of the proposed changes with regard to excise duties. Taking all the proposals for excise duties together, the total yield for the rest of the current financial year will be roughly Rs. 89 crores for the Centre and Rs. 43 crores for the States.
(c) Other Measures
88. I am afraid, having dealt with direct taxes, customs and excises, I am not quite through as I have yet to propose to the Honourable Members a new measure which is not quite in the nature of an excise levy. This is a tax, which I propose to impose on foreign travel. The levy will be at the rate of 20 per cent ad valorem on all tickets purchased in rupees; tickets paid for in foreign exchange will be exempt. The only other major exemption would be for students and scientists. The estimated revenue from this measure, which would come into effect from a date to be notified later, would be about Rs. 7.0 crores. In case any Honourable Member feels that, I am taking away what many airlines have graciously offered by way of concessional fares, I wish to assure them that with the proposed ad valorem tax, the value of the concession in absolute terms would in fact be enhanced.
89. And now I come to the final set of proposals I have to announce on behalf of my colleague, the Minister for Communications. Honourable Members are aware that Posts and Telegraphs branches have incurred heavy losses in the past and are anticipated to show a loss of as much as Rs. 15 crores during the current year. Both the Tariff inquiry Committee which was set up to examine the rates structure of the Posts and Telegraphs Department and the Administrative Reforms Commission have recommended the need for financial viability and the desirability of surplus being generated from the operation of Posts and Telegraphs. A certain upward revision in tariffs is therefore inescapable. While proposing this revision, we have kept in view the problems faced by the less affluent sections of society; items like postcards, letter cards, and letters have thus been kept completely out of the purview of the upward adjustment of rates. Most of the proposed increases relate to registration fees for postal articles, and telegraph and telephone tariffs. The registration and parcel fees are being raised by 5 paise and 10 paise respectively for 400 grams. There are also minor adjustments in the charges for telegrams consisting of more than 8 words as well as in the rentals for telephones, teleprinters and telex services. The Memorandum detailing the proposed changes is being circulated along with the Budget papers.
90. So far as the Union Budget is concerned, the various proposals outlined would imply, for 1971-72, additional revenue aggregating to Rs. 177 crores. The budgetary gap of Rs. 397 crores, I had indicated earlier will accordingly be now scaled down to Rs. 220 crores.
Conclusion
91. I have now come to the end of my labours. Quite candidly, it has been for me a difficult Budget to frame. There are a wide range of fiscal proposals and, in some directions, the impact of the new levies cannot but be considerable. Let me remind Honourable Members, however, that the price rise in the economy has been sufficiently disquieting last year, and the budgetary deficit must therefore be kept within reasonable limits. In addition to the obligation that we owe to the community to increase substantially the size of the Plan and to provide for greater employment opportunities, there is, at this stage, still the imponderable factor of the developments in East Bengal and the rising flood of evacuees.
92. Fiscal policy, however, is not a matter simply, or even primarily, of raising resources to meet the inescapable demands on the national exchequer. It must serve larger objectives as well and guide the economy in desired directions. It must, in particular, make a significant impact on existing inequalities in income, wealth and economic power and reduce ostentatious consumption. It is for this reason that, in the field of direct taxation, I have introduced a number of measures whose significance to revenue in the short run may not be so great but which are vital for the achievement of a just society. In the field of indirect taxation also, objectives such as those of reducing pressures on our balance of payments have been kept in mind; and care has been taken to ensure that only a small proportion of the additional burden is borne by the common man.
93. It is hardly possible to claim that a new social and economic order can be ushered in through budgetary policy alone, much less through a single Budget. In a Budget of this magnitude, it is also difficult to reconcile all the objectives we have set before ourselves. But I hope I have not flinched from the duty of trying to meet the immediate and urgent requirements while furthering our accepted objective of a truly socialist society.
Interim Budget Speech by Hon’ble Minister of Finance Mr. Yashwantrao Balwantrao Chavan on March 24, 1971
Sir,
I rise to present the interim Budget for the year 1971-72. The, people of India through their representatives in this Honourable House have reposed their overwhelming confidence in the Government led by Shrimati Indira Gandhi. Those of us who are privileged to belong to this Government and the Party it represents know well that we shall vindicate the verdict of the people only to the extent that we redeem our promise to promote the well-being of the poor and the unemployed in this land.
Introductory
2. Economic policies in the country have already been given a new and bold orientation towards growth with social justice in the recent past. Our task now is to reassess the entire range of our policies so as to give them a sharp focus of effectiveness, to translate these policies into concrete programmes of action and to implement these programmes with speed and determination. Only so can we accelerate the process of growth, reduce disparities in income, wealth and economic power, generate employment on a massive scale and avoid pressures on prices or balance of payments of the kind which generate internal tensions and increase our dependence on external credits.
3. The Budget of the Central Government is a powerful instrument for achieving our basic objectives. Within the few days that the new Government has been in power, it has obviously not been possible to subject our budgetary position and policies to a searching and comprehensive review. We propose, therefore, to present the Budget proper for 1971-72 in the next session of the Parliament so that Government and the Honourable Members have adequate time to review and assess the full implications of what is required at this crucial juncture in our economic history.
4. My purpose today is a limited one, viz., to propose a vote on account which can be passed before the 31st March so that Government can carry on its business during the early months of the next financial year. The Finance Bill I shall introduce later today contains no new tax proposals.
5. On the expenditure side, we have taken care to provide for Defence, normal administration, assistance to the States and the Central Plan on a scale which would permit all necessary and worthwhile activities to go forward during the initial period of the vote on account. Even at this stage we propose to provide for some new and significant initiatives such as a country-wide programme of employment-oriented productive works so that their implementation can begin in right earnest. Before the presentation of the Budget proper next May, we shall review the entire position, including the scope for additional mobilisation of resources, with a view to provide for a sizeable increase in outlays on development and social welfare. The estimates of Plan expenditure, which I shall be presenting today, are tentative; and it will be our endeavour to ensure that the momentum of planned development is accelerated significantly from year to year.
Economic Conditions
6. Economic conditions in the country have been, on the whole favourable during the past 12 months. A detailed survey of the economic situation will be presented to the next session of the Parliament. Honourable Members would, however, permit me to outline briefly the strength and the weaknesses of the Indian economy during the past year.
7. For the second year in succession, the overall rate of growth of the economy is expected to measure up fully to the targets set in the Fourth Plan. National income in real-terms, which had increased by about 5.5 per cent in 1969-70 is expected to register a further increase of a similar order in 1970-71.
Agriculture
8. Agricultural growth has been an important contributory factor to the overall growth of the economy. The production of food grains which had recorded an increase of 5.8 per cent to 99.5 million tonnes in 1969-70 is expected to increase by another 5.5 per cent to 105 million tonnes in 1970-71. Despite progressive decline in imports, it has been possible to build up a sizeable stock of food grains in the hands of the Government, which at present amounts to more than 51/2 million tonnes as compared to less than 41 million tonnes a year ago. The larger availability of food grains has also been reflected in a reduction in food grains prices.
9. With the exception of sugarcane, however, the production of commercial crops, notably cotton and oilseeds has been inadequate; and this has had adverse effect on industrial production and prices. We have attempted to restrain the resultant increase in prices of major agricultural raw materials by restraint on credit and speculative activity and by larger imports. Our agricultural scientists have achieved some success in evolving new programmes for raising the productivity per hectare of commercial crops. It is necessary to extend this process not only for price stability and reduction in the reliance on imports but also for improving living conditions for most of our poorer farmers in dry areas. I can assure Honourable Members that all promising programmes for increasing yields per hectare in respect of commercial crops will receive our maximum support, both financial and otherwise.
Industry
10. During the year as a whole, industrial production is expected to increase by roughly 6 per cent. The improvement in performance has been shared not only by capital goods industries, particularly machinery and machine tools, but also by important intermediate goods industries such as aluminium, nitrogenous fertilizers, petroleum products and heavy chemicals and by a wide range of consumer goods industries. The performance of new industries and the small-scale sector has also been encouraging. Nevertheless, the fact remains that the tempo of industrial production in the country needs to be substantially accelerated and to this end the supply of both agricultural and industrial raw materials particularly steel needs to be rapidly increased. It is with this end in view that Government proposes to speed up the completion of the Bokaro Steel plant, to improve the performance of existing steel plants both in the public and private sector and to set up three new steel plants in the southern States. Preparatory work on these new steel plants is proceeding satisfactorily. Here again, we shall not allow their progress to falter as a result of financial constraints.
11. New industrial investment propositions approved during 1970 have been much larger in magnitude than during the corresponding period in the preceding year. Production of capital goods within the country is increasing and so are the applications for the import of capital goods. We shall endeavour to accelerate this process of industrial investment so that more employment opportunities are created and there is no shortage in the coming years of key commodities.
12. Honourable Members are aware that during the last year we have taken a number of important policy decisions regarding industrial licensing, control of monopolies and greater emphasis in the policies of the public financial institutions towards assisting the backward regions and the newer entrepreneurs and towards participation in the management and the profitability of the larger units they might assist in the national interest. The vast potential for further industrial growth which has been created by our efforts over the past two decades cannot be exploited fully without bringing in a larger number of smaller people within the net-work of initiative and enterprise. When large new investments or expansion of existing large units become necessary in the over-all interests of the economy, it shall be our endeavour to reconcile growth and efficiency with reduction in the concentration of economic power by an imaginative and flexible use of the concept of the joint sector and by the expansion of the public sector.
Prices
13. In the latter part of 1970, the price situation in the country became a matter of concern as the wholesale price index from week to week remained higher by as much as 7 per cent or more when compared to the corresponding week in the preceding year. During recent weeks, the general price index has shown an increase of 4 per cent or less as compared to the corresponding weeks in 1970. Even so, the price situation warrants continued vigilance and we propose to take vigorous measures to ensure a reasonable degree of stability in the prices of essential goods which enter into mass consumption.
14. The phenomenon of rising prices has been a matter of concern all over the world and there is hardly any country, which has been able to avoid at least a moderate increase in prices of 3 to 4 per cent per annum in recent years. We cannot, however, ignore the implications of an unabated price increase, particularly its effects on the standard of living of the fixed income groups and the weaker sections. It is now generally recognised everywhere that without an active policy of restraint on wages and prices and, therefore, on incomes, we cannot avoid a price spiral which moves continually upwards from one industry to the other. In our circumstances, the shortage of some key raw materials, which we can relieve only to a limited extent by larger imports has also been a major contributory factor. Efforts to increase production in key areas is thus an essential part of any price policy. Any attempt to accentuate unavoidable shortages in the short run by speculative activity will also have to be resisted firmly.
15. The overall growth in money supply has also been larger than what is warranted by the growth in production. The budgetary deficit at the Centre has been of the same order as set in the last Budget. However, commercial banks’ borrowing from the Reserve Bank remained at unusually high levels for most part of the current year. It was against this background that the Reserve Bank raised the Bank Rate from 5 to 6 per cent early in January and took simultaneously a number of measures to encourage savings and assist deposit mobilisation and to discourage bank borrowing from the Reserve Bank except for priority purposes. These measures together with the tightening of selective controls on advances against commodities in short supply have already had a salutary effect.
Financial Institutions
16. Honourable Members would be happy to know that an impressive beginning has been made with the achievement of the objectives that we had in mind when we took the eventful stop of nationalising fourteen major banks in the country. For example, in the first seventeen or eighteen months of nationalisation, Le., between July 19, 1969 and end of December 1970, the public sector banks, Le., the fourteen nationalised banks and the State Bank of India and its seven subsidiaries, opened, on an average, as many as 145 new branches per month as against 80 per month during the first six months of 1969 and 47 per month during 1968. Roughly 70 per cent of these new branches have been located in centres which had no banking facilities at all so far, the bulk of them being in the rural areas. The Lead Batik Scheme for the intensive development of banking in over 330 districts of the country is making satisfactory progress. Survey reports on about 80 districts have already been prepared and many more are nearing completion. The results of the surveys are being pooled and centres for new branches are being allotted continuously to the commercial banks. The record of the new branches opened in mobilising local deposits and in utilising them for productive purposes in the same areas has been particularly commendable.
17. The shift in emphasis in the matter of giving credit in favour of relatively weaker sections of the society, which had hitherto been neglected by the banking system, has been equally pronounced. Between June 1969 and November 1970, the aggregate number of borrowal accounts in respect of previously neglected sectors such as agriculture, small-scale industries, road transport operators, small traders and self-employed persons and professionals increased from a little less than 3 lakh to more than 11 lakhs and the total assistance given to these sectors almost doubled. This process will gather further momentum with the formation of the Credit Guarantee Corporation of India Ltd. early this year. Small borrowers are also likely to benefit once the scheme of differential lending rates, the details of which are currently being worked out by a Committee, is introduced.
18. Honourable Members would appreciate that the ability of the public sector banks to fulfil their obligations to the weaker sections of the community without neglecting the genuine requirements of all productive establishments would depend ultimately on the success in mobilisation of deposits and on the ability to scrutinize the end-use of credit so as to eliminate all wasteful and unproductive borrowings. While the nationalised banks have made a good beginning in regard to both these objectives, I -am deeply conscious of the fact that much remains to be done in this regard as also in respect of improvement of service to customers. We propose to increase greatly the facilities for meaningful training of employees and so to shape personnel policies as to bring about a greater sense of dedication and harmony among management and staff at all levels. The bank employees have been among the staunchest supporters of bank nationalisation for many years and we, on our part have not been slow in responding to their legitimate demands for improvement in emoluments and working conditions. I hope and trust that individually as well as collectively bank employees will play their part in the vital task of economic regeneration of the country.
19. The long-term financial institutions including the Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation, the Life Insurance Corporation and the ‘Unit Trust of India have had another successful year. Honourable Members are perhaps aware that a new Industrial reconstruction Corporation with headquarters at Calcutta is being set up. This Corporation is expected to play a significant part particularly in the Eastern region in and around Calcutta. Wherever possible, the Corporation will endeavour to rehabilitate industrial units, which have recently closed down or are facing the risk of closing down by reconstruction of the share capital, strengthening of management, diversification of products, improvement in technology and labour relations and provision of finance on suitable soft terms. I have no doubt that with the active cooperation and participation of all concerned, this Corporation will play a useful role in reducing unemployment as well as economic and Social tensions in a vital area of the economy.
Balance of Payments
20. Honourable Members would lie happy to know that by the end of the current fiscal year, we would have repaid all the outstanding drawings on the International Monetary Fund that we had to make during the critical years of 1966 and 1967. In addition, we have fulfilled our obligations in relation to an increase in our International Monetary Fund quota from 750 million to 940 million dollars. We have also been an important beneficiary of the scheme for the creation of Special Drawing Rights.
21. While the overall improvement in our foreign exchange position during the past two or three years has been unmistakable, I cannot help emphasising that there is no room for complacency whatsoever in regard to our balance of payments. During the current fiscal year, for example, the improvement in our position vis-à-vis the International Monetary Fund will be matched by a corresponding decline in our own reserves including Special Drawing Rights so that, on balance, our total reserves position will show little or no improvement. There has also been a substantial increase in import licences issued for the maintenance of the economy the full impact of which is yet to be felt. Much greater and continuing effort on a wide front would also be necessary if the target of a 7 per cent per annum increase in export earnings set in the Fourth Plan is to be realised from year to year. The outlook regarding the net inflow of foreign aid remains uncertain. This is particularly so in respect of readily useable aid such as non-project assistance and refinancing of our heavy debt repayments.
22. Against this background, it would be prudent on our part to seize every worthwhile opportunity for export promotion as well as import substitution and to exercise the maximum restraint on the imports and consumption of less essential items. This underlines once more the need for keeping a firm rein over costs and prices, and for the deployment of fiscal instruments to regulate consumption. The priorities in investment also have to be guided by the exigencies of the balance of payments. Let us not forget that our objective is to combine growth not only with social justice but also with self-reliance. We have a long way to go before we can rest content with our achievement on any one of these fronts.
Employment
23. By far the most urgent problem that needs our whole-hearted attention is the problem of unemployment. It is this more than anything else, which poses a threat to the stability of our young democracy. There are indications that the employment situation in the country has improved somewhat in response to the revival of agricultural and industrial production over the past two years. But the fact remains that notwithstanding the rapid economic strides we have taken over the past two decades, the twin problems of mass poverty and unemployment remain as acute as ever. In large pockets, there has perhaps been a worsening of conditions. There can be no question that poverty and unemployment cannot be eradicated without a substained process of growth. But there are several ways of achieving growth; and we have to seek out those which make the maximum impact on unemployment and mass poverty.
24. It was with this end in view that the Government took a decision some time back that new employment- oriented schemes should be taken up in each district in the country with a view to provide employment to at least one person in every family. Instructions have already gone to the State Governments to prepare schemes, which apart from creating additional employment opportunities would also add to the productive potential in each district. In the Budget for 1971-72 a provision of Rs. 50 crores is being made to support this country-wide programme of creating more employment opportunities with a productive bias.
25. The Committee, which was set up by the Reserve Bank of India to review the special credit schemes of the Commercial banks has offered a number of valuable suggestions for promoting and encouraging self-employment. The recommendations made by the Committee are receiving urgent attention and decisions thereon will be taken expeditiously.
Budgetary Out-Turn, 1970-71
26. The Budget introduced last year by the Prime Minister provided for a substantial increase in Plan outlay at the Centre, massive assistance to the States for a similar increase in Plan outlay at the State level and a series of new initiatives in order to combine growth with a greater regard for the welfare of the most needy sections of society. During the year, we have honoured our commitments to the States and have indeed given substantial assistance in addition to what was provided in the Budget for urgently felt needs such as those for the improvement of living conditions in the Calcutta Metropolitan Area and for relief in the flood and famine-stricken areas in other States. The minimum pension as also family pension for Central Government employees has already been increased. A similar scheme for family pensions as well as lump sum payment in the event of death has already been introduced in respect of industrial workers who are liable to pay contribution to the Employees Provident Fund at the rate of 61 per cent of their pay as well as for workers covered by the Coal Mines Provident Fund and Bonus Scheme Act, 1948. The newly set up Housing and Urban Development Finance Corporation has made a beginning with its activities and it shall be our endeavour to ensure that these activities gather rapid momentum so that there is visible improvement in some of our largest urban conglomerations. The nutritional programmes for children in tribal blocks and slum areas, extension of drinking water and special schemes for small farmers, marginal farmers and dry farming areas have been taken in hand. While the expenditure on selective rural works programmes in chronically drought affected areas is likely to fall short of the target of Rs. 25 crores because of the time taken in preparing and finalising worthwhile schemes, Honourable Members would note that outside this provision a sum of Rs. 100 crores has been provided for natural calamities relief as against the Budget provision of Rs. 50 crores only. Provision is being made in the Budget for the coming year for the continuation of these special schemes.
27. There is every reason to believe that the step-up in Plan outlay envisaged at the State level during the current year will be achieved and in fact in several States Plan outlay will exceed the initial provision. The provision for special assistance to the States in a weaker financial position has been increased from Rs. 175 crores provided in the Budget to Rs. 195 crores which is being provided in the Revised Estimates. It is, however, a matter of some concern that despite the enlarged provision for special accommodation, a number of State Governments have continued to incur large overdrafts with the Reserve Bank of India, thus adding to inflationary pressures in the economy. Considering the fact that funds to be earmarked for special accommodation are going to be smaller in the coming years as per the agreed pattern, it to vitaly important that State Governments, no less than the Centre, observe the strictest fiscal discipline and adopt all possible measures to raise and conserve resources.
28. As far as the Centre’s Plan outlay is concerned, indications are that the actual expenditure in 1970-71 would show a substantial increase of the order of Rs. 180 crores over the actual expenditure in 1969-70. It is a matter of great disappointment, however, that the actual outlay in both the years is likely to show a significant shortfall in relation to the original Budget provisions. Many of the industrial projects in the Central sector, notably Bokaro Steel Plant, the fertilizer plants and petro-chemical projects have not been able to get into stride as rapidly as was expected. Clearly, we need to examine critically our present procedures for the scrutiny and sanctioning of major Plan schemes and to put greater speed in implementation. We propose to review the progress of major schemes included in the Central Plan ‘so that the provision made for them in the coming year is as realistic as possible. Additional schemes particularly those which can be taken up quickly and which can yield quick returns and make an impression at the same time on the well-being of the poorer sections of the community will also be kept ready to make up for shortfalls which become inevitable. I would like to make it absolutely clear to Honourable Members that while some readjustment of Plan priorities and re-arrangement of Plan programmes are obviously called for, there is no question whatsoever of reducing the size of the Plan. Quite the contrary to our intention.
29. In the Revised Estimates for the current financial year, tax revenuesparticularly revenues under Income and Corporate Tax-are expected to show some Improvement over the Budget Estimate for 1970-71. The Revised Estimates for the current year thus show a tax revenue of Rs. 3,198 crores against the Budget Estimates of Rs. 3, 134 crores. There is likely to be a similar increase in non- tax revenue as well. This improvement under revenue receipts, however, will be offset by a reduction of about Rs. 26 crores under market loans and of nearly Rs. 50 crores under external assistance. I have already referred, briefly, to the position regarding expenditure in the current year on the Plan and by way of assistance to the States. On non-Plan expenditure, a major item of variation has been the incidence of the interim award of the Pay Commission, which was accepted in toto by the Government. On the whole, and in part as a result of the incidence of the Pay Commission’s interim award, the contribution of Public Sector enterprises to the Budget is expected to be of a lower order. Loans to some of these enterprises for meeting their cash loss and working expenses would also be some Rs. 30 crores larger than what was provided in the Budget. On balance, the budgetary deficit at the Centre in the Revised Estimates for the current year is now estimated at Rs. 230 crores, i.e., roughly of the same order as the Budget Estimate of Rs. 227 crores.
Budget Estimates, 1971-72
30. At existing rates of taxation, total tax revenue next year is estimated at Rs. 3,403 crores, of which the share of the States will be Rs. 850 crores. Non-tax revenue excluding food aid and PL 480 revenue grants is expected to increase from Rs. 908 crores this year to Rs. 966 crores next year. While receipts under market loans and small savings will show an increase, receipts under external assistance are expected to show a significant decline from Rs. 518 crores this year to Rs. 421 crores in 1971-72. The major part of this decline is accounted for by receipts under PL 480. Net receipts from non-project and project assistance also are likely to decline from Rs. 355 crores in the Revised Estimates this year to Rs. 324 crores next year.
31. On the expenditure side, normal administrative expenditure will show an increase of Rs. 15 crores over the current year’s level. An additional provision of Rs. 65 crores is being made for expenditure on Defence both revenue and capital as compared to the Budget provision in the current year. The provision of Rs. 50 crores for employment- oriented schemes to which I have referred earlier, is for the time being treated as outside the Plan. Excluding this, the provision in the Central Budget for the Plan for 1971-72 will be Rs. 1980 crores representing an increase of Rs. 74 crores over the Budget Estimates for the current year. This entire increase is by way of Plan assistance to the State Governments and the Union Territories, the provision for which is being increased from Rs. 711 crores in the current year to Rs. 785 crores in the coming year. This is in accordance with the discussions held between the Planning Commission and the State Governments regarding their Plans for 1971-72. I have chosen to make full provision for Plan assistance to the States even at this stage so that State Governments can proceed with their Annual Plans for 1971-72 without having to wait for the Central Budget proper to be introduced next May.
32. The provision of Rs. 1,195 crores for the Central Plan proper next year is at the same level as in the Budget for the current year although in relation to the likely expenditure, the interim provision now being made would represent a significant increase. I have already made it clear that we have every intention of augmenting the provision for the Centre’s Plan in the Budget to be presented in May. We shall also endeavour to make sure that the outlays provided for different programmes in the Central Plan proper are so scrutinised and re-arranged as to avoid the kind of shortfalls, which have been a disturbing feature of the past two yeaRs. At the same time, the search for identifying areas for securing economies in non-Plan expenditure will be vigorously pursued.
33. The revenue account next year on present indications is expected to show a surplus of Rs. 114 crores. The fact that we can look forward to a revenue surplus next year without any additional taxation is an indication that the attempt to enlarge the tax base in the last year’s Budget has met with significant success. And yet, this is only one part of the story. The capital account is expected to show a deficit of Rs. 354 crores, so that the overall deficit in the Interim Budget is estimated to be Rs. 240 crores, or roughly of the same magnitude as in the Revised Estimates for the current year. Since a sizeable increase in Plan outlay would have to be provided for in the Budget to be presented in May, and since it would not be prudent to enlarge the quantum of the budgetary deficit, the task of widening and deepening the resource base will have to continue. If the momentum of growth is to be improved and sustained, this is an obligation from which we can scarcely renege.
Summing Up
34. Sir, the brief outline of the Interim Budget that I have just given is only a token of our determination to accelerate the momentum of growth and to provide for the needs of the weaker sections of the community. If it has not been possible in this Budget to give a more positive indication of our intention to increase Plan outlays and to enlarge the resources required for this purpose in a manner which serves at the same time our larger social objectives, Honourable Members would appreciate that the Budget I have presented could not take into account the mainstay of all Finance Ministers, namely, the power to raise more revenues and redistribute incomes and wealth by suitable changes in the fiscal system. I hope to receive constructive suggestions during the coming weeks from all Honourable Members and from the people at large.
35. The vitality of the political freedom we won and of the democratic institutions we gave ourselves has been demonstrated in recent weeks as never before. We are now engaged in a new struggle against poverty and injustice. I have no doubt that the people of India will once again prevail and we shall witness soon a new dawn of social and economic freedom in this great and ancient country.
Sir, with these words, I have the honour to commend this Interim Budget to the House.
Statement by Hon’ble Minister of Finance Mr. Yashwantrao Balwantrao Chavan on December 13, 1971 Proposing Additional Measures for Maximum Mobilisation of Resources for Defence Effort
Sir,
I rise to take the Honourable House into confidence regarding the additional measures we propose to adopt for ensuring the maximum mobilisation of resources for the defence effort. But before I do so, I would like to review briefly the developments since the presentation of the Budget in May.
2. Honourable Members will remember that the regular Budget for the current year as it was finally passed had envisaged a substantial increase in the outlay on the Plan and on social welfare as also a modest provision of Rs. 60 crores for providing relief to refugees from Bangladesh. The last provision had to be increased by Rs. 200 crores in August and another demand for Rs. 100 crores is before the Parliament.
3. In addition to this staggering burden of refugee relief, which has been mitigated only in part by assistance from the international community, we have had to reckon with natural calamities in a number of States including the devastating cyclone that hit the coast of Orissa; and these have necessitated much larger assistance from the Centre to the States concerned. Defence expenditure is also likely to exceed the provision envisaged in the Budget. We have not stinted and will not stint in ensuring that our armed forces are well equipped to carry out their heroic responsibility to safeguard the integrity and honour of the motherland.
4. Against this background, it has been our endeavour for the past several months to keep the fiscal position under constant review. Our first endeavour has been to ensure the utmost economy in non-Plan expenditure. Guidelines have been issued to the Central Ministries to curtail their non-contractual non-Plan expenditure to the extent of at least 5 per cent and we expect this to result in a saving of Rs.50 to 60 crores. We have also urged the State Governments and public sector enterprises to attempt similar economies. In the matter of Plan expenditure too, the Planning Commission, in consultation with the Ministries and the States, has been currently engaged in an exercise to explore the scope of effecting economies in Plan projects without affecting the progress of continuing schemes. We have also held a series of meetings with the Chief Ministers with a view to bringing about an orderly reduction in the size of the States’ overdrafts with the Reserve Bank of India.
5. Alongside with these steps to restrain fiscal expenditure, the Government have been endeavouring to augment resouces. The Board of Direct Taxes has been asked to expedite the collection of income and corporation tax arrears; and total collections under direct taxes this year may well exceed the Budget Estimates by Rs. 70 crores. Owing to the liberalisation of import licences, I also expect from collection from Customs to be higher by about Rs. 80 crores than what was earlier thought of. An improvement in the realisation from small savings over what was indicated in the Budget is also expected; and the net yield from market loans has already been better than what I envisaged at the time of the Budget. Apart from improved collections from existing taxes and other revenue heads, Honourable Members are aware that I have also initiated some steps in recent weeks to raise resources through fresh imposts. I am grateful for the most understanding cooperation extended by the States in this matter. These measures have had a salutary effect in curbing the overall deficit that was threatening to emerge. But even so, during the first eight months of the current year. i.e. from end March to end November, the Centre had already incurred a deficit of Rs. 340 crores as against the provision in the Budget, as finally passed by the Parliament, Rs. 233 crores for the year as a whole.
6. The desperate attack launched by Pakistan has now added a further dimension to our economic and fiscal tasks. As I have already said there is no question of our stinting on the defence effort, Honourable Members may rest assured that whatever extra outlay will be necessary to back up the heroic deeds of our forces will be provided for. In addition, the suspension of economic aid on the part of some foreign countries may call for a fresh look at our overall resource position; whatever has to be done on this score too will be done. Honourable Members are aware that in addition to the greatly increased capability of our industry and agriculture, we have improved our foreign exchange reserves considerably over recent years. As long as we remain united and determined in our purpose, there is no need for any apprehension whatsoever that we can be deflected from our just course by any threats or pressures, economic or otherwise.
7. All this calls for a careful husbanding of resources in the economy, and the adoption of fiscal and other measures appropriate for promoting economies, including economies in the use of foreign exchange. In this task, the entire people have to cooperate with the Government. For, what the nation abstains from utilising is what is available for the defence effort. On the other hand, it is all the more incumbent upon us at the present juncture to ensure that prices are kept stable and essential supplies are made regularly available particularly to the weaker sections.
8. The Defence of India Rules now permit us to deal effectively with the pricing and distribution of essential goods. I would however hope that on their own, the responsible sections of the community, including industrialists and traders, would take such measures as would make it unnecessary to have recourse to the Defence of India Rules. While I am aware that trade union leaders and others are doing their utmost towards strengthening the defence effort, I hope they would also exert their influ-ence towards restraining such demands as could lead to an added strain either on the exchequer or on prices. Similarly, companies too, I hope, would follow a policy of restraint regarding the distribution of dividends.
9. I have little doubt that, irrespective of creed or class, each member of the community will contribute his or her mite to the defence effort. Honourable Members are aware of the important role of the National Defence Fund. On two occasions during the past decade, when we were similarly attacked, namely, 1962 and 1965 we had a most encouraging response from the public to this Fund. The response on the present occasion, I am sure, would be no less. In contributing to the national effort, we should not also overlook the needs of other agencies such as the Red Cross or the Prime Minister’s Relief Fund on which also much greater responsibility— will devolve at the present juncture.
10. There are in addition several other special schemes in operation for the mobilisation of savings, including the large array of national savings certificates; and I would urge that the people contribute generously to these schemes too. In this connection, I wish to express my appreciation to representatives of Central Government employees who have shown the utmost sense of responsi-bility and patriotism in offering, as 1 will have occasion to elaborate in another statement which I propose to make shortly, that a part of their emoluments may be credited to their provident fund accounts or to the National Defence Fund. I hope and trust their example will be followed by all sections of society who will save additionally at least one day’s income in a month and contribute it to the National Defence or to the various savings schemes.
11. We are proposing to float soon a new series of National Defence Loans to which banks and other institutions should be in a position to contribute substantially. It is my hope that the response to these National Defence Loans will not be less than Rs. 100 crores.
12. But Honourable Members will appreciate that we have to be prepared for all eventualities. We must take measures whereby a general restraint would be exercised on the demand for imports. We have also to take particular care to restrain the use of strategic commodities, such as steel and steel products, as well as of non-ferrous metals such as zinc, aluminium and copper. Whatever fiscal measures would bring about a reduced level of utilisation of imported goods and, in general, would lower consumption of scarce commodities have to be enforced in the present circumstance
13. Powers are already available under Section 4 of the Finance Act, 1971 to impose a levy by way of a regulatory duty on customs to exercise restraint on imports. I propose to avail of thin power in the present context and impose a general levy of 2.5 per cent of the value of all imports with the exception of foodgrains, books and a few other special categories. In addition, the same regulatory provision is also proposed to be invoked to impose on a few specified items a higher rate of duty of 10 per cent.
14. A corresponding provision exists in Section 7 of the Finance Act, 1971 giving the Central Government powers to impose regulatory duties of excise to achieve a similar purpose in relation to domestically produced goods. It is proposed to invoke this provision in relation to a few com-modities, such as iron and steel products, copper, zinc, aluminium and unmanufactured tobacco. The additional duty on iron and other metals will apply only to domestic production without any corresponding countervailing duty on imports and will thus narrow the difference between domestic and import prices. The duties on the three non-ferrous metals are so graded as to promote general economy in their use as well as to encourage greater use of aluminium. The duty on unmanufactured tobacco, which was not touched in the last Budget, will yield a significant revenue of about Rs. 9 lifts in a full year.
15. There is one further proposal in relation to the jute industry where profitability has increased greatly as a result of buoyancy in the market for jute products both at home and abroad. I propose to take advantage of this situation and increase the export duty on carpet backing and hessian by Rs.400 per tonne. I also propose to increase the excise duty on sacking by Rs. 175 per metric tonne.
16. Notifications giving effect to all the above proposals are being issued and these will come into effect immediately. Copies of these Notifications are being laid on the table of the House.
17. It is also proposed to levy a surcharge of 2.5 per cent on income-tax payable by all companies, including foreign companies. The new surcharge will be applicable with reference to current incomes which will fall due for assessment in the assessment year 1972-73. It will not be possible to collect the new levy through the existing scheme of advance tax payments in the Innome-tax Act. It will, therefore, be necessary to sponsor a Bill to achieve the object. The bill will, inter alia, provide that an amount equal to 2.5 per cent of the advance tax otherwise payable for the financial year 1971-72 should be paid before 15.3.1972. Credit in respect of the surcharge thus collected will be allowed against the income-tax liability for the assessment year 1972-73. The yield from this measure in a full year will be of the order of Rs. 10 crores out of which Rs. 7.50 crores is expected to be realised this year. I am bringing forward a separate bill to give effect to these proposals.
18. The combined revenue effect of all the measures proposed will be Rs. 135 crores in a full year of which Rs. 60 crores will be under Customs and Rs. 65 crores under Central Excise. In the remainder of the current fiscal year, the yield will be roughly Rs. 40 crores.
19. Honourable Members, I am sure, would agree that the measures I have proposed will strengthen the economy in meeting the present challenge. The heroism and valour of our men in the Army, Navy and the Air Force and in other para-military forces demand a similar dedica-tion on the part of all of us to contribute our utmost to the defence effort. Sir, it is in that endeavour that I have claimed the indulgence of this Honourable House to make this statement.
Government of India – Income Tax Slab Rates for AY 1972-1973
Personal Income Tax Rates in India for the Financial Year 1971-1972 and Assessment Year 1972-1973
