Indira Ghandi – 1970 Budget

Finance Minister : Indira Ghandi
Budget Year :1970

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Indira Ghandi

1  SPEECH OF SHRIMATI INDIRA GANDHI PRIME MINISTER AND  MINISTER OF FINANCE INTRODUCING THE BUDGET FOR THE YEAR  1970-71

Sir,  I rise to present the Budget for the year 1970-71. The annual Budget is the most  important instrument through which we implement our successive Plans for  development.

2. Before I proceed to delineate the broad features of our present economic  situation and of the Budget, I should like to spell out briefly the main. ingredients of  Government’s approach.

3. It is generally accepted that social, economic and political stability is not  possible without the growth of productive forces and the augmentation of national  wealth. Also, that such growth and increase in wealth cannot be sustained without due  regard to the welfare of the weaker sections of the community.

4. Therefore, it is necessary to devise policies which reconcile the imperatives  of growth with concern for the well-being of the needy and the poor. Measures have  to be devised which, while providing welfare, also add momentum to productive forces.  Any severance of the vital link between the needs of growth and of distributive justice  will produce stagnation or instability. Both must be avoided.

5. The provision of adequate employment opportunities is not just a welfare  measure. It is a necessary part of the strategy of development in a poor country which  can ill-afford to keep any resources unutilised or under-utilised. Greater attention to  dry farming areas is not merely to avoid inequalities in the rural areas. It is also an  essential part of any programme to achieve sustained increases in agricultural  production. Encouragement to small enterprises and to new entrepreneurs is vital to  build up managerial and entrepreneurial talent which is all too scarce today. Without  some restraint on urban land values and individual ownership of urban property, we  cannot adequately develop housing and other amenities necessary to wrest the maximum  benefit from the vast productive investments already made in our over-crowded towns  and cities. The weaker sections of the society are also the greatest source of potential  strength. We cannot provide for all the urgent needs of society with our limited  resources. But a balance has to be struck between outlays which may be immediately  productive and those which are essential to create and sustain a social and political  framework which is conducive to growth, in the long.

6. Economic conditions in the country at present permit and indeed require  a more vigorous effort to stimulate growth. During 1969-70, the first year of the  Fourth Plan, there is every likely hood of achieving an over-all rate of growth of 5 to  51/2 per cent. The modernisation of Indian agriculture is well on its way; and it has led  to a substantial recovery in industrial production. There has been a welcome increase  in foreign exchange reserves; and the general level of prices over the past two years  has been relatively stable. At the same time, it is necessary to set up new capacity in  a number of fields in order to sustain growing levels of consumption, exports and  employment.

7. If the opportunities for growth, which are now available, are to be seized  fully, the Central and State Governments must make adequate provision for  developmental outlays in the coming year. Private investment in agriculture, small  industry and construction has been buoyant for some time now; and there is a revival  of interest in investment in organised industry. A decisive increase in Plan outlay in  the public sector will also stimulate productive investment in the private sector.

8. Apart from providing for a significantly higher Plan outlay, the Budget  for 1970-71 makes special provision for a number of schemes which combine an  element of social welfare with future growth potential.

9. It is with this positive approach to problems of growth with stability and  social justice, that we have sought to give new emphasis and a new sense of urgency to  economic policy in recent months. The nationalisation of banks, for which there is  overwhelming support in this Honourable House and the country at large, will, I am  sure, be soon put on a stable footing. The Monopolies Act and the decisions that the  Government have already taken in the light of the recommendations of the Industrial  Licensing Policy Inquiry Committee should help to avoid the concentration of economic  power and provide encouragement to small and new entrepreneurs. At the same time,  well -established industrial companies will be able to participate in the core sector and  in industries with export orientation. It has also been decided that Government as well  as financial institutions should assume special responsibility to promote industrial  development in selected backward areas. The Fourth Plan, as it is now being revised,  will take particular care to look after some of the urgent socio-economic requirements,  such as the development of suitable techniques for dry farming areas, greater employment  opportunities for landless labour, the adequate supply of drinking water and the  improvement of urban environment in many of our congested metropolitan areas.

10. According to Revised Estimates, the deficit at the Centre for 1969-70 is  now estimated to be Rs.290 crores as against the Budget Estimates of Rs.254 crores.  The transfer to State Governments, on account of their share in Central taxes and  duties, has increased by Rs.104 crores over the Budget Estimates, largely as a result  of the Finance Commission’s award. A substantial provision of Rs.275 crores by way  of non-Plan assistance to the States had also to be made so as to enable them to carry  out their Plan programmes. As a result of continued decline in imports, collection  3  under import duties and disbursements under external aid are not likely to come up to  Budget Estimates. On the other hand, collections under income-tax and non-tax revenues  and receipts from market loans will be larger.

11. Since several States continue to have gaps in resources, it would be prudent  to provide in advance for special assistance to them. Accordingly, it is proposed to  provide Rs. 175 crores in the Budget next year to cover the gaps in the resources of  certain States since otherwise it would be difficult for them to undertake worthwhile  Plan programmes. Provision for Plan assistance to the States is also being increased  from Rs.615 crores this year to Rs.635 crores next year. If State Governments are able  to raise additional resources and keep a careful watch on non-Plan expenditure, it should  be possible for them to increase their Plan outlay from roughly Rs.950 crores this year  to about Rs.115 0 crores next year, i. e. an increase of the order of 2 0 per cent.

12. It is proposed to raise Central Plan outlays, including those on centrally  sponsored schemes from Rs.1223 crores this year to Rs.1411 crores next year, i. e. by  roughly 15 per cent. The Centre’s Plan next year provides Rs.39 crores more for  agriculture and allied programmes, Rs.84 crores more for transport and communications,  Rs.31 crores more for power and Rs.28 crores more for social services, including  family planning. The Plan outlay of the Union Territories is also being augmented  from Rs.66 crores to Rs.76 crores.

13. Taking the Centre, States and the Union Territories together, the Plan  outlay will increase from Rs.2239 crores in 1969-70 to Rs.2637 crores in 1970-71 i e.  by about Rs.400 crores. At this stage, this represents a substantial effort to accelerate  the pace of development. In addition to the Plan provisions made in the Budget,  institutional finance to assist industry and agriculture will also be mobilised on a  larger scale next year. With the considerable step up in Plan outlay and the increased  provision of institutional finance, there should be significant increase in employment  opportunities in the coming year.

14. Programmes of rural development which will be given special emphasis,  with the help of Plan provisions and Institutional. Finance, are summarised in a  memorandum which is being separately circulated to Honourable Members. This  memorandum also outlines some of the new initiatives which we propose to take in  order to combine growth with a greater regard for the welfare of the most needy  sections of society. I shall, therefore, refer to them only briefly here.  (a) Special schemes for small farmers are being taken up in 45 districts and  research on dry farming techniques is being accelerated.  (b) It is proposed to provide next year a sum of Rs.25 crores for selected rural  works programmes particularly in areas which are prone to famine. This  provision will be outside the Plan and will form part of the amount set  aside for drought relief during the year.  4  (c) An Urban Development Corporation with an authorised share capital of  Rs.10 crores is being set up. The Corporation will borrow in the market to  supplement its share capital and to set up a revolving fund for financing  activities, such as slum clearance, housing and urban land development.  (d) A substantial provision has been made in the Fourth Plan for the supply of  drinking water. I have written to the Chief Ministers that the bulk of this  provision should be used to provide drinking water to those areas which  have no easy access to this basic requirement rather than to improve  existing facilities in bigger towns.  To provide more comprehensive benefits to industrial workers, who are  liable to pay contribution to the Employees Provident Fund at the rate of  8 per cent of their pay, it is proposed that a part of the contribution of  employers and employees should be supplemented by a contribution from  the Government to make up a separate fund from which family pensions  as well as a lump sum payment in the event of death will be provided.  (f) The minimum pension as also family pension for Central Government  employees is proposed to be increased to Rs.40 per month. This decision  will apply to those receiving’ pension at present as well as to those entitled  to pensions in future. For industrial employees also, the scheme, to which  I referred earlier, provides for a minimum family pension of Rs.40 per  month.  (g) To supplement existing schemes for school-feeding and the like, a  beginning is being made with a programme to meet the nutritional  requirements of the age group 0-3. A provision of Rs.4 crores is being  made in the Budget for children in tribal development blocks and in city  slums. From time to time, the programme will be extended with the help  of specially designed schemes to raise additional resources.

15. At the existing rates of taxation, revenue receipts are likely to increase  from Rs.3587 crores this year to Rs.3867 crores next year. After allowing for statutory  transfer to the States, the revenue receipts available to the Centre will increase from  Rs.2965 crores to Rs.3167 crores. Revenue expenditure next year is expected to increase  by Rs.176 crores, of which Rs.68 crores is on Plan schemes and Rs.108 crores on non-  Plan items. Total non-Plan expenditure has been restricted to the minimum and will  increase by about 4 per cent.

16. Honourable Members will also be glad to note that the internal resources  of public sector enterprises, which are available for their expansion, will increase  from Rs.162 crores this year to Rs.2 02 crores next year. Market loans are estimated  at Rs.162 crores next year as against Rs.141 crores in the current year. Receipts under  PL 480 and other food aid, including some on revenue account, are expected to decline  5  from Rs.239 crores this year to Rs.161 crores in 1970-71. Receipts under other aid  should be more or less of the same order as this year. Taking account of all other  items, including the provision for the Plan and for special assistance to the States  outside the Plan, the capital account will show a deficit of Rs.365 crores. The revenue  account is expected to show a marginal surplus of Rs.15 crores.

17. With growing prosperity in rural areas, it has become all the more important  to tap rural savings for further development. Schemes to mobilise savings for a specific  purpose are likely to have greater appeal. A model scheme of debentures to be issued  by State, sponsored institutions has, therefore, been prepared and it is hoped that rural  debentures, floated in accordance with the scheme, will be an additional instrument  for the orderly mobilisation of rural savings. The extension of banking to rural areas  will serve the same purpose. Even today, our postal system extends to many areas  which cannot be- covered by banks in the near future. The postal system, therefore,  also needs to be harnessed for greater mobilisation of savings. At present our small  savings schemes, including Post Office Savings Bank accounts, otter facilities for  savings with a number of tax concessions. These tax concessions, however, are not of  much interest to the rural population or to low income groups, which by and large, are  not subject to taxation of income. To these groups, a higher rate of interest would be  more attractive than a lower rate with corresponding tax Concessions. Accordingly, it  is proposed to introduce a new series of time deposits, recurring deposits and savings  certificates, which will carry higher rates of interest without any special tax concessions.  The present tax-free facilities will also be continued with slightly higher rates of  interest. The rates of interest on contributions to the General Provident Fund and the  Public Provident Fund are also being enhanced slightly. I shall have occasion later to  refer to some changes in our direct tax structure, which are designed to promote  higher savings. A memorandum giving the full details of all these changes is being  separately circulated.

  PART ‘B’ 

18. The expenditure proposals for 1970-71 which I have just presented have  been aimed at stimulating growth while providing for some measures of social welfare  for the less privileged sections of the community. The same considerations of growth  with social justice must govern the manner in which resources are raised to meet the  requirements of Government.

19. In a country like India, where Government assumes the major part of the  responsibility for the promotion of capital formation, the Government Budget should  yield a substantial revenue surplus to take care of a part of the needs on capital  account. This is all the more so at a time when net receipts under foreign aid and  6  concessional imports of food grains are declining in keeping with our objective of  achieving self-reliance in the shortest possible time. At existing rates of taxation, the  revenue account for 1976-71 will yield only a nominal surplus. The ratio of taxation  to national income in India is among the lowest in the world and over the recent past  it has declined from the level of a little over 14 per cent which was already reached in  1965-66. There is thus need to enlarge the tax base, so as to meet adequately the  continuing requirements of growth and social welfare.

20. In enlarging the tax base, our first concern must be to ensure that the  taxes which are already levied are not avoided or evaded by devices which just manage  to keep on the right side of the law. Accordingly, I have tried to plug some major  loopholes in our tax system and to withdraw some of the concessions which have  outlived their utility. Taxation is also a major instrument in all-modern societies to  achieve greater equality of incomes and wealth. It is, therefore, proposed to make our  direct tax system serve this purpose by increasing income taxation at the higher levels  as well as by substantially enhancing the present rates of taxation on wealth and gifts.  Because of the urgent need to restrain speculative increases in urban land values and  individual holdings of urban property, the taxation of urban land and buildings is  being substantially increased. At the same time, the concessions available at present to  stimulate savings are being rationalised, so as to make them more effective. Some  marginal relief in direct taxation is also proposed for low income groups. In keeping  with the need to stimulate higher production and investment, no significant change in  corporate taxation is proposed.

21. Nearly 75 per cent of Central tax revenues are derived from indirect  taxation, i.e. from customs and excise duties. Any attempt to impart greater strength to  the fiscal system, therefore, cannot disregard the scope for increase in indirect taxation.  The proposals in this field are designed primarily to raise additional resources in a  manner which helps our progress towards self reliance and restrains the consumption  of certain commodities. Such restraint is necessary from the economic or the social  point of view. By and large, the additional taxation of investment goods or producer  goods has been avoided and the bulk of the increase is in respect of final consumer  goods. Wherever it has been necessary to touch items of common consumption, an  attempt has been made to safeguard the consumption of the poorer sections of the  community to the maximum extent possible.

DIRECT TAXATION

22. The marginal rates of income taxation will be increased progressively m  all personal incomes above Rs.40,000 per year. With the addition of the surcharge at  10 per cent, the maximum rate of 93.5 per cent will now be reached in the slab over  its. 2 lakhs as against 82.5 per cent, in the slab over Rs.2.21 lakhs at present.

23. Simultaneously, the existing rates of ordinary wealth tax are being,  enhanced. At present, these rates vary from 0.5 per cent to 3 per cent. They will now  vary from 1 per cent at the lowest slab to 5 per cent at the highest slab. For the  individual, who derives his entire income from wealth, the combined effect of income  and wealth taxation, as now proposed, will impose an effective ceiling on income  after tax, when such income reaches approximately Rs.25,000 per annum. On the  other hand, there will be an inbuilt incentive in favour of earned incomes. When  income is wholly earned, for example, there will be no absolute ceiling, as the highest  marginal tax of 93.5 per cent will leave some room for increase in income after tax at  all levels.

24. Honourable Members are aware that we are at present examining practical  means of imposing a ceiling on urban property. While the legal and other aspects of  the matter are being examined, it is proposed to increase the additional wealth tax on  urban lands and buildings, so that the objective of a ceiling on urban property is  achieved, at least in part, within the framework of the powers already available to the  Centre. At present, the additional wealth tax on urban lands and buildings is leviable,  in the case of individuals and Hindu undivided families, on the value of lands and  buildings situated in cities and towns with a population exceeding one lakh and with  an initial exemption ranging from Rs.4 to Rs.7 lakhs in different categories of cities.  The tax is leviable on the balance at rates ranging from 1 per cent to 4 per cent. The  maximum rate is reached when the value of urban lands and buildings exceeds Rs.19  to R s.22 lakhs. It is now proposed to levy a tax of 5 per cent on the value of urban  lands and buildings in excess of Rs.5 lakhs and at the rate of 7 per cent on the value  in excess of Rs.10 lakhs. No distinction will be made in regard to the exemption on  the basis of the population of the area, in which the properties are situated. The  definition. of an urban area is also being enlarged to include areas within the limits of  any municipality or other similar authority having a population of 10, 000 or more,  with powers to cover by notification areas upto 8 kilometres outside such limits.  Business premises will continue to be excluded from the proposed levy as at present.  However, guest houses maintained by those liable to pay this tax will not be reckoned  as business premises. Provisions are also being made to prevent avoidance of the tax  by transfer, from individual or joint Hindu family ownership, to ownership by  partnership firms, associations of persons and closely-held companies. Another measure  which is intended to serve a similar purpose, provides for the taxation of capital gains  arising from the sale or transfer of agricultural land situated within urban areas.

25. One of the major devices leading to tax evasion and avoidance is the  creation of private trusts. At present discretionary trusts are taxed on their income and  wealth at the rates applicable to individuals. These lower rates lead to the proliferation  of such trusts. It is proposed that in future, discretionary trusts would be taxed at a flat  rate of 65 per cent on their incomes and 1.5 per cent on their wealth or at the rates  applicable in the case of individuals, whichever is higher. Provision is, however, being  made for exemption from these flat rates for certain categories of existing discretionary  trusts.

26. In the case of charitable and religious trusts, exemption from tax would  be allowed only in respect of income actually, applied to the purposes of the trust in  the same year, or within three months of the close of the year. Further, the exemption  will be forfeited altogether if the trust funds, constituting its corpus or income, are  invested in a concern in which The author or founder of the trust or any of his relatives  is substantially interested and the amount of the investment exceeds 5 per cent of the  capital of that concern. These provisions will curb the use of the funds of charitable  and religious trusts to acquire control over industry and business. Some changes are  also being made to prevent indirect benefits being enjoyed by the authors or founders  of such trusts. On the, other hand, the present complete exemption from tax, which  applies to Universities and other educational institutions, will also be applied in the  case of hospitals and other similar institutions.

27. At present, one residential house is exempted from wealth tax, irrespective  of its value, if it is situated in a place with a population not exceeding 10,000. For  houses situated in larger towns, the monetary limit for exemption is Rs.1 lakh. The  monetary limit of Rs.1 lakh will now be applied uniformly irrespective of the location  of the residential house.

28. The rates of gift tax are also being revised to bring them more in line with  the rates of estate duty and the present exemption limit of Rs.10,000 in respect of gifts  made during a year is being lowered to Rs.5,000.

29. Those who are united in Heaven should not be put asunder by a mere tax  collector. On this view, the income and wealth of husband, wife and minor children  should be aggregated for purposes of income and wealth taxation. But in matters like  this, enforced unity sometimes leads to sharper division. It is, therefore, proposed to  examine the matter in greater detail and to bring forward the necessary legislation  subsequently, giving opportunity for discussion in this House and outside.

30. At present, income upto Rs.1,000 from investment in the Unit Trust and  upto another Rs.1,000 of dividends an shares in Indian companies as well as the  whole of the interest earned on a number of small savings schemes and Post Office  savings accounts is exempt from income tax. There is no reason why a distinction  should be made between such investments, and investments in other financial assets,  such as securities of the Central or State Governments, approved rural debentures,  deposits in banking companies, cooperative banks and land mortgage or land  development banks and the new small savings scheme and Post Office deposit accounts  which are not to enjoy any special tax concessions. It is, therefore, proposed that  income upto Rs. 3,000 will be exempt from income tax, provided it is derived from  investments in Unit Trust or shares in Indian companies or any of the other categories  which I have just mentioned. The exemption in respect of small savings schemes and  Post Office savings accounts, where special tax concessions are available, will continue  to be available additionally.

31. Similarly, it is proposed that, apart from the present general exemption of  Rs.1 lakh in the case of individuals and Rs.2 lakhs in the case of Hindu undivided  families and a residential house upto the value of R s. 1 lakh, investments in a wide  variety of financial assets upto a total of R s. 1.5 lakhs will be exempt from wealth  tax. Even today, investments in specified small savings certificates, Post Office savings  accounts and five-year fixed deposits with the Central Government are exempt from  wealth tax and any one who takes the maximum advantage of these provisions can  claim exemption upto Rs.1.2 lakhs. The enlarged limit of Rs.1.5 lakhs will now include  investments in the Unit Trust, shares of Indian companies, securities of the Central or  State Governments, approved rural debentures, the new small savings schemes and  Post Office deposit accounts and deposits in banking companies, cooperative banks  and land mortgage or development banks.

32. Or the other hand, in view of these generalised provisions to encourage  savings, there is no reason to continue the scheme of tax credit certificates in respect  of investments in new equity issues. These will accordingly be discontinued in relation  to new equity issues after 31st March 1970. Existing concessions regarding  contributions to life insurance, provident funds, etc., will continue.

33. Suggestions have been made, from time to time, that the exemption limit  for income tax should be raised as a measure of relief to lower income groups and in  the interest of better tax administration. It has been urged that by removing a large  number of small assesses from the scope of income taxation, Income-tax Officers will  have more time to devote to larger cases where the gain to revenue would be  correspondingly greater. In a poor country like ours, the present exemption limit which  varies from Rs.4,000 to Rs.4,800 in accordance with the number of dependents, cannot  be considered unreasonably low in relation to the average level of income in the  country. At the same time, there is considerable force in the argument that tax  administration would improve if income tax authorities did not have to devote so  much time to smaller cases. Faced with this dilemma, I have decided to appeal to the  higher court of family planning, and I propose to do away with the present system  where exemption is related to the number of dependents. In future, a uniform exemption  limit of Rs.5,000 will apply in the case of all non-corporate assesses irrespective of  whether they are married or have any children. This will make for greater administrative  simplicity and give a small benefit to all income tax-payers. The relief will be naturally  greater for those who continue to seek relief from matrimony or parenthood as well.  The change in respect of the exemption limit would involve some loss of revenue. But  I have taken no debit for it as it should be more than offset by the improvement in tax  administration resulting from greater concentration on cases involving the bigger  assesses.

34. It is also proposed to provide a minimum deduction of Rs.20 per month in  lieu of the cost of travel to work to all salaried assesses. At present, deductions ranging  from Rs.5 per month to Rs.250 per month are permissible for people who travel to  10  work on a bicycle, motor-cycle, scooter, moped or a motor car. The deduction of  Rs.20 per month would be available to those who travel to work on a bicycle or by  public conveyance or by any other mode. At the same time, the higher deduction of  Rs.250 per month for a motor par which is applicable to higher income groups is  being reduced to Rs.200 per month, as there is no reason why those who presumably  own a more expensive car should be given a larger deduction. On balance, the revenue  loss from travel concession to the lower income groups would be met by the  corresponding gain from the reduction in the concession to the higher income group.

35. It has been decided to leave the present structure of corporate taxation  more or less alone in the interest of maintaining a stable climate for investment  decisions. The only significant change is that all entertainment expenditure incurred  in India in business and. the professions will now be disallowed in computing profits.  Similarly, expenditure on guesthouses, other than holiday homes for the benefit of  employees on leave, will be disallowed. Those who enjoy the hospitality of their  business friends should now no longer find their sense of gratitude diminished by the  thought that a part of the hospitality is really paid for by the Exchequer.

36. The combined effect of the increases in direct taxation in a full year  would be a gain to revenue of Rs. 36 crores. In fact, when the measures to plug  loopholes such as the revised procedure for the taxation of trusts become fully effective,  the revenue gain will be substantially larger. The additional revenue from wealth tax  will become available only in 1971-72. The additional revenue from income tax also  will be available only in part during 1970-71 by way of advance tax and deductions at  source. Thus, despite the substantial measures of additional direct taxation, the net  addition to the Centre’s resources from these changes in 1970-71 would be RS.5  crores only. But it will rise to Rs.23 crores in 1971-72. The States will gain to the  extent of Rs.10 crores in 1970-71 and Rs.13 crores in 1971-72.

INDIRECT TAXATION

37. Turning now to indirect taxation, it is proposed to abolish or reduce export  duties on a number of items so as to maintain their competitive position in world  markets. The duty on jute canvas, jute webbings, jute tarpaulin cloth and manufactures  thereof is being reduced from its. 500 to Rs.200 per metric tonne. The most important  change relates to tea, where the export duty is being abolished altogether. At the same  time, the excise duty on loose as well as package teas is being raised with the provision  for ad hoe rebate on exports at rates varying with the price of exported tea. On balance,  the duty burden on the export of all teas will be reduced with a margin in favour of  teas fetching a higher value so as to encourage the export of quality teas. The export  duty reductions will mean a loss in revenue of Rs.9.75 crores.

38. In order to give impetus to import substitution, the import duty on  machinery is being raised from 271/2 per cent to 35 per cent ad valorem. This increase,  however, will not apply to the machinery which is required for the initial setting up of  11  projects, or for substantial expansion of existing projects, whether in the public or the  private sector. The import duty on ‘ motor vehicle parts, pharmaceutical chemicals  and non-electrical instruments, apparatus and appliances will be increased by 10 per  cent ad valorem. The duty on certain plastic material and nichrome and other electrical  resistance wires will be raised from 60 per cent to 100 per cent ad valorem.

39. There is a proposal regarding customs duties which is intended neither to  replace imports by domestic production nor to produce revenue. In order to curb  conspicuous consumption and as a modest gesture of personal, if not political,  reconciliation, I propose to increase the duty on whisky, brandy, gin and wines.

40. Inclusive of additional duties corresponding to the changes in excise duties  to which I will soon turn, the additional revenue from, import duties will amount to  Rs.29.75 crores. Thus, the net gain in customs revenue after adjusting the export duty  loss will be Rs.20,00 crores.

41. It has often been suggested that the scope for excise taxation should be  widened to include taxation at a low rate of about 10 per cent on practically the whole  range of manufactured products. Without going that far, it is proposed to levy a 10 per  cent ad valorem excise duty on a number of new items including office machines, metal  containers, sparking plugs, stainless steel blades, slotted angles, iron safes and safe  deposit vaults. The levy on office machines will cover items like typewriters, calculating  machines, cash registers, cheque-writing machines, computers and intercom devices.  The duty on metal containers will be confined to those intended for the packaging of  goods for sale, including, casks, drums, cans, gas cylinders and rigid containers. The  additional revenue from these new duties will amount to Rs.10. 40 crores.

42. Similarly, among chemical products, duty at the rate of 10 per cent ad  valorem will now be levied on calcium carbide, bleaching powder and sodium  hydrosulphite and the present duty of 5 per cent on soda ash and caustic soda will be  raised to 10 per cent. An excise duty of Rs.300 per metric tonne is also being levied  on synthetic rubber. These changes will bring in an additional revenue of Rs.5.30  crores.

43. A 10 per cent ad valorem duty was levied last year on prepared and  preserved foods. The scope of the duty was, however, limited by notification to  preserved and canned fruits, jams, jellies, fruit juices, squashes and certain meat  products. I propose now to remove the bias against fruits and meat by extending the  scope of the levy to include products such as vegetable juices, synthetic syrups and  sherbets, de-hydrated peas, malted foods, instant coffee, instant – tea, jelly crystals,  custard and ice-cream powders, biscuits, cocoapowder, drinking chocolate, pasteurised  butter, processed cheese, branded aerated waters, glucose and dextrose. I hope  Honourable Members will not accuse me of having preferences of my own as. even  under my proposals. aerated waters, biscuits, butter and cheese will be taxed only  when manufactured with the aid of power and there will be total exemption from tax  12  for baby foods and branded ‘deshi’ ghee. These proposals will yield an additional  revenue of Rs.8. 68 crores.

44. The duty on sanitary ware and glazed tiles of porcelain will be raised  from 15 per cent and 10 per cent respectively to 25 per cent. The duty on room air -  conditioners will be raised from 40 per cent to 53-1/3 per cent and a similar increase  is also being made in respect of larger refrigerators with a capacity exceeding 165  litres. The duty on parts of refrigerators, air-conditioning plants and machinery is also  being raised from 53-1/3 per cent to 66-2/3 percent. Components and machinery  required for cold storage plants, air-conditioning of hospitals run by Government,  local bodies and public trusts, as well as factory establishments will, however, be  exempted from the scope of the increase. It will be seen that small size refrigerators  will not be affected. I propose, very reluctantly, to withdraw the exemption in favour  of television sets and impose a duty of 20 per cent ad valorem. The gain to revenue  from these measures will be Rs.2.24 crores.

45. In the case of aluminium, the existing specific duties are being replaced  by ad valorem duties. With a certain degree of rationalisation, this will produce an  additional revenue of Rs.4.70 crores. The duty on rigid plastic boards and unsupported  P.V. C. sheets is also being rationalised by transferring the incidence to the end product  and this will yield an additional revenue of Rs.96 lakhs.

46. It is proposed to increase the basic excise duty on polyester fibre of 2  deniers or less from Rs.21 to Rs.25 per kilogram with a corresponding increase in  special excise duty. The present nominal duty of 7. 8 paise per sq. metre on artificial  silk fabrics which include rayon, nylon, terylene, terycot and terywool fabrics is being  replaced by ad valorem duty ranging from 3 per cent to 10 per cent. The duty will vary  according to the value of the fabric and in the case of the cheaper varieties, whose  wholesale price is less than Rs.2.50 per sq. metre, there will in fact be some relief as  compared to the present position. I propose to make no change in relation to cotton  fabrics with the exception of a minor measure of rationalisation, whereby certain  fabrics at present taxed at specific rates, win be subjected to ad valorem levy. The  proposals on synthetic fibre and artificial silk fabrics will yield an additional revenue  of Rs.13. 78 crores.

47. The demand for petroleum products has been increasing very rapidly and  it is necessary to exercise some restraint in the interest of saving valuable foreign  exchange. It is also necessary to curtail the adulteration of diesel oil by kerosene,  which has assumed substantial proportions, and to discourage the use of furnace oil as  a substitute for other fuels such as coal. Accordingly, the duty on motor spirit is  proposed to be, increased by 10 paise per litre, on superior kerosene by 2 paise per  litre and on furnance oil by 2 paise per litre. The additional excise duty on these three  items will yield a revenue of Rs.39.56 crores of which Rs.21.36 crores will be in  respect of motor spirit and Rs.9.2 crores in respect of kerosene. The increase in the  duty on furnace oil will not apply to such oil used in coastal shipping and for electricity    generation and there will be no change in the dity on inferior kerosene. Honourable  Members will also note that the increase in the price of superior kerosene will be only  modest, i.e., 3.5 per cent.

48. I am sorry that the smoker’s pocket has to be touched once again. The  duty on cigarettes is being enhanced with the increase ranging from 3 per cent to 22  per cent ad valorem depending on the value slabs. The cheaper varieties of cigarettes  will go up by only one or two paise per packet of 10 cigarettes. Assuming that the  smoking community remains steadfast in its devotion, the additional revenue from  this measure will be Rs.13. 50 crores.  49. As already mentioned, the excise duty on tea is being raised in order to  release larger quantities for export particularly of quality teas. There will be no increase  in the duty on loose tea produced in zone one and only a marginal increase of 10 paise  per kilo on teas produced in zone two. For other zones, the increase varies from 45  paise to one rupee per kilo. After allowing for the rebate on export, there will be an  additional revenue of Rs.7. 87 crores which will be more than offset by the loss in  revenue from the abolition of the export duty on tea.

50. A uniform duty of 23 per cent ad valorem was levied last year on both  levy sugar and free market sugar. Prices of sugar in the free market have declined  substantially since then. Accordingly, it is proposed to increase the duty on free market  sugar from the present level of 23 per cent to 371/2 per cent ad valorem. In the case of  levy sugar, which accounts for 70 per cent of the total, there would only be a marginal  rounding off of the present rate from 23 per cent to 25 per cent. In line with the step  up on free sugar, though not to the same extent, the tariff rate of duty on khandsari  sugar is being increased from 121/2 per cent to 171/2 per cent. But as far as the rates  under the compounded levy system are concerned, which most of the producers elect  to adopt, there will be a reduction on the present rates which are being revised keeping  in view the fall in prices. The net additional revenue from sugar is estimated at about  Rs.28. 50 crores.

51. There are also a number of changes proposed in the excise duty structure  by way of rationalisation, simplification or clarification of the present position. The  statutory rate of duty on tin plates, for example, is being raised from Rs.375 to Rs.400  per metric tonne, in order to remove the present anomaly of the indigenous tin plates  paying a higher cumulative duty than the additional duty borne by imported tin plates.  The excise duty on paints and varnishes manufactured by units not employing power  will be wholly exempted as also the duty on fertilizer mixtures made out of fertilizers  which have already paid duty irrespective of whether such mixtures are produced by  power or not. Some relief, is also being accorded in the case of strawboards and  millboards by revising the excise duty exemption at certain levels of production. These  measures of relief in excise duties will involve a loss in revenue of Rs.43 lakhs.  Certain enabling provisions of the Finance Act 1969 are also being continued.

52. The total effect of all these proposals relating to excise duties will be an  additional revenue gain of about Rs.135 crores, of which Rs.100 crores will accrue to  the Centre and Rs.35 crores will be the share of the States and Union Territories.

POSTS AND TELEGRAPHS

53. The Posts and Telegraphs Department is likely to be in deficit next year  also. Accordingly, postal, telegraph and telephone tariffs will be revised to some extent  from dates to be notified. These revisions are outlined in a memorandum being  circulated with the Budget papers. Briefly, there will be some increase in postal tariffs  in respect of parcels, registration fee, despatch of value payable articles, money order  commission, supplementary fee for telegraphic money orders and book, pattern and  sample packets. Phonograms and Greetings telegrams win cost a little more. Charges  for telephone calls beyond the first 750 ‘calls in a quarter will increase from 15 paise  to 20 paise per call. Honourable Members will note that services such as post cards  and inland letter cards, which are generally used by common people, are not being  touched; in the case of money orders also no increase is being made upto Rs.100. The  proposed changes will yield Rs.8. 22 crores in a full year and would leave for next  year a surplus of Rs.1 crore after meeting the anticipated revenue deficit. The effect of  these changes has been accounted for in reckoning the total internal resources of  public undertakings.

SUMMING UP

54. To sum up, the measures for the additional taxation proposed will yield  a total, revenue of about Rs.170 crores in 1970-71 of which Rs.125 crores will  accrue to the Centre and.Rs.45 crores to the States. In subsequent years, when the  full effects of the changes in direct taxation will be felt, the gain to Central and  State revenues would be larger even without allowing for the normal growth factor.  As a result, the budgetary gap at the Centre next year will be of the order of Rs.225  crores as against the Revised Estimate of Rs.290 crores for the current year. In view  of the recent upward pressure on prices and the substantial increase in money supply  over the past year, some reduction in deficit financing is clearly desirable. At the  same time, a deficit of the order of Rs.225 crores should not cause concern in view  of the present favourable supply conditions in regard to food grains. The Reserve  Bank has already taken a number of steps recently to control credit; and with  continued vigilance in this regard, the deficit in the Government Budget now proposed  should pose no threat to the general stability of prices. The Central Budget has  provided adequately for the Plans of the States not only by increasing Plan assistance  and by providing for substantial non-Plan assistance but also by raising additional  resources in a manner which would bring considerable gains to the revenues of  State Governments. I hope that against this background, the States will be able to  look after their Plan and non-Plan needs without recourse to unauthorised overdrafts  from the Reserve Bank.  15  55. Sir, before I conclude, I should like to say that in presenting my first  Budget to this Honourable House, I have become acutely aware of the challenges as  well as the constraints of the contemporary-epoch of development of our national  economy. ‘ At the very beginning of my speech, I endeavoured to set out the broad  framework within which this Budget is cast. That framework, I believe, is consistent  with the political, economic and social realities of our country. Convinced as I am of  its essential soundness, there is no alternative but to tread a difficult but determined  course. If the opportunities for growth which are so much in evidence are to be seized  fully, no effort must be spared in raising resources for the purpose. To flinch from this  effort at this stage would be to impose even heavier burdens in the years to come. If  we allow the present momentum of growth to wane for the sake of some purely  temporary advantage, we will deny ourselves the cumulative benefits of a higher rate  of growth for all time to come. If the requirements of growth are urgent, so is the need  for some selective measures of social welfare. The fiscal system has also to serve the  ends of greater equality of Incomes, consumption and wealth, irrespective of any  immediate need for resources. At the same time, the needs of these sectors of our  economy which require private Initiative and Investment must also be kept in mind in  the interest of the growth of the economy as a whole. I can only hope that the proposals  I have just presented steer clear of the opposite dangers of venturing too little or  attempting too much. Thank you.  (February 28, 1970)

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