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frittered away on the import of unessential and luxury articles or on luxury living inforeign countries for they thereby reduce pro tanto the capacity of this country tofinance capital and developmental expenditure abroad. The view of the Government |
of India is that these reserves should not be used to finance deficits in the balances of |
payments on what may be called normal current account. Our aim should be to meetour normal day-to-day requirements from abroad through the earnings of our currentexports and we should draw upon these accumulated reserves, broadly speaking, only |
for the purpose of purchasing capital goods, the import of which is necessary for |
developing the agricultural and industrial productivity of the country. |
27. With this aim in view, the Government of India decided to follow a more |
restrictive import policy from the second half of the calendar year 1947. Broadlyspeaking, that policy consists of dividing imports into three categories: free, restrictedand prohibited. Imports of food, capital goods, the raw materials of industry andcertain essential consumer goods are free and no exchange restrictions are placedupon their import. Consumer goods which are not absolutely essential are licensed ona quota basis, while others which in the context of the economy of this country mustbe regarded as totally unessential and luxury imports have been altogether prohibited.Together with the restrictions on imports were introduced certain restrictions onremittances abroad, in particular on the transference of Indian capital. These newpolicies are now showing the effects which they were calculated to have and thereduction in the sterling balances between the middle of July and the beginning ofNovember 1947 has only been Rs. 21 crores. I should like to point out, however, thatin one substantial respect the import policy now in force differs from that in forcepreviously, in that in the licences issued for the licensing period June to December1947 no discrimination has been made between currencies and imports from the dollar13area have been allowed on the same basis as imports from the sterling area. This |
position, which the House will no doubt welcome, has been brought about by theterms obtained by us in our interim negotiations on the sterling balances. The mainfeatures of this agreement, which holds good to the 31 |
st December 1947, are that the |
Indian sterling balances have been divided into two accounts which may well belikened to a deposit account and a current account. The current account has beenopened with a credit of £65 millions. All fresh earnings of foreign exchange arecredited to the current account and all balances in the current account are available forexpenditure in any part of the world including the United States of America. Thedeposit account is not available for ordinary current transactions but can be drawnupon only for certain limited purposes such as the repatriation of British capital fromIndia, the payments of pensions, provident funds and gratuities outside India andcertain other defined categories of payments. |
28. Shortly after this agreement had been signed there arose the dollar crisis. |
The strain on the dollar reserves of the United Kingdom Government was felt by themto be so great that they were compelled to break their agreement with various countriesregarding the free convertibility of sterling into dollars. I am glad to be able to reportto the House that our agreement stands unaltered and intact and that as long as we |
have any balance to our credit in the current account we shall be able to spend it |
without question in any currency area. The United Kingdom Government have,however, appealed to us for our co-operation in the matter of saving dollars and wehave promised them this co-operation. We are now engaged on a review of our importpolicy and are investigating other means to save dollar expenditure and we may have,I fear, to reintroduce in the next licensing period the discrimination in favour of imports |
from the sterling area which we removed only so short a time ago. We trust, however, |
that it will be possible so to arrange this discrimination as not to injure the vital needsof the country’s economy. |
EMPIRE DOLLAR POOL |
29. The country has always displayed an interest in the arrangement commonly |
known as the Empire Dollar Pool. As has been explained before, the arrangement isthat the countries of the sterling area hold all their foreign exchange reserve in sterling,selling currencies which they do not need to the Bank of England and buying from theBank of England currencies of which they are in short supply. As a consequence, thereis always in the custody of the Bank of England a pool of foreign exchange fromwhich members of the sterling area can buy for sterling the currencies which theyneed. A more correct name for this arrangement would be “the Sterling Area Pool ofForeign Exchange”. It has come to be known as the Empire Dollar Pool only becausethe most important of the foreign exchanges in the pool is the United States dollar. |
30. Figures have been published by, Government from time to time of India’s |
earnings of dollars and other hard currencies and of her expenditure of these currenciesand I shall now bring these figures up to date. From September 1939 up to the 31 |
st14March 1946 we earned Rs. 405 crores worth of United States dollars and spent Rs. 240 |
crores worth of United States dollars, leaving a surplus of Rs. 165 crores. On the other |
hand, in the same period we spent net Rs. 51 crores worth of other hard currencies,namely those of Canada, Switzerland, Sweden and Portugal so that our net surplus on |
hard currency account was Rs. 114 crores. Daring the year 1946-47 we had a deficit |
in the balance of payments with the United States of Rs. 15 crores, having earned Rs.83crores and spent Rs. 98 crores, and a deficit in the balance of payments with otherhard currency countries of Rs. 7 crores. It may therefore be assumed that we contributed |
net to the pool between September 1939 and March 1947 Rs. 92 crores worth of hard |
currencies, which is the equivalent of 275 million dollars. During the quarter April toJune 1947 we have had a net deficit on hard currency account of Rs. 15 crores. It willbe observed, therefore, that since the financial year 1946-47 we have been consistently |
drawing on the pool for our dollar requirements and that we are at the moment also in |
heavy deficit with the United States and other hard currency countries. Generallyspeaking, however, I would say that, thanks to our policy of foreign exchange restriction,we hope to end the year in a fairly comfortable financial position externally. What |
definite policy we will follow from the next year I am not now in a position to say |
because our agreement terminates at the end of this year and we do not yet know whatkind of agreement will replace it. I fear, however, that in view of the dollar crisiswhich has threatened not only the United Kingdom but the entire world, we may be in |
somewhat greater difficulty in the matter of dollar exchange than we are now. We |
hope to enter shortly into further discussions with the United Kingdom Governmenton the subject of the sterling balances. |
POSTWAR PLANNING AND DEVELOPMENT |
31. The House will remember that In the budget for the current year provision |
of Rs. 100 crores was made for development expenditure, Including a provision of Rs.45 crores for grants to Provinces. The partition of the country has naturally affectedthe scale of this expenditure as the Government of India are no longer concerned with |
the expenditure on development in the Provinces and areas now included in Pakistan. |
When the partition of the country was decided upon, Provincial Governments wereinformed last July that so far as the period upto the 15 |
th August 1947 was concerned, |
the Government of India would make advance payments to cover expenditure on |
approved schemes upto the maximum of the proportion of the budget grant for this |
period. The Provinces were also advised not to enter into any major commitments thatwere likely to embarrass either of the successor Governments. It has since been decidedthat for the remainder of the year grants will be available to the Provinces now remaining |
in the Indian Dominion on the same scale as was originally planned subject to a |
proportionate adjustment on account of the division of the Punjab and Bengal and thetransfer of most of the Sylhet district to East Bengal. In the estimates now placedbefore the House a provision of Rs. 20.39 crores has been included for grants to |
Provinces and a sum of Rs. 15 crores for loans to them.1532. In the last budget speech my predecessor drew attention to the fact that |
the resources available to the then Central Government for planning and developmentwere likely to be less than was originally estimated. What he said then for the thenCentral Government is equally applicable to the present Government and in the lightof the reduced resources likely to be available it may be necessary to redraw thedevelopment plans and rearrange their priorities. This does not however mean thatthere has been any change In the Government’s policy of giving all the assistance intheir power to the Provincial Governments for implementing their developmentschemes. It merely emphasises the need for the Provinces mobilising all the resourcesfor this purpose and I have no doubt that this is recognised by the Provinces themselves.The House will appreciate that there is a large measure of uncertainty about the futureallocation of resources between the Centre and the Provinces and till this in decidedit will be difficult to make any forecast of Central resources or determine the extent towhich they will be available for development and I hope to take this question of re-examining the development schemes with the Provincial Governments shortly.Meanwhile, all the approved schemes of development will be continued and thenecessary funds will be made available for them. Having given this assurance onbehalf of the Central Government,, I would earnestly urge on the Provinces the needfor conserving all their resources and securing the most rigid economy in expenditure.As I have stated, the whole basis on which post-war development plans were conceivedhas now been upset. The substantial revenue surpluses which were anticipated in theCentral budget will now be turned into substantial deficits. In the context of this newdevelopment, the need for utilizing all the available funds in the most effective mannerpossible should be appreciated by the Provincial Governments. |
33. In the Central field the progress on development schemes is being |
maintained and we are going forward with all the sanctioned schemes particularlythose schemes of river development with long range benefits to the country. In this |
connection, the House will be interested to know that an agreement has been reached |
between the Central Government and the Provincial Governments concerned regardingthe setting up of the Damodar Valley Authority. Another scheme which is likely to betaken up very shortly is the construction of the Hirakud Dam in Orissa at an estimatedcost of Rs. 48 crores, the benefits from which will include irrigation for over a millionacres, 350, 000 kilowatts of power and a considerable degree of protection from floods |
to the coastal districts of Orissa. It is hoped shortly to reach an agreement on this |
project with the Orissa Government and the Orissa States after which the actual workof construction would begin early in 1948. It is also proposed to concentrate on theconstruction of the Bhakra Dam in the East Punjab. |
THE DEFICIT |
34. I have carefully considered if any part of the deficit for this year should becovered by additional taxation and I have come to the conclusion that it should beleft largely uncovered. If, for any reason, our ordinary expenditure threatens to16outrun our revenue there will be a clear case for either reducing the expenditure to |
within the available revenue or raising additional revenue to meet the expenditure. |
But the circumstances during the period under review have been abnormal and thedeficit is entirely due to these abnormal factors. The expenditure estimates includeRs. 22 crores for the evacuation and relief of refugees while subsidies for importedfood grains are expected to cost Rs. 22 |
1/2 crores. Defence expenditure is also |
considerably inflated due to the slowing down of demobilisation following the |
partition of the country and the necessity to maintain larger forces than wouldnormally be necessary. It must also be remembered that no credit has been taken inthe estimates for Pakistan’s share of the expenditure on pensions and interest. Ifthese factors are allowed for the budgeted deficit of Rs. 26.24 crores will be convertedinto a surplus. Notwithstanding this I feel justified in tapping any available source |
of income if it could be done without adding to the burden of the ordinary man. |
After a careful consideration of all the available sources I have decided to replacethe existing export duty of three per cent on cotton cloth and yarn by a duty of fourannas per square yard on cotton cloth and six annas a pound on cotton yarn. In a fullyear this will yield Rs. 8 crores but in the current year the net additional revenuewill amount to only Rs. 165 lakhs leaving a final deficit of Rs. 24.59 crores. A bill |
to give effect to this proposal will be introduced at the end of my speech. |
GENERAL FINANCIAL POSITION |
35. This is the eighth consecutive deficit budget and the House may well ask |
itself if our revenue position is sound. I have myself no hesitation in answering that |
question with an emphatic ‘yes’. The years covered by these budgets have beenovershadowed by the greatest war in history and no country, whether neutral orbelligerent, has been able to escape its economic effects or its aftermath. The deficits |
in the war years were wholly due to the high level of Defence expenditure and were |
met as far as possible by raising additional taxation. The return to peace time conditionshas been slower than we anticipated and even this tardy progress has been retarded bythe recent partition of the country and the unhappy developments in the Punjab. I have |
just mentioned the large burden thrown on this year’s budget by the unavoidable |
expenditure on refugees and the payment of subsidies for foodgrains. In addition, theexpenditure on Defence is much higher than it would be in a normal year. If thesespecial factors are taken into account it will be seen that we have not been living |
beyond our means or heading towards bankruptcy. I do not wish in any way to minimise |
our present difficulties or to underrate the effort required to surmount them but I haveno doubt that once we reach fairly normal conditions and are able to reduce ourDefence expenditure to peacetime proportions and curtail our reliance upon import of |
foodgrains we should be able to balance the budget. It will be too optimistic to expect |
normal conditions for the next year but I feel that with a determined all round effortwe should be able to achieve this result in 1949-50. |
36. And what about the general financial position of the country? Here again |
while there is no room for complacency there is equally no reason to take a pessimistic17view. There is no doubt that economically and strategically the partition of the country |
has weakened both the Dominions created by it and It to a truism that an undividedIndia would have been In every way a stronger State than either. But the IndianDominion with its acceding States would still cover the larger part of the country, withimmense resources in men, material and industrial potential. Our debt position is alsointrinsically sound and for a country of its size, India carries only a relatively smallburden of unproductive debt. Our external debt is negligible and we have considerableexternal resources in the accumulated sterling balances. At the beginning of this yearthe total public debt and interest bearing obligations of undivided India stood at roughlyRs. 2,531 crores of which only Rs. 864 crores represented unproductive debt and Rs.36 crores. external debt, while her external reserves amounted to over Rs. 1,600 crores.The share of Pakistan in these has not yet been determined but it is unlikely to affectthe broad proportions of this picture. |
37. The only disturbing features in the position are the persistence of |
inflationary trends and the unsatisfactory food position to both of which I have drawnattention elsewhere. The only real answer to inflation is to increase our internalproduction and thereby close the gap between the available supplies and the purchasing |
power in the hands of the community which in present circumstances imports cannot |
bridge. Till this position is reached the community must conserve its purchasing powerby lending it to Government. As regards food, I am sure the House will agree that thecountry cannot depend indefinitely on imports. For one thing this places us at themercy of foreign countries for our vital necessities and for another large scale Imports |
of foodgrains seriously affect our foreign exchange position and threaten to consume |
the bulk of the available resources which are badly required for the industrialisationand development of the country. We must concentrate our energies on producing asmuch food as possible within the country. I suggest that this to not an impossible task,for after all the total Imports from abroad, which have never touched more than 21million tons in any year so far, represent only a fraction of the total foodgrains |
amounting to 45 million tons we produce, although they make a large hole in our |
available foreign exchange. |
38. I should like to make a few observations on the criticism made in certain |
quarters that the level of taxation introduced in the last Budget has seriously affectedthe incentive for Investment. In their last Annual Report the Central Board of Directorsof the Reserve Bank of India have observed “There seems little doubt now that theseverity of the last Budget is defeating its own purpose and is hindering the formationof capital for productive purposes. Unless correctives are applied without delay, thereis a danger of the very foundations of society and economic life of the country beingundermined by deepening penury and despair”. A pronouncement of this kind comingfrom such an authoritative source must receive serious notice. I have no doubt in mymind that it was not the intention of the Government to so arrange its taxation policyas to stifle the growth of Industry in the country. On the contrary, it is of the utmost18importance that the country should be industrialised rapidly so as to secure increased |
production and a widening range of employment for the people. There is no need forany serious difference of opinion based on more ideological differences. Whatevermight be the ultimate pattern of our economic structure, I hold the belief that for manyyears to come there is need and scope for private enterprise in industry. We cannotafford to lose the benefit of the long years of experience which private enterprise hasgained in the building up of our industrial economy. I believe that the general patternof our economy must be a mixed economy in which there is scope both for privateenterprise and for State enterprise. Before I present the annual Budget to this Housenext February. I shall make a careful examination of the consequences of our taxationpolicy and endeavour to make any adjustments that may be necessary to instilconfidence in private enterprise. In the meantime, I may assure the House that it is notthe policy of the Government to hamper in any way the expansion of business enterpriseor the accumulation of savings likely to flow into investment. |
CONCLUSION |
39. I would conclude the Speech with an appeal to this House and through the |
House to the country at large. For the first time in two centuries we have a Governmentof our own answerable to the people for its actions. A to the duty and the privilege ofsuch a Government to render an account of its stewardship to the representatives ofthe people, but it has also the right to ask for the co-operation of the entire communityin the carrying out of the accepted policies. Events of the last few weeks haveunmistakably shown that the political problems arising out of our status have not yetbeen fully solved. While we have secured freedom from foreign yoke, mainly throughthe operation of world vents and partly through a unique act of enlightened selfabnegation on behalf of the erstwhile rulers f the country, we have yet to consolidateinto one unified whole the many discordant elements in our national life. This can beachieved only by the rigorous establishment of the rule of law which is the onlydurable foundation on which the fabric of any democratic State can be raised. Respectfor law is essentially a matter of political training and tradition and transition from adependent to an independent status always makes it difficult In the initial stages tosecure that unflinching obedience to the rule of law which always acquires a newmeaning in a new political context. If the fabric of the State is not built on durablefoundations, it will be futile to try and fill it with the material and moral contents ofa good life. If India, just risen from bondage, is to realise her destiny as the leader ofAsia and take her place in the front rank of free nations, she would require all thedisciplined effort her sons can put forth in the years immediately ahead. The willinghelp and co-operation of all sections of the community is required in maintainingpeace and order, in increasing production and in avoiding internecine quarrels whetherbetween communities or between capital and labour. I am sure my appeal for this helpand co-operation will not go in vain. |
(November 26, 1947) |
1SPEECH OF SHRI R.K. SHANMUKHAM CHETTY, MINISTER OF |
FINANCE INTRODUCING THE BUDGET FOR THE YEAR 1948-49 |
When I presented my Interim Budget for Free India’s first Parliament a few months |
back, our nation had been shaken to its very foundations by the great Punjab tragedy.Thousands of our people had been brutally butchered, and millions of innocent men,women and children driven out of their ancestral homes and forced to make a dusty,deadly trek in search of a new home. Our crying concern then was to dress the woundsof uprooted humanity, and to mobilise all our financial resources to set aright an unhingedeconomy. Our new found freedom, however, weathered the storm, and as the eve of myfirst annual Budget approached, I could see a silver lining around the cloud. Then,suddenly, like a thunderbolt that rends the sky and spins the globe, calamity struck usonce more and orphaned our infant State and enveloped the. country with a darknesseven more complete. The hand that nailed Jesus to the Cross reached out of the evilrecesses of history once again and slew the latest in the line of Prophets. Along withBernard Shaw one wonders “Must then a Christ Perish in torment in every age to savethose that have no Imagination” In Mahatma Gandhi the world has lost an upliftingstandard, our nation its Founding Father, - and each one of his friend, philosopher andguide. Many ran up to him in times of stress, national or personal, and came back withrenewed confidence. Our fledgling freedom felt warm and secure under the protectivewing of Gandhiji. The way ill fortune has dogged our heels makes one doubt whetherour people had made a tryst with disaster rather than with destiny. But that is a most un-Gandhian mood; for he remained cheerful and buoyant and hopeful even in the darkesthour. Indeed I rise today under a shadow but I know it is the shadow of his Cross, and soI feel confident that our nation will be prepared to meet the great challenge of thesituation. In the faith that looks through death we shall shape the destiny of our nationon the pattern which he cherished and lead it from the dark abyss of hatred and despairto the sunlit pastures of eternal life. |
REVIEW OF ECONOMIC CONDITIONS |
2. The third year after war finds the world still in the meshes of those economic |
maladjustments which are the inevitable aftermath of total war - the nemesis thatinexorably pursues the victor and the vanquished alike. Western Europe is still in a sadplight and intolerable economic conditions prevail in many of the devastated areas. Theefforts at rehabilitation by the United Nations Organisation and the United StatesGovernment have so far borne little fruit. All hope is now centred round the MarshallPlan. But its gestation is unduly delayed, and it has worsened the already strained relationsbetween the Big Three. The United Kingdom is making a heroic effort to rehabilitateher war torn economy and shattered trade. There has been serious economic dislocationin many Asian countries owing to violent internal struggles or fight for freedom from2foreign domination. Thus, over a large part of the world, economic conditions are still |
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