The Hindu Business Line : The tale of India's own very special Budget

The first Budget of independent India covered the period from August 15, 1947 to March 31, 1948. It was R.K. Shanmukham Chetti, Finance Minister, who presented the Budget on November 26, 1947, in the Dominion Parliament.

"Delivering his speech in an unemotional and matter of fact tone, the Finance Minister revealed that the year was expected to close with a deficit of Rs 24.59 crore," reads the page from The Hindu Archives dated November 28, 1947. Revenues were projected at Rs 171 crore and expenditure, close to Rs 200 crore, including an allocation of Rs 93 crore for defence.

In comparison, last year's Budget allocated close to Rs 90,000 crore for defence, out of a total expenditure of Rs 5,63,991 crore; fiscal deficit was estimated at Rs 1,48,686 crore.

The 1947 Budget had to set apart nearly a fourth of revenues for two major heads, viz. `expenditure on refugees' and `food subsidies', each of which accounted for Rs 22 crore outlay. Deficit could have been more but for `a slight change in the export duty on cotton textiles' - from 3 per cent ad valorem to `a duty of four annas per square yard on cotton cloth and six annas per pound on cotton yarn'. In a full year, this would bring Rs 8 crore, estimated the Finance Minister.

An important section of his speech was devoted to `financial consequences of partition'. It discussed aspects such as division of liabilities; arrangement for coinage and currency in the two Dominions, viz. India and Pakistan; valuation of the Railways; division of the movable stores of the Army; and so on. `Maintenance of status quo' was an interim solution. "Till the end of September 1948, the two Dominions will remain under a common currency system managed by the Reserve Bank although from April 1 next Pakistan will have its own over-printed notes and coin," said Shanmukham Chetti.

Distressingly, those were days when food imports were squeezing the country's finances out of shape. Between 1944 and 1947, nearly 44 lakh tonnes of foodgrains, costing Rs 127 crore, were imported. "During the current year from April to September we have already imported 10.62 lakh tonnes of foodgrains at a cost of over Rs 42 crore," reported the FM. That sum was almost double of defence allocation then.

"All the total imports from abroad, which have never touched more than 2.75 million tonnes in any year so far, represent only a fraction of the total foodgrains amounting to 45 million tonnes we produce, although they make a large hole in our available foreign exchange," rued Shanmukham Chetti. "We have sent a mission to Australia for the purchase of the surplus wheat of that country," he informed.

"India was forced to import massive quantities of wheat in 2006, for the first time in six years, after hot weather cut stocks. This year could cause an unexpected repeat," is a snatch from a Sydney report dated February 9, 2007, on http://in.today.reuters.com. "Hot weather is withering the Indian crop, which is now seen amounting to 72.5 million tonnes, down from an earlier estimate of 74 million." The import in 2006 was of 1.6 million tonnes.

He dwelt at length with inflation. Contributory causes were `the general decline in agricultural and industrial production in the country due partly to the wide prevalence of communal disorders and generally to the increasing industrial unrest,' he reasoned. `The most disturbing fact,' according to him was `the unspent balances of individuals and institutions accumulated during the peak years of inflation which are being spent on the deferred wants of individuals, repairs to industry, and on the building of trade inventory'.

He explained further: "While the inflation in war time was due to the large increases in currency circulation (which rose from Rs 172 crore in 1939 to over Rs 1,200 crore at the end of 1945) without any tangible increase in the supply of goods the present inflation is not due to further increase of currency but to a steady fall in the supply of goods." By December 2006, `notes in circulation' would grow almost 400 times, to Rs 4,69,112 crore, as the latest bulletin on the RBI's site (http://rbidocs.rbi.org.in) tabulates.

The penultimate paragraph in Shanmukham Chetti's speech refers to the following observation in the annual report of `the Central Board of Directors of the Reserve Bank of India': "There seems little doubt now that the severity of the last Budget is defeating its own purpose and is hindering the formation of capital for productive purposes. Unless correctives are applied without delay, there is a danger of the very foundations of society and economic life of the country being undermined by deepening penury and despair."