OVERVIEW OF BUDGET SINCE INDEPENDENCE

Transcription

1 OVERVIEW OF BUDGET SINCE INDEPENDENCE Union Finance Minister Arun Jaitley will present the General Budget for the financial year (FY) on February 1, In lieu of this, we are presenting an overview of the budget since independence in three phases, viz., Pre-liberalization, Post-liberalization and Post-Modi regime. PRE-LIBERALIZATION ERA : The first budget of India covered just 7-1/2 months, from August 15, 1947, to March 31, The main highlight of the first budget was the decision to pass the budget. Partition and the consequent destabilisation were the core factors that determined the budget provisions. The three major expenses in the budget were on food grain production, defence services and civil expenditure. Food production was low, and therefore, self-sufficiency in food grains was accorded highest priority to 1950: The after-effects of partition continued to be major deciding factor of this budget as well. The key highlight of the second budget was controlling inflationary trends as the purchasing power increased in certain sections of society. The focus areas of the budget were: reintroducing food control, increasing supply of food grains at fair price and limiting food imports from overseas. Proposals to take dollar loans from IBRD/IMF were incorporated to sanction development projects : This was the first budget after India adopted the Constitution, declaring the country a republic. The main purpose of the budget was to lay down the foundation of the now defunct Planning Commission to formulate effective plans for utilising the nation's resources. Indian budget highlights in the early 1950s revolved around the public sector and finances, and, hence, dwelt much on taxation, inflation and public savings. Priority was given to agricultural sector in this phase. The budget also reduced the maximum rate of income tax from 30 per cent to 25 per cent : The period was marked by high demand for indigenous goods, such as jute goods, raw cotton, cotton waste and raw wool. Import regulations were gradually relaxed to allow essential commodities into the country. This period also witnessed a marked reduction in expenditure vis-àvis revenue receipts unlike the previous years : Food grain production increased with growth in the agricultural sector. This was followed by a steady downward movement in prices. A marked improvement in the revenue position was mainly due to the extraordinary buoyancy of receipts from customs, excise duties and income tax. However, balance of payments (BOP) was not favourable as exports fell. What's more, substantial quantities of food grains, essential raw materials and capital/consumer goods continued to be imported from abroad to 1957: The major highlight of these financial years was industrial development taking centre stage with annual growth rate of 8 per cent. This was because of development of chemical Page 1

2 industries, promotion of small industries, advances made in the capital and consumer goods sectors. Allocation for the education sector was increased, Defence expenditure rose with the expansion programme of the navy and air force : The key highlight was imposition of severe restrictions on imports through an import licensing system. The government withdrew budgetary allocation for non-core projects and set up Export Risk Insurance Corp to protect exporters against payment risks. Wealth tax, expenditure tax and a tax on railway passenger fee were introduced. The budget marked the first attempt to distinguish between active income (salaries or business) and passive income (interest or rent) to 1960: Industrial production continued to grow, but at a slower pace as compared to However, agricultural production saw a rapid increase in This was seen to be the maximum growth as climatic conditions were favourable. It was also seen that export earnings flourished and imports reduced. But the major factor in the stability of the foreign exchange position was largely the availability of external assistance to 1965: The paramount consideration in framing the budgets for this period was the need to build up the defence potential of the nation. Following principles of past budgets, the budget for this term stressed on expenses on development, production, employment and investment. Another important aspect was to improve the savings rate of the common man even more. However, the agriculture output did not match up with investments because of unfavourable climatic conditions that year. Another important factor was that foreign aid was provided for railways and industry to 1970: The major concerns during this period were price rise and scarcity of food supplies, reviving industrial activity and improving exports. The budget also for the first time had provisions of aid to foreign countries, such as Nepal, Bhutan and African countries. The Budget was considered to be a people-sensitive budget as it ended the requirement of stamping and assessment of goods by the Excise Department authorities. The government also introduced the system of selfassessment by all manufacturers to 1975: The major highlights for this phase were to provide adequate employment opportunities. Greater attention was paid to dry farming areas and small enterprises and entrepreneurs were encouraged. The budget for made provisions essentially through schemes that focussed on social welfare with future growth potential. The other areas of focus were: rural and urban development, drinking water facilities and pension schemes. The budget also provided Rs 56 crore for the nationalisation of the general insurance companies, Indian Copper Corp and coal mines to 1980: The first priority was agriculture sector. The budget allocations included provisions to supply good quality seeds of high-yielding varieties. Fertiliser production programmes were pushed. Farmers service societies were launched to provide credit to farmers in time for processing and marketing their produce. The nationalisation of coal began to yield results. The investment sector was given maximum attention in the budget for to 1985: The improvement of socio-economic condition of the scheduled castes was a major element of the development strategy during this phase. A provision of Rs 3,094 crore was made for Central assistance to states plans, Union territories plans and sub-plans of hills and tribal areas, special component plans for the scheduled castes, schemes of the North Eastern Council, Rural Electrification Corporation and natural calamities. A provision of about Rs 50 crore was made for Page 2

3 the landless and weaker sections as part of the 20-point economic programme. Outlay on agriculture and rural development was increased substantially : MODVAT credit was introduced. This allowed credit set-off of duty paid on raw materials against the duty on final products to reduce the cascading effect of taxes on the final price of goods. Budget provisioning in this phase also proposed the setting up of a small industries development bank, an accident insurance scheme for municipal sweepers and railway porters, bank loans with a subsidy for rickshaw pullers, cobblers and such self-employed people. The government also proposed the setting up of Unit Trust of India's mutual fund and Mahanagar Telephone Nigam Limited. The government also announced its intention to dismantle the license raj. The enforcement directorate of the finance ministry was established with the mandate to sniff out tax evaders. Provisions related to minimum corporate tax, better known today as MAT or Minimum Alternative Tax was also introduced to bring into the tax net highly profitable companies that were legally managing to avoid paying income tax. POST-LIBERALISATION 1991 to 2000: The year marked the beginning of economic liberalisation. Import-export policy was revised and import duties were slashed to expose Indian industry to competition from abroad. The government began rationalisation of duty structures by reducing the peak customs duty from 220 per cent to 150 per cent. This was done because the balance of payments was precarious. The government introduced service tax in the 1994 budget and also placed bets on growth through rapid technological development. The 1997 budget made tax rates moderate for individuals as well as companies. It allowed companies to adjust MAT paid in earlier years against tax liability of subsequent years. The government also launched the Voluntary Disclosure of Income Scheme (VDIS), to bring out black money. It phased out ad-hoc treasury bills used for financing budget deficit. Budget 1997 also aimed to widen the tax base. India had a peak income tax rate in the late 1960s and early 1970s of 97.5 per cent. The moderation in rates improved overall compliance as those who used to find rates prohibitive earlier began to pay up instead of hiding their incomes. Personal income tax collections increased from from Rs 18,700 crore to Rs 100,100 crore during April 2010-January VDIS garnered about Rs 10,000 crore to 2011: The introduction of tax holiday to software export sector was followed by exceptional growth in Indian IT industry. Transfer pricing regulations was also introduced in , which required transactions between associated enterprises to be transparent and whole. The regulation played a big role in the prevention of erosion of the tax base in India. Gross Domestic Product (GDP) was estimated to have grown at 8.6 per cent in in real terms. The budget for the financial year aimed to revive the agriculture sector but mentioned no incentives for organic fertilizers and sustainable farming. Monetary policy measures were expected to further moderate inflation in the coming months. 2012: The budget projected a pro-poor image while covertly playing to the market by not increasing borrowing to spend on development programmes. The government tried to replace declarations of sops with access to easy credits. First, it markedly increased and facilitated poor Page 3

4 people s access to credit. The target for agricultural credit was raised from Rs 100,000 crore to Rs 575,000 crore in Second, through various fiscal initiatives like amending the Fiscal Responsibility and Budget Management Act of 2003 (FRBM Act), the budget gave the private sector the message that reforms were on track, at least those concerning government's direct market impacting activities like borrowing. However, the budget failed to restrain use of subsidised diesel in private diesel cars 2013: The finance minister s main mantra for the last full-fledged budget of UPA II was inclusiveness and sustainable development, but there was little budget allocation to steer the country towards ecologically sustainable development. The budget increased allocation for agriculture and watershed development. Agriculture budget was increased by 22 per cent of revised estimate, but there were no initiatives to lift farmers from the debt-ridden operations or offer a vision of agriculture that was sustainable. Women and youth seemed to get priority. The budget specifically tried to woo women of the country: the finance minister announced a Nirbhaya fund of Rs 1,000 crore in memory of the December 16, 2012 rape-and-murder victim. An all-women bank was also announced. For the youth, Rs 1,000-crore was allocated for skill development while for the poor there was the promise of rolling out the Direct Benefit Transfer Scheme across the country. Anticipating passing of National Food Security Bill, Rs 10,000 crore was set aside to meet incremental cost on food subsidies. There was a 46 per cent increase in budget for rural development. POST-MODI REGIME 2014: BJP government's maiden budget was disappointing for farmers. While several announcements were made for the health sector, all were focussed on medical education and building institutions. Preventive or primary healthcare found no mention. In the energy sector, Jaitley emphasised big solar power projects, neglecting decentralised mini and micro grid solar projects for rural areas. The government also proposed to set up an Integrated Ganga Conservation Mission Namami Gange and allocated Rs 2,037 crore towards the mission. 2015: Even the first full-year budget of the NDA government left some critical questions about the future of social sector schemes unanswered. According to experts, the Union Budget had failed to make investment for transmission infrastructure a priority. This was in contrast to government s intention of manufacturing 175 GW of renewable energy by The only big green initiative of this budget is the increase of cess on coal from Rs 100 per tonne to Rs 200 per tonne. However, cut in allocation for rural development was a dampener, especially at a time when most villages were witnessing reverse migration and dip in rural wage growth. It not only gave droughthit Marathwada a miss but also proposed public-private partnership (PPP) in irrigation, which may prove disastrous as private hands may gain control over water. 2016: Realising that the sanitation coverage in India continues to be low, the Centre granted Rs 9,000 crore in the Budget to the Swachh Bharat Abhiyan (SBA) for rural sanitation. It was an increase from Rs 3,625 crore granted the previous year. Besides rural sanitation, irrigation also Page 4

5 got a boost as the government announced its decision to revive 89 irrigation projects under Accelerated Irrigation Benefit Programme. 2017: The Budget was historic in many senses. First, presentation of Budget advanced to 1st February to enable the Ministries to operationalise all activities from the commencement of the financial year. Second, merger of Railways Budget with General Budget to bring Railways to the centre stage of Government s Fiscal Policy and Third, removal of plan and non-plan classification of expenditure to facilitate a holistic view of allocations for sectors and ministries. Agenda for was Transform, Energise and Clean India TEC India, which sought to transform the quality of governance and quality of life of our people; energise various sections of society, especially the youth and the vulnerable, and enable them to unleash their true potential; and clean the country from the evils of corruption, black money and non-transparent political funding. It outlined 10 themes doubling farm income by 2022, providing employment to rural population, skilling youth, strengthening poor and underprivileged, boosting infrastructure, stronger institutions in financial sector, digital economy, public service, prudent fiscal management and tax administration. Page 5