«Sir, I rise to present the Budget for the year 1978-79. 2. The Economic Survey has presented a detailed review of the trends in the Indian economy for the ...»
SPEECH OF SHRI H.M. PATEL MINISTER OF FINANCE INTRODUCING
THE BUDGET FOR THE YEAR 1978-79
I rise to present the Budget for the year 1978-79.
2. The Economic Survey has presented a detailed review of the trends in the
Indian economy for the current year. I shall, therefore, refer only briefly to them.
3. We inherited a highly explosive inflationary situation when we took office.
Prices in 1976-77 went up by over 12 per cent. In a year in which real gross national product increased by less than 2 per cent, money supply went up by 20 per cent. Thus at the beginning of 1977-78, the economy was faced with a massive excess of liquidity which threatened to unleash a fresh bout of inflation. In the early part of the year, our Government, in the process of honouring its commitments made to the people, withdrew the compulsory deposit scheme and also restored the statutory bonus of 8.33 per. cent.
These measures no doubt further added to the pressure of demand. Against this background, it is most gratifying that the economy has been so managed during the current year as to ensure that the prices did not increase. Hon’ble Members will be pleased to note that the wholesale price index is today lower than the level inherited by us from the previous Government.
4. This relative price stability has been achieved by pursuing an active policy of supply management and public distribution and a policy of restriction on money and credit. The issue of cereals and sugar from the public stocks has been liberal.
Large quantities of edible oil, cotton and artificial fibres were imported to make up domestic shortfalls. Exports of a number of essential commodities were regulated and export duties were adjusted in order to increase domestic availability. Both administrative and monetary steps were taken to ensure that speculative hoarding did not take place and cornered stocks came on to the market. At the same time an active support programme was pursued with regard to many commodities other than cereals to ensure incentives for adequate production. We can justifiably claim that significant progress was made towards evolving an integrated price and distribution policy for essential commodities.
5. I derive added satisfaction from the fact that relative price stability has been maintained against the background of a rapidly expanding economy. The gross national product will register a satisfactory growth of 5 per cent in the current year as compared to 1.6 per cent in 1976-77. Agricultural production which had declined sharply last year is expected to more than make up the lost ground. Foodgrain production is expected to exceed last year’s level by about 10 million tonnes despite the natural disasters in the South. The production of commercial corps is also expected to improve considerably.
6. This result has been achieved in part due to good weather but to an even greater extent because of the increased irrigation potential, increased use of fertilizers, pesticides and high yielding variety seeds. Additional irrigation potential created during the year will be 2.23 million hectares- the highest achieved in a single year so far. The use of fertilizers is expected to go up by 23 per cent to 4.2 million tonnes. The area under high yielding variety seeds is expected to increase to nearly 35 million hectares in 1977-78, an increase of more than 2 million hectares over the previous year. Clearly the basis now exists for a more dynamic growth of agriculture in the years to come.
7. The balance of payments continues to be strong. Export growth has, however, slowed down considerably. Slow growth of the world economy, growing protectionism, a sharp decline in some commodity prices and a lack of demand for others account for this. It is important, therefore, that we do not relax in our export efforts. We should indeed continue to strengthen the export organisation that has been built up and the image of Indian exports that has been created while simultaneously improving the competitiveness of our exports further.
8. The country’s foreign exchange reserves have risen further, despite an increase in imports, because of continued inward remittances and a small surplus on trade account. Since reserve accumulations amount to lending abroad, these should be drawn down and used for internal development by a poor country like India.
9. A number of steps have been taken to utilise these reserves but the continued accretion indicates that these are not enough. I, therefore, propose to create a new facility under which term lending financial institutions and public sector banks win provide rupee finance on appropriate terms to cover the import costs of approved projects. This will be in addition to the rupee finance which is already being made available to cover domestic costs. A consortium of banks will be formed to provide such loans, supplementing the finance by the term lending institutions.
10. At the same time, I want to dispel the impression that our reserves are so large that they have to be spent without any real justification. The fluctuations in our balance of payments arising from swings in agricultural production and in the prices of some of our essential imports are large, and we do not have a secondary line of reserves as the developed countries have. A substantial volume of reserves is thus necessary for us to have manoeuvrability and flexibility in our development policy.
We should, therefore, use them wisely to increase our development potential and not fritter them away.
11. Industrial production in the current fiscal year is expected to show an increase of 5-6 per cent. This is no doubt less than the growth of industrial production in 1976-77. However, it has to be recognised that the lower growth rate this year is to a large extent due to the shortage of power which is directly attributable to the past neglect of this vital sector. Besides, a substantial part of the increased output of major industries in 1976-77, such as iron and steel and coal went into inventories rather than in satisfying final demand. By contrast, inventories in these industries have shown a healthy decline in the current year.
12. It goes without saying that we cannot be satisfied with the present rate of growth of industrial production. We must strive for acceleration in industrial growth since it can make a material contribution in generating new employment opportunities, maintaining price stability and providing savings for future growth. An increase in public investment, particularly in infrastructural facilities such as power, coal, transport and irrigation can provide the necessary fillip. In addition, there is an urgent need to improve project implementation and make an effective use of resources.
13. An improvement in the state of consumer goods industries depends upon cost reduction through more efficient operation and modernisation and on generation of a more broadbased demand. An increase in rural incomes resulting from the increased emphasis on agricultural investment and rural development should prove beneficial to a wide range of industries. This only reinforces our conviction that rural development should constitute the heart of the future strategy of growth.
14. The role of exports should not be underestimated in this regard. Export demand has sustained to a significant extent industries like engineering, leather, iron and steel, textiles and sugar. Though in a continental economy like India export led growth may be out of question, the important role which exports can play in sustaining production and investment needs to be emphasised. The relative freedom and manoeuvrability which growing export earnings have given to policy making underscore the importance of a sustained export drive.
15. In spite of the considerably better economic performance during the current year, the basic problems of unemployment and poverty continue to be with us. A year is too short a period to make any serious impression on these gigantic problems. We made a beginning last year by allocating more resources to agriculture and ancillary services, irrigation and rural infrastructure. We will have to persist along these lines because it is only over time that the necessary increase in output and employment will come about. The effort to plan, build an implementation organisation, arrange supply lines of inputs and marketing will have to go on unremittingly. The details of this general strategy of development will be available to us when the new Plan is presented to the nation next month.
16. Certain broad decisions which will be part of this strategy have already been taken. Government have formulated a target of creating an additional irrigation potential of 17 million hectares in the next 5 yeaRs.Nine million hectares will be under major irrigation and 8 million hectares will be under minor irrigation so that an optimal use will be made of both surface and ground-water resources. Simultaneously efforts will be made to ensure that this potential as well as existing facilities are used effectively. The supply of inputs will be increased through investment in industries like electricity and fertilizeRs.Government will also promote the use of organic manures along with chemical fertilizers to protect the quality of the soil over the long run.
Command area development programmes will be implemented vigorously.
17. In many parts of the country a large proportion of the area under cultivation is without irrigation at present and it will be without irrigation in the future as well because of lack of adequate surface or ground water resources. These areas also have to prosper if rural disparities are not to widen. Therefore much more attention will have to be paid to dry cultivation met-hods. This is extremely important because all of our millets, and a large proportion of pulses, oilseeds and cotton are grown under such conditions, leading to low growth of output and violent fluctuations in output and prices.
18. Along with agriculture small industries and rural industries have an
-Important part to play in the elimination of poverty and unemployment. The new Industrial Policy Statement embodies this goal of government policy. Large area; of production have been reserved for cottage and small industries and an improved organisation which will help them grow faster has been outlined. At the same time, since many of these industries may not be viable without a great deal of technical improvement, there is an urgent need to undertake research and render technical assistance to them. I earnestly hope that efforts in this direction will be made by public sector enterprises and others in the organised sector.
19. Industrial unrest has been causing a great deal of anxiety this year. A certain reaction to the earlier constraint under the obnoxious emergency regime is understandable. But output is likely to be affected seriously if this unrest is allowed to continue unabated. While the legitimate demands for additional emoluments should be met, these have to be appraised against the socio-economic realities of the country.
It is, therefore, important to have guidelines to determine a wages, incomes and prices policy. We have appointed a study group to suggest guidelines for such a policy. Its report is due to be submitted shortly. A loss of production is not in the interest of the country. It is, therefore, of the utmost importance that labour management and government cooperate in bringing about harmonious industrial relations.
20. The availability of resources for development does not seem to have kept pace with the need for investment. This is because of the rapid increase in non-development expenditure and the erosion of the resource base. Therefore, it is necessary to practise the utmost economy in administrative expenditure and to curtail the various concessions and subsidies given to different sections of society without adequate economic justification. We should aim at greater cost effectiveness through better project planning and implementation. The working of public sector projects should be improved still further so that their surpluses contribute more to the public exchequer.
21. There is also an urgent need to increase individual and corporate saving if increased investment expenditure is to take place without any adverse pressures on prices. This would require greater simplicity in the life style of those individuals who can save, and a greater efficiency and a reduction in inessential expenditure on the part of corporations.
REVISED ESTIMATES FOR 1977-78
22. In the Revised Estimates for 1977-78, the revenue from income and corporation taxes shows a shortfall of Rs.36 crores and Union excise duties are expected to yield Rs.140 crores less than the Budget Estimates of Rs.2336 crores and Rs.4593 crores respectively. This is mainly due to the slower growth of industrial production in certain sectoRs.The yield from customs revenues and the interest-tax, on the other hand, is expected to show an improvement of Rs.52 crores and Ps.16 crores over the Budget Estimates of Rs.1728 crores and Rs.99 crores respectively.
After allowing for States’ share of taxes and duties, which remains at Rs.1799 crores as in the original Budget, Centre’s share of tax revenue will be less than the Budget estimate by Rs.100 crores.
23. Market loans will exceed the Budget figure of Rs.1000 crores by Rs.183 crores, because of larger deposit accretions with banks. But net receipts on account of external assistance will be lower than the Budget Estimate of Rs.1052 crores by Rs.275 crores. This is due to the fact that a larger proportion of aid received now is project aid which is by nature slow disbursing. Programme assistance, which would have been utilised quickly, has been reduced because of the improvement in our balance of payments.
24. During the course of the year a number of decisions taken by Government for the benefit of large sections of the population cast additional burdens on the Budget.
To benefit farmers, the procurement prices of paddy and wheat were increased during the year without raising the issue prices from the public distribution system. Again, urea prices were further reduced by Rs.100 per tonne in October last year, though in the course of the year the cost of imported fertilizers increased significantly and the retention prices to domestic manufacturers of fertilizers were raised to improve their viability. This policy of pricing fertilizers involves a subsidy from the Central Budget which is much more than the revenue from import and excise duties on fertilizers.
25. A number of benefits were given to Central Government employees. An additional instalment of dearness allowance was sanctioned to them during the year.
The rate of interest on Government provident funds has been enhanced and the incentive bonus scheme for those subscribers who do not make withdrawals has been further liberalised. The pensioners too were sanctioned another instalment of relief from September, 1977. These and other concessions given add up to a substantial expenditure.
26. Non-Plan revenue expenditure, excluding Defence, is likely to exceed the Budget Estimate of Rs.5436 crores by Rs.118 crores. Of this increase, Rs.84 crores is under export promotion due mainly to a spill over of payments pertaining to 1976-77 and the introduction in the current year of a system of quicker disbursement of assistance to exporters. Barring this increase, non-Plan revenue expenditure has been kept practically within the original Budget despite the additional burdens already mentioned.
This is a welcome departure from the trend in the past several years of a steep increase in non-Plan expenditure. We have been able to achieve it by enforcing the utmost economy and pruning inessential expenditures to the maximum extent possible.
27. The variations in non-Plan capital expenditure have been somewhat wider.
There has been a net increase of Rs.100 crores on account of technical credits to foreign countries under bilateral rupee trade agreements. These credits will be repaid when the imbalance in trade is corrected subsequently. The net outgo on account of fertilizer imports will be Rs.190 crores more due partly to bunching of imports towards the end of the year, and partly to a rise in international prices.