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control of the entire Armed Forces until the completion of reconstitution. From the15 |
th August 1947, however, the operational control of the troops in each Dominion |
was transferred to the Dominion Government. It was originally expected that thereconstitution would be completed by the 31 |
st March 1948. But the Armed Forces |
Headquarters of each of the Dominion have been able to take over administrativeresponsibilities in a greater measure and earlier than was originally anticipated andthe reconstitution of the Forces has in consequence been accelerated. It is now expectedthat this will be completed in the more important fields by the end of this month whenthe Supreme Commander’s organisation will be disbanded. |
16. The future size and composition of the Armed Forces have been engaging |
the attention of Government, as it is obvious that they must be related to the alteredstrategic needs of the country as well as to its reduced financial resources. Under thepre-partition demobilisation plan the Army was to be reduced to about 230,000 menfor undivided India by the 1 |
st April, 1949 against which we shall have about 260,000 |
men for our share alone after the reconstitution of the Armed Forces. Due to the8widespread communal disturbances in the Punjab and the sporadic outbursts of disorder |
in other parts of the country, there has been an unprecedented call on the ArmedForces in aid of the civil power. Government have accordingly come to the conclusionthat the existing Forces should be retained until the 31st March 1948 but the positionwill be reviewed next month. The financial effect of this is that in spite of a reductionof revenue resources the expenditure on Defence Services will be running higher thanit normally should during this year. In the present fluid conditions it is impossible toforecast the position in 1948-49. |
17. India had never an adequate Navy or Air Force and the effect of the |
partition has been to reduce them still further, so far as the Dominion of India isconcerned. It is obvious that even without the disturbances there could be no questionof an overall demobilisation in these services. The future development plans of theseservices are under consideration. |
18. The complete nationalisation of India’s Armed Forces in the shortest time |
possible is the accepted policy of Government. Due, however, to various reasonswhich are now a matter of history, we have had a shortage of Indian officers for fillingsome of the posts in the technical services and the senior appointments, This holdsgood to a varying degree for all the three services. It was therefore decided to employ |
a number of British officers who volunteered to stay, for one year in the first instance, |
from the 15 |
th August 1947. As these officers hold the King’s Commission they were |
transferred to a special list of the British Army and the Supreme Commander assumedcontrol over them. When subsequent developments indicated that the SupremeCommander’s office may not continue beyond the 31 |
st December 1947 it was decided |
to terminate the services of these British officers by the same date, leaving it to the |
two Dominions to offer fresh terms to any British officers they may wish to employ. |
The British officers have, therefore, been served with three months’ notice, as laiddown in their present terms of service, with effect from the 1 |
st October 1947. The |
number of British officers whom it is essential for India to retain and the terms ofservice to be offered are now under the active consideration of Government. It may,however, be stated that the number of British officers to be retained will be relatively |
small and it is hoped that all operational Commands, at least in the Army and the Air |
Force, will be filled by Indian officers. |
19. As has already been announced, an agreement was reached with the United |
Kingdom Government that the withdrawal of the British Forces from India shouldcommence immediately after the transfer of power and completed as early as possible.The first detachment of British troops actually left India on the 17 |
th August 1947. It |
was hoped at one time that the withdrawals would be completed before the end of1947 but due to shipping difficulties it now appears that this may take up to April1948. The British troops remaining in the country have, however, no operationalfunctions. Except two R.A.F. Transport Squadrons the rest are merely awaitingrepatriation.920. The rapidly changing conditions this year have made it difficult to frame |
a close estimate of Defence expenditure and the position is further complicated by thefact that the proportion in which the joint expenditure incurred by the SupremeCommander’s organisation should he allocated between the two Dominions is yet tobe decided. On the best estimate that can be made at this stage, the net expenditure onDefence Services during the period 15 |
th August 1947 to 31st March 1948 is estimated |
at Rs. 92.74 crores. The following main factors have contributed to an increase in theexpenditure; |
(1) The decision to suspend demobilisation and to withdraw troops from |
overseas. |
(2) The implementation of the Post-war Pay Committee’s recommendations |
In respect of Defence Services personnel. No provision for this wasincluded in the original estimates. |
(3) The movement of troops and stores in connection with the reconstitution |
of the Armed Forces. |
(4) The calling out of troops in aid of the civil power during the disturbances |
in the Punjab and elsewhere. |
The withdrawal of British troops from India earlier than was anticipated originally |
has resulted in a saving but this has been to some extent counterbalanced by expenditurein moving them to the United Kingdom and other destinations. |
CIVIL ESTIMATES |
21. Details of the estimates under individual heads are given in the Explanatory |
Memorandum circulated with the Budget papers and I propose to draw the attentionof Hon’ble Members to only the more important items included In them. As I haveexplained elsewhere, the initial liability in respect of the outstanding debt of the lateCentral Government and the pensions chargeable to it has been placed on the IndianDominion subject to the levy of an equitable contribution from Pakistan. Thecontribution still remains to be settled and, for the present, no credit has been taken inthese estimates for any recovery from Pakistan. The estimates also include Rs. 2221crores on account of subsidies on imported foodgrains and a lump sum provision ofRs. 22 crores for expenditure on the evacuation, relief and rehabilitation of refugeesfrom Western Pakistan. I have briefly referred elsewhere to the problems raised by thewidespread communal disturbances In the Punjab and the North West Frontier Provinceand the mass migration of refugees between the two Dominions. There are two aspectsto this problem viz., the short term one of giving immediate relief to the refugeespouring into this country from Pakistan, practically destitute, and the long term one ofresettling them in India. All the resources at the disposal of the Government of Indiahave been mobilised in arranging the evacuation and relief of these refugees and therailways and the Armed Forces have been utilised to the maximum extent possible on10this work. It Is not possible to estimate the expenditure likely to fall on Central revenues |
on account of these developments and I have provisionally included a sum of Rs. 22crores on this account In the Revenue Budget. In addition, a sum of Rs. 5 crores isbeing Included in the ways and means budget for advances to the East PunjabGovernment. But I must mention that this does not give any idea of the magnitude ofthe burden that may be placed on Central revenues by these developments. Indeed, thebasis on which the expenditure on relief and rehabilitation should be shared betweenthe Centre and the East Punjab, the province most vitally affected, still remains to bedecided and may take some time to decide. Whatever the final arrangement in thisbehalf may be, I have no doubt that it is the desire of all sections of the House thatfinancial considerations should not stand in the way of affording relief to theseunfortunate people and in alleviating their sufferings in one of the most poignanthuman tragedies that could take place outside a war. |
22. Before I leave this subject I should like to give a brief analysis of the total |
provision included for civil expenditure, so that a balanced view of the position maybe obtained. Of the total provision of Rs. 104 |
1/2 crores, Rs. 441/2 crores are accounted |
for by the expenditure on refugees and the subsidising of imported foodgrains, leaving |
Rs. 60 crores for normal expenditure. This includes Rs. 5 crores for tax collection, |
obligatory expenditure of Rs. 221 crores on payment of interest and pensions andprovision for debt redemption, Rs. 2 crores on planning and resettlement and Rs. 12crores for expenditure on nation building activities such as education, medical, publichealth, the running of scientific institutions and scientific surveys, aviation, broadcasting |
etc. in which the Centre largely supplements the work of the Provincial Governments |
by providing valuable assistance by way of specialised services and research, leavinga balance of Rs. 18 |
1/2 crores for the ordinary expenditure on administration, civil |
works etc. This expenditure only constitutes 18 per cent of the total civil expenditureincluded in the budget. In addition to the expenditure of Rs. 12 crores on nationbuilding activities mentioned above, provision has been made in the Capital Budget |
for a grant of Rs. 20.39 crores to Provincial Governments for development and Rs. 15 |
crores for loans. |
W AYS AND MEANS |
23. I shall now turn to give a brief account of the ways and means position. |
The budget for the current year provided for a borrowing of Rs. 150 crores but thistarget will not be reached. Owing to the communal disturbances In the country and theuncertainties of the political situation, the securities market was very unsettled in theopening months of the year and no loan was actually floated before the 15 |
th August |
1947. After the doubts about the political future had been cleared by the decision topartition the country, there was some improvement in the position and although themarket has been fairly steady in recent weeks, there is not as yet any large sustaineddemand for investment. Government issued early this month a fifteen year loan forRs. 40 crores carrying interest at two and three quarter per cent with facilities for11holders of the 31 per cent. Loan 1947-50, falling due for discharge on the 15th of that |
month to convert their holdings. The loan was issued at the beginning of the busyseason and was not expected to be oversubscribed. But the public still seem to be |
hesitant in taking up Government loans and if their holding off is due to any lingeringdoubts about the responsibility for the repayment of the outstanding debt, I hope they |
will be reassured by what I have stated elsewhere that the Indian Dominion remains |
responsible to the bondholder. The need for money is now as urgent as ever ifGovernment are to finance their own development plans and assist the Provincial |
Governments to implement their plans for development. There is also the short-term |
aspect to this problem, viz. the urgent necessity to counter the inflationary forceswhich are still present by withdrawing from the public as much surplus purchasing |
power as possible through Government loans. |
24. Hon’ble Members must have noticed that in recent months there has been |
some criticism in certain quarters of the cheap money policy of the Government. At |
the last Annual General Meeting of the shareholders of the Reserve Bank the Governor |
of the Bank made some observations on this question. Under the influence of thateminent economist the late Lord Keynes, cheap money has been the cardinal feature |
of the monetary policy In many countries. It is no wonder that the Government of |
India fell in line with this trend in monetary policy. The House will realise that thereis no absolute criterion by which to judge the propriety of rates at which Government |
borrow in the market. In the long run it is mainly a question of keeping a balance |
between the demands of Government on the market and the demands of Industry sothat the available funds in the country are used to the best advantage. In the United |
Kingdom where the pursuit of this policy culminated in the issue of a 21 per cent |
irredeemable loan last year, attempts are being made to consolidate the progress madeso far and not to proceed further in the same direction. I realise that if there is the need |
for such a cautious policy in a country where the economy is mature and the money |
and capital markets are highly developed, it is all the more necessary in the case of aneconomically backward country like India. Our efforts will now be directed towards |
consolidating and stabilising the position so far gained. There is no intention on the |
part of the Government to reverse the policy and thereby jeopardize the interests ofthose who have trusted the Government with their money. Our borrowing programme |
will be such as will enable us to obtain the funds required by Government as cheaply |
as possible without in any way affecting the flow of investment into industry. It is alsomy intention to reorganise the small savings movement which was considerably |
expanded during the war years, so that it might be retained as a peacetime organisation |
with the primary purpose of encouraging savings among the middle classes. In co-operation with the Provincial Governments, steps will be taken to place the movement |
on a permanent footing. I take this opportunity of appealing to the chosen representatives |
of the people in this House to co-operate with Government fully in their borrowingprogramme. If the standard of living of our people is to be substantially raised by |
undertaking large schemes of development, both the rich and the middle classes should |
come forward to place their savings at the disposal of the Government.12STERLING BALANCES |
25. The House will, I am sure, be interested to get some information on the |
subject of the sterling balances, the recent agreement regarding which between ourselvesand His Majesty’s Government in the United Kingdom I placed on the table of theHouse a few days ago. The peak figure which the sterling balances reached was Rs.1,733 crores on the 5 |
th April 1946. Thereafter, they have declined very rapidly. At the |
end of March 1947 they stood at Rs. 1,612 crores showing a reduction of Rs. 121crores in twelve months. In the middle of July 1947, from when our new agreementbecame effective, they stood at about Rs. 1, 547 crores. We had thus drawn as muchas Rs. 65 crores in a little over six months. These large decreases were due largely toheavy imports mainly of food grains and of consumer goods, of which the country hadbeen starved during the period of the war. They also reflected some movement ofcapital from India, largely British. |
26. This rapid depletion of the sterling balances caused some anxiety to the |
Government of India. These balances represent the entire foreign exchange reserves |
of this country and it is of the utmost importance that they should not be lightly |
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