Analysis of Union Budget since 1947

Pre-liberalisation

From the very first Budget of independent India that focussed on food security to the 2016-17 Budget presented by the current NDA government that promised to double farmers’ income, the challenges and issues have remained much the same, so are the proposed solutions.  Here, we take a look at the last 69 years of budget-making through the lens of environment and development.

1948-1949: The first budget of India covered just 7-1/2 months, from August 15, 1947, to March 31, 1948. 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. The targeted budget revenue was Rs 171 crore (approx). Of this, Rs 15.9 crore was expected from the posts and telegraph department.  The expected revenue expenditure was Rs 197 cr (approx), of which defence was allocated Rs 92.74 crore. The increase in expenditure was on account of expenses allocated for stabilisation, refugee relief and rehabilitation.

1949 to 1950: The after-effects of partition continued to be major deciding factor of this budget as well. The floods in Bihar, the cyclone in Bombay and the famine that hit the western coast were also major concerns. 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. The revenue receipts were estimated at Rs 338.32 crore against the budget estimate of Rs 255.24 crore, an increase of Rs 83.08 crores. Defence Services accounted for Rs 34.35 crore and civil expenditure estimates were at a balance of Rs 48.14 crore. The defence sector saw an increase due to operations in the Kashmir valley.

1950-51: 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 Planning Commission, which in turn was 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. Defence and civil expenditure continued to peak. Provisions had to be made for severe natural calamities like the earthquake in Assam, the floods in Bihar and Uttar Pradesh and droughts in Bihar and some other parts of the country. The budget also reduced the maximum rate of income tax from 30 per cent to 25 per cent. Incomes above Rs 121,000 attracted a super-tax rate of 8.5 annas per rupee. The maximum rate of personal taxation was about 78 per cent.

1951-52: 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. The monetary ceiling on import of raw materials as well as essential consumer goods like drugs and medicines had been progressively increased during 1950. An improvement in the balance of payments began with the devaluation of the rupee in September 1949. This period also witnessed a marked reduction in expenditure vis-à-vis revenue receipts unlike the previous years. The revenue was now estimated at Rs 387.21 crore and expenditure at Rs 379.28 crore. This was due to the improvement in receipts from customs, railways, import duty reduction and profits made by the posts and telegraph department. Of the total expenditure increase of Rs 41.4 crore, defence services was allocated Rs 11.45 crore and civil estimates were at Rs 29.95 crore.

1952-53: 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.

1955 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 industries, promotion of small industries, advances made in the capital and consumer goods sectors. Allocation for the education sector was increased, which included provision for grants to states for basic, social, secondary, and university education and for scholarships to students of Scheduled Castes, Scheduled Tribes and Other Backward Classes. Defence expenditure rose with the expansion programme of the navy and air force. Capital outlay increased and savings were encouraged. There was a sustained effort to increase productivity and mobilise savings on a national scale. Progress was also made in enlarging domestic savings and securing an inflow of external finance, adequate to meet the foreign exchange requirements. The economic condition in the country changed for the better in 1953-54 and the economy achieved greater strength in the course of 1955. The focus was also to increase the standard of living and reduce poverty by pulling more families above BPL status.

1957-58: 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. Peak excise was raised to 400 per cent. The budget marked the first attempt to distinguish between active income (salaries or business) and passive income (interest or rent). Income tax rates were hiked.

1958 to 1960: Industrial production continued to grow, but at a slower pace as compared to 1957. However, agricultural production saw a rapid increase in 1958-59. 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. Industrial production saw an increase of 7.4 per cent in 1959. This was a substantial improvement over the rate of increase of 1.7 per cent and 3.5 per cent in 1956 and 1957 respectively. Another notable feature of the year was the increase in the production of iron, steel and aluminium, which together accounted for over a third of the rise in the index of industrial production.

1960 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. The budget provided for export promotion and development. The industrial and investment sectors grew. However, the agriculture output did not match up with investments because of unfavourable climatic conditions that year. This decreased the availability of food grains and raw materials and altered the pattern of demand and supply equation in the country. Another important factor was that foreign aid was provided for railways and industry.

1965 to 1970: The major concerns during this period were price rise and scarcity of food supplies, reviving industrial activity and improving exports. Industrial production rose at a rate of six to eight per cent per annum. The government encouraged ploughing back of profits for investments and loan finances to private industries. The government promoted greater participation of citizens in the growth of industry. The primary objective was to raise the capacity for individual savings and to improve the performance of industry to receive high returns on the capital invested. The budget also for the first time had provisions of aid to foreign countries, such as Nepal, Bhutan and African countries. Defence expenditure continually rose despite efforts to restrict its growing share. The 1968-69 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 self-assessment by all manufacturers.

1970 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 1970-71 made provisions essentially through schemes that focussed on social welfare with future growth potential. Institutional finance to assist industry and agriculture was also mobilised to create employment opportunities in the longer run. 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. This was done to maintain uninterrupted supply of coal with the growing demand for coal in various industries like power, cement and steel at the time. It was also believed that the interest of mine workers would be best served in a government-run set-up. The estimate for the budget deficit for 1973-74 was Rs 550 crore.

1975 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. The programmes were designed for optimum utilisation of surface and groundwater. 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 provision in the budget for food subsidy at Rs100 crore increased to Rs 295 crore. Defence expenditure for the phase was Rs 2,752 crore, while non-plan revenue expenditure was estimated at Rs 5,908 crore. The investment sector was given maximum attention in the budget for 1976-77. A provision of Rs 393 crore was made in 1978-79 for health and family welfare as against only Rs 284 crore in 1977-78.

1980 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 the landless and weaker sections as part of the 20-point economic programme. A provision of Rs 70 crore was made for the development of tribal people and areas under the tribal sub-plan. Outlay on agriculture and rural development was increased substantially. Industrial growth increased to 4.5 per cent.

1985-1990: 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 1991-92 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 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 1997-98—from Rs 18,700 crore to Rs 100,100 crore during April 2010-January 2011. VDIS garnered about Rs 10,000 crore. Higher disposable incomes in the hands of taxpayers helped generate demand. The incremental tax revenues were leveraged to increase public expenditure on social welfare and infrastructure.

2000 to 2011:  Incentives for software exporters was phased out during this period. In Budget 1991, income from software exports was made tax-free for three years, and then the tax holiday was extended to perpetuity in budget 1995.This was to improve the ratio of taxes to GDP and to promote India as a major software development centre in the world. The introduction of this tax holiday to software export sector was followed by exceptional growth in Indian IT industry. Transfer pricing regulations was also introduced in 2001-02, 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 2010-11 in real terms. Economy showed remarkable resilience. Continued high food prices were a principal concern. Consumers were denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems.  The budget for the financial year 2010-11 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. Exports grew by 29.4 per cent, while imports recorded a growth of 17.6 per cent during April to January 2010-11 over the corresponding period the previous year.

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 people’s access to credit. The target for agricultural credit was raised from Rs 100,000 crore to Rs 575,000 crore in 2012-13. 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.However, according to Sunita Naraian, director general at the Cerntre for Science and Environment, the budget was a missed opportunity.

NDA regime

2014: BJP government's maiden budget was disappointing for farmers with Arun Jaitley announcing nothing much in their kitty to address increasing farm stress and resolve agrarian crisis in the country. 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 2015-16 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 2020. 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 drought-hit Marathwada a miss but also proposed public-private partnership (PPP) in irrigation, which may prove disastrous as private hands may gain control over water. The budget didn’t talk about broadening the scope of the National Adaptation Fund instead of funding standalone adaptation projects.

2016:  Realising that the sanitation coverage in India continues to be low, the Centre granted Rs 9,000 crore in the 2016-17 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 got a boost as the government announced its decision to revive 89 irrigation projects under Accelerated Irrigation Benefit Programme.  While Jaitley proposed to increase the coverage of health insurance scheme, he did not opt for a significant increase in allocations on several existing health programmes. There was no clarity on what will be adequate for coverage for treatment of major illnesses.

One of the major promises made by the Finance Minster was to double the income of farmers by 2022. The target looked overtly ambitious as two successive years of drought had already hit the annual average earning of 90 million agricultural households.

(With inputs from DTE Staff)

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