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REGISTERED No. L 848.

The Gazette of India

EXTRAORDINARY.

PUBLISHED BY AUTHORITY.

DELHI, THURSDAY, FEBRUARY 28, 1929.

GOVERNMENT OF INDIA.

FINANCE DEPARTMENT.

SPEECH OF THE FINANCE MEMBER INTRODUCING THE

BUDGET FOR 1929-30.

( 5 )

Speech of the Finance Member

introducing the

Budget for 1929-30.

3. The revised estimates for 1927-28 provided for a total Actuui outturn of revenue of 1,27'74 INTRODUCTORY.

1927-28,

-i . . -i

Sir, as this is the first occasion on whioh I have the honour of making a budget speech, I must regard it as my maiden effort, although I have already had occasion to address this House,

crores and a total ex- penditure of the same amount, the revenue inoluding an appropriation of 1,69 lakhs from the Revenue Reserve Fund, whioh stood at 2,96 lakhs at the beginning of the year. The final figures show a total expenditure of 1,27"26 crores and in order to bring the revenue up to this figure it was necessary to inorease the appropriation from the Revenue Reserve Fund from 1,69 lakhs as originally estimated to 2,22 lakhs. The deterioration in the revenue position as compared with that forecasted a year ago has thus amounted to 53 lakhs, whioh is mainly accounted for by a throw- forward of 40 lakhs representing land oustoms collections at Viramgam from 1927-28 to the current year. This has reduoed the balance now at credit of the Revenue Reserve Fund to 74 lakhs.

Review of the year 1928-29.

4. I think I can most fairly describe J t. general conditions in

General oomjitionq. **, ~ . -,

2. I may perhaps therefore be allowed to commenoe on a personal noto. I address you with a due sense of humility, seeing that I come as a complete stranger to discharge this onerous and responsible duty. But this has at least a compen- sating advantage, for, in some ways, a stranger is in a privileged position. I already have had reason to appreciate from my own experience in other coun- tries the hospitality of the East, and therefore, as a stranger, I know that I can count on a courteous welcome and a friendly hearing. It will be my constant endeavour to deserve a no less friendly reception when I cease to be able to claim the consideration due to a novioe and have to be judged by you according to your knowledge of my aotions. The success of a Finance Member in such a country as this lies not so much with himself as with the favour of Providence that determines the seasons. If my period of offioe is blessed with a series of good monsoons, my task may be compa- ratively easy. If not, I know that I may have to encounter difficulties. But difficulties are also opportunities, for, it is by these that a system is tested, and success in overcoming them may lead to its permanent strengthening. From my first view of the position, I do not think that the time before us now is one for the achievement of spectaoular results nor should I wish to claim the oredit for them if they were aohieved. If I have an ambition, it is this, that whether we encounter bad seasons or good, you should be able to say of me when my work is done, that I served your oountry at least to the utmost of my powers and that in all that I did, my main thought was for the interests of the people of India. I must now turn to the dry details of my task,

the financial year which is now drawing to a close by say- ing that they have been bad in patches, but that it would be a mistake to assess the general position from a contempla- tion of these bad patches, and to say that, viewed as a whole, it gives ground for serious pessimism. During the months of June to September the monsoon was on the whole fairly active except in parts of Northern India, where a marked drought was experienced, and just in these areas the reoent exceptional cold wave and frost have produced serious losses of crops in oertain localities. It is diffioult as yet to estimate how far these will have any general effeot on the balance of trade and the ways and means position. But these faotors certainly give ground for caution in making revenue forecasts. The year was also disturbed by prolonged strikes in various parts of the country, and parti- cularly in the ootton mill industry of Bombay. In spite of all this, the trade statistics so far available are, on the whole, encouraging. The visible balance

Ail

which seems to have missed the atten- tion of thoso who havo criticised this action. It has been said that it was normally undei stood that the rate would not rise to 8 per cent, until expansion of currency against commercial bills had reached its full limit of 12 crores, and that, in the recent case, tho rate was raised after only 9 crores of expansion had taken place. It must, however, be remembered that this year Government had expanded currency to the extent of 1 crore against sterling and 1 crorc against created securities and that thero had been a further expansion of 2'4 crores against imported gold, so that tho total expansion had really been well over 13 crores.

REVENUE, 1938-29.

7. Tho not ciintoms receipts for the year of trade, including private imports of treasure, for the nine month a ended the 31st December 1928, was in favour of India by 39P77 orores against 3307 crores in 1927 and 22\55 crores in 1920. Exports of Indian merchandise show an improvement of over 10 orores as com- pared with 1927. It is particularly satisfactory to observe that the exports of cotton have risen from 28 to 43} crores, while those of jute and jute manufactures and of seeds also record an improvement of 5 erorew and 3J crores respectively. Exports of rice, however, have gono down by us much as 7 crores, as a result mainly of Japan's temporary prohibition of imports of tho commodity into that country and of the increasing competition of tho rice-produoing countries on the Mediterranean sea- board. Wheat has been seriously affect- ed by unfavourable olimatio conditions, so much HO that considerable quantities have had to bo imported, while exports have fallen by about 2f crores.

croros and I now put the revised ostimato at 20 lakhs less. Larger imports of sugar and of mineral oils havo increased the receipts by 70 lakhs and '28 lakhs respectively, while tho land customs collections show an improvement of 70 lakhs, including tho 40 lakhs thrown forward from last year. Excise duty on motor spirit is also ex- pected to yield an additional 29 lakhs. On the other hand, cotton pieoegoods and protective spocial duties relating to iron and steel whow a deterioration of 40 lakhs and 42 lakhs respectively, while matches, the export duty on rice, and tho exoise duty on kerosone, have all been on tho downward grade.

8. I havo taken the revised estimate under Taxes on In-

Tasee on Income

1 5. The imports as a whole show a fall of about a crore—the result of a drop in cotton and cotton-yarn and manufac- tures, counter-balanced to a largo extent by a rise in the imports of grain, machi- nery and vehicles. The two items last mentioned are particularly interesting. Imports of machinery show a rise of about - 16 per cent, for which the recent abolition of duty is, no doubt, largely responsible. The number of motor-cars and commercial motor vehicles, which came into the country during the nine months, also shows an improvement of as much as 38 per cent., although the amount of duty collected is still slightly less than the figure for 1926. I have every hope that the leeway will be made up and that our customs re- venue will soon begin to benefit more largely from this source. Prices in general continued to remain fairly stable.

come at 16# crores against the budget figure of 17 crores. The reduction is mainly accounted for by certain large refunds which have had to be made as a result of legal deoisions.

6. Money conditions have at times been difficult and in the last weeks have been affected by world conditions which them- selves have been largely governed by the situation in the United States. The enormous volume of speculation there has tended to force up rates for money in all countries engaged in international trade, and this is Un- root cause to which tho recent rise in the bank rato of the Imperial Bank to 8 per oent. must be attributed. I' do not wish to enter into any detailed dis- quisitions on this subject now, but I would call attention to one point only

9. Owing to an unexpected and con- s siderablo amount of speculation at Sambhar, the estimate of salt revenue, whioh was originally taken at 7 crores, will probably be exceeded by about 65 lakhs in the current year. But as I do not think it safe to calculate on an average revenue of more than 7 crores, I am forced to treat tho extra 65 lakhs, which we expect to collect in the current year, as being gained at the expense of next year, the estimate for whioh must be reduced accordingly. This unexpected

factor seriously disturbs the distribu- tion of revenue as between the current year and next year, and I shall have to refer to this point again.

10. The only item which needs com- ment is that of interest

Other heads. . . , . , T from short deliveries and poorer out- turn, and another of 21 lakhs under Civil Administration, which includes 7 lakhs on account of a carry-forward of the expenditure on the India House to next year.

Departmental transactions, 1928-29.

receipts which shows an improvement of as much as 66 lakhs, but this should really be set against a counterbalancing increase in interest payments to which I .shall presently refer.

EXPENDITURE, 1928-89.

11. The gross payments on account of ^ t J a interest on ordinary Debt Services.. , , , -, -, debt have exceeded the budget figure by 1,33 lakhs as a result mainly of the larger magnitude of our borrowing operations and a small increase in our borrowing rate. But the net payments, after deducting recoveries from the Commercial Departments and the Provincial Loans Fund, show a deterioration of 65 lakhs only, which, as I have already stated, is covered by the increase in interest receipts 1 would take this opportunity of explain- ing to the House that the net payments would have been considerably larger but for a change which T have introduced in the method of calculating the interest chargeable to Commercial Departments In respect of capital outlay incurred after the 31st March 1917, Vhcreby they are required to share _ the loss which the general revenues suffer through-the tax- free concession attached to certain por- tions of our rupee ctebt. TTuVftlteration has increased the recoveries from the Railways to the extent of 59 lakhs under this head, although it has had the simul- taneous effect of reducing the railway contribution otherwise receivable hy about'20 ]akhs. The former method of calculation was really erroneous, as it meant that Government did not actually recover from the Commercial Depart- ments the interest which ttoay were in effect themselves paying. It is reassur- ing to know that in spite of the addi- tional payment which the correction of this error involves, tho actual rate of interest to be paid by tho Commercial Departments for the forthcoming year will be less than it was two years ago. For 1926-27 the rate was 5'43 per cent., for 1927-28 5-38 per cent., and for 1929-30 it vrill be 5'32 per eenl.

12. The only important \ ariations from the original estimate

Other hoH'i.4

• c n,i i i 7

are a saving of 22 lakhs in opium expenditure, which has resulted 13. As tho House is already aware, the Kiuiway* railway contribution is now estimated at 5*46 crores, which is only a little lets than the budget figure of 5*48 ciores. The present estimate includes 23 lakhs, being one-third of the excess over 3 crores a\ ail- able for transfer to the Railway Eeserve Fund.

14. The working of the Indian Posts

Posts ana Tel,- a nd T e l e g r a p hs D o- RinphH. partmont is now ex- pected to Rhow a loss

of 29 lakhs, which is very disappointing considering t h at a year ago it was ex- pected t h at a surplus of a few thousands would accrue. T he deterioration is main- ly accounted for by t he facts t h at t he reduction in t he r a te for foreign tele- grams h as n ot been counter-balanced by a corresponding growth in traffic, and t h at t ho effect of t he numerous revisions of p ay a nd other concessions granted to t he staff in recent years was, to ,somc extent, under-estimated. The Indo-Europoan Telegraph Depart- m e nt does n ot show a ny appreciable variation on t he whole a nd will involve n 1OH,H of about l-l lakhs.

15 T he net military expenditure h as Miutaiy DCOn taken at 55*10 croros as in t he origi- nal budget. I ahallgr-, e a toiler—expla- nation of t he military expenditure item when doaling w i th t he b u d g et estimates for 1929-30.

16. T he main variations m av now

be summarised" as

httnBMry- follows :~

(In laklm of rupees.)

Woree.

Better.

20 Kevtnuefiom Customs , liavtiiuo from Taxes on

i Inoomo

CO

06

lti-VBliu; from Salt llevuuuo^^om Interest Expenditure on account of

•22

Opium

ljXjjcnditme tni u,o< oimt

oi lnt< rest on Debt

66

-Expenditure on Civil Ad-

21

imniBfcrution

LOMH on the working oi tho Posts and Tulegraphs DeptLitmuiit

15

Other heads

. lotul

1,89 1,34

Net

We thus expect to close the accounts for 1928-29 with a surplus of 30 lakhs instead of 5 lokhs previously estimated, and I propose that this sum should be credited to the Revenue Reserve Fund the balance to the credit of which will then stand at 1,04 lakhs.

BUDGET ESTIMATES for 1929-30.

17. I must preface my detailed account T> of the budget proposals J "' for ] 929-30 with certain preliminai> explanations. For a proper understanding of the present position, T think one mti"st go hack to the remission of the pto\incial contributions which really became effective from the begin- ning of 1927-28, and one must consider the three yeais 1927-28, 1928-29 and 1929-30 together.

18. The way in which I -would present the picture is this. As Hon'ble Members will recollect, the actual result for the year 1926-27 bhowed a surplus amount- ing to 2,96 lakhs and on the strength of this it was decided to remit (provisionally in the first place) the whole of the remaining p'ovincial contributions, amounting to 2,53 lakh.s per annum. It was recognised that if Government sacrificed thib permanent revenue, there might at the outset be a deficit. But the intention was that the surplus of 2,96 lakhs in 1926-27 which was trans- ferred to a special Revenue Reserve Fund, would provide a sufficient sum to bridge the gap until the normal growth of revenue had built up receipts to the requisite level. It was thought that the gap would not oontinue for more than one year and that by 1928-29 equilibrium would have been attained. On the revised estimates for 1928-29, which I have just dealt with, it might be said that this expectation has been fulfilled; but on a closer examination, it wiii be seen that the figures for 1928- 29, taken by themselves, are really misleading. In fact, the revenue for 1928- 29 has bee.i fortuitously increased at the expense bo^h of 1927-28 and of 1929-30. As I have already explained, it so hap- pened that 40 lakhs of customs revenue which ought to have been received in 1927-28 were aciuallv received only after the close of thai year, and were thus credited to !928-29. Further, as 1 have also already explained, owing to specula- tion iii sail, the revouue from that source for 1928-29 is likely to receive 65 lakhs which, in normal circumstances, would not have been received until after the close of the year and thus properly belongs to 1929-30. If, therefore, the true nature of the results for 1928-29 is revealed, it will be seen that, eliminating these two exceptional items totalling 1,05 lakhs, the year would have closed not with a surplus of 30 lakhs as our revised estimates show, but with a deficit of 75 lakhs. The gap left by the remission of the provincial contributions had not therefore really been filled in 1928-29 and the question which I have had to ask myself in settling the policy for the forthcoming year is whether the time has now come to decide that the original expectation cannot be realised, and that it will be necessary to find some new source of revenue. To answer this ques- tion we have to take account both of the revenue and expenditure sides, for it would be impossible to say that the gap had been satisfactorily filled if that could only be done at the cost of cutting out all items of beneficial expenditure which are really essential if the needs of the coun- try are to be met.

19. What then is the answer to this question ? Will it be necessary to impose new taxation now ?

Sir, I believe it has been sometimes customary to keep the secret of the bud- get proposals as regards taxation till the closing paragraphs of the speech, so as to maintain the minds of Hon'Me Mem- bers on the tiptoe of expectation till the end, and thus avoid the natural tendency to sleep which a dreary recital of figures is apt to stimulate. I do not propose to have recourse to those adven- titious aids for maintaining your attention. I will reveal my secret at once. The sum and substance of the position as regards normal revenue and expenditure, which it will be my business now to describe to you in greater detail, is that we can make both ends meet in 1920-30 without recourse to increased taxation and without denying money to any urgent beneficial expenditure, provi- ded that we use the Revenue Reserve Fund, first, to correct the artificial disturbance in the normal course of receipts from salt revenue, and, secondly, to meet certain special items of expendi- ture of a non-recurring nature.

20. I have decided to recommend this

course for several reasons :

First, I do not think that it would be justifiable to impose new taxation until it is more clearly demonstrated that there is a permanent need for it. With reasonably favourable conditions, some

of OUT normal sources of revenue should be capable of considerable expansion, and I think it is fair to give the plan on which the remission of pro- vincial contributions was undertaken, the ohance of another year in which to achieve its realisation.

Secondly, before imposing new taxa- tion, I want to have a fuller opportunity of reviewing the expenditure side of the budget than has been possible in the limited time since I took over offioe.

Thirdly, before imposing new taxation, if that should prove necessary, I want to have ample opportunity for study- ing conditions throughout the country, so that 1 may be able to formulate proposals in the light of full knowledge of facts and opinions in suoh a way as to ensure that whatever is done is done in a way most beneficial to this country's interests.

But I wish to leave Hon'ble Members in no misapprehension on this matter. If additional taxation proves to be necessary in the following year, the need will have to be boldly faced. My present aotion is governed not by any fear of doing this, but by the desire to defer taking any step until I am quite certain, first, that it is neoessary ; and, secondly, what is the best direction in which to take it.

21. Having thus told you the general plan of the budget, I must explain in detail how the various pieces in the puzzle are to WJittedJiu

23. I have taken the estimate for next

year at 16-60 crores—

Taxes on Income. ^ . , £ -,

an improvement of only

10 lakhs. Owing to the absenoo of the specially large refunds, which were* the main causes of the deterioration in the ourrent year, the figure should actually have been appreciably larger, but I have had to allow for the effect of the indus- trial strikes, particularly in Bombay and at Jamshedpur, which will make itself felt on the next year's collect!ons.

24. As I have already indicated, the element of speculation, which haa brought in a windfall of 05 lakhs in the current year, will lead to a corresponding reduotion in the next, and I have therefore assumed a receipt of tV35 crores only as com- pared with 7'65 for the current year.

25. As the House is aware, the revenue . . from opium is gra- dually diminishing as a result of the Government of India's self-denying policy whereby exports of provision opium are to be extinguished not later than 1935. We shall acoord- ingly lose 42 lakhs next year under this head.

26. The only item which shows any „ , . , important variation is Other heads, . r

1 .

that relating to cur-

renoy receipts, whioh are expeoted to go up by 36 lakhs. This, of course, merely means that we get back a por- tion of the rather high expenditure in the current year under Interest on Debt.

Expenditure, 1929-30.

Revenue, 1920-80.

C u s t o m s.

. ,,

,,

•

I 22. Any comparisons which I make „ , will be throughout j .-with the revised esti- 27. The net payments of interest on n,.a . ordinary debt show a

Debt Servioes. , .•> r -. nn-i -i \.

reduction of 1,33 lakhs,

accounted for mainly by larger re- coveries from Commercial Departments and from the Provincial Loans Fund. On the other hand, there is an in- crease in the oharges for interest on other obligations of 95 lakhs, and an inoreased provision of 34 lakhs under Reduction or Avoidance of Debt. The latter inoludes the normal inorease due to the increase of debt itself and also a larger sum for Reparation payments to which I shall refer again. As regards the other heading, namely, Interest on Other Obligations, 50 lakhs of the inorease represents growth in the provision for bonus on cash certificates, and as Government's liability in regard BonuH on cash car- to th.6S6 Certificates mates for 1928-29. In view of the abnormally large imports of sugar during the ourrent year, it would not be safe to place the estimate of revenue from that source at more than 7 orores, which, in present conditions, may be considered a normal figure. This means a deterioration of 80 lakhs under this head alone. Further, the land customs figure will also show a reduction of 36 lakhs owing to the dis- appearance of the special factor which increased the revised estimate this year. On the other hand, I am budget- ting for appreciable improvements under cotton piecegoods, protective special duties, excise duty on motor spirit, etc. On the wholo I have assumed an im- provement of 40 lakhs.

tifioateu. w as m a (Je a s ub j e ot Of keen interest in last year's budget

debates, I propose to go to some length now iii explaining the position. The total provision to cover tho bonus on the discharge of certificates which we •anticipate for next year, is 1,10 lakhs against a revised estimate of 60 for the current year and an actual payment of 23 lakhs in 1927-28.

28. This is a large increase, but is it enough ? I ha-ve no doubt Bou'ble Members will ask me : " WJi.it is our full liability ? Are we meeting it ? If not, why not ? "

X think 1 can explain the realities of the position most clearly in the following way. Government, by issuing cash cer- tificates, obtain the use of large sums of money; but, inasmuch as interest is payable not year by year but in a him]) sum when the certificates are discharged, Government get the use of the nionoy in the earlier years practically free of inter- est. One can seo how this position has worked out by following the figures in past years.

In 1926-27, the average amount of money held by Government against cash certificates was 23 "82 crores. Tho amount of bonus paid was 16 lakhs; so that the effective rate of interest paid for the use of money was only 2/3 per oent. Similar figures for 1927-28 were :

average money held, 28'69 crores ;

bonus paid, 23 lakhs, equivalent

to 4/5 per cent, interest;

and for 1928-29,

money held, 31-50 crores;

bonus paid, 60 lakhs, thus giving an effective rate of interest of under 2 per eont.

20. Now I wish to make it quite clear that the course hitherto followed has been strictly according to the normal system of Government accounting, for, as these accounts are made up on a cash basis, it is only the actual cash receipts and disbursements which need be taken into aocount each year. Tho system cuts both ways. Thus, in the easo of cash certificates which we have been consider- ing and which are repayable with a bonus which really represents deferred interest, the earlier years benefit at the expense of the later. On the other hand, when treasury bills aro issued, the dis- count really represents prepaid interest and is all debited to the year in which the bills are issued, so that, if they fall due for repayment in a later financial year, it is the later yoar which benefits at the expense of the earlier. If trans- actions are on a very large scale and not all of one kind, the neL result might be expected to even itself out by the balancing of one sort of transaction against the other.

.'30. But, in our own case, it cannot be said that there is anything of sufficient importance to counterbalance the very large transactions in cash certificates. Thore is, moreover, a particular danger in continuing the present practice as re- gards this obligation, because, if certifi- cates are renewed, the bonus pa? able at the end of five years is not ai-tuajly dis- bursed but is carried forward with tho result that the real liability may be con- cealed for a further five years.

31. If wo turn to consider what we ought to do in the present situation, I think we may say that there is a two-fold obligation. First, we ought to provide from revenue each year a sum equivalent to a fair rate of interest on tho money of which we have the use. That is one normal recurrent obligation, the meeting of which will prevent the further accumulation of arrears. Secondly, we have now weighing upon us a further obligation, that of providing for tho accrued liability which is made up of the amount by which tho sums paid, in the past by way of bonus have fallen short of the interest which wan really accruing

32. Lot us see what this means as applied to the forthcoming year. I calculate that, if all the outstanding certi- ficates are held till maturity, the interest accruing for 1929-30 on tho money actually in our hands would amount to about 1,50 lakhs. Against this, we estimate that the bonus which we shall actually have to pay out in that year will be 1,10 lakhs, or 40 lakhs less. Therefore, in ordor to meet the double obligation to which I have referred, we ought really first, to set aside this 40 lakhs from revenue and, secondly, to provide something towards wiping off the arrears of interest whioh have accumulated in the past. Although it has in fact proved impossible, without extra taxation, to provide in the next year's budget for more than 1,10 lakhs— and we are thus doing something short of meeting our full current liability—I think there are two mitigating factors in the situation. In the first place, on the basis of our present estimates,

we shall have left over in the .Revenue Reserve Fund at the end of next year a sum of 11 lakhs and I have in mind the possibility that this sum or any other balance that may ultimately bo available should bo trans- ferred to a Suspense Account against the liability on cash certificates. In addition to this, I think we are entitled to take into account that the provision for reduction or avoidance of debt includes a sum of 30 lakhs on account of Reparation payments. This is a later accretion to tfie original provision for reduction or avoidance of debt which was settled on its own merits without allowing for the possibility of this windfall. Taking these two factors into account, I think we may be satisfied that our accruing liability is, if Government's position is viewed as a whole, being fairly provided for ; and I am loft to consider the second part of the obligation to make some provision to wipe off the accumulated arrears.

35. It is, I think, liable to be misleading that items of non-recurring expenditure of this kind should be shown without dis- tinction, or at any rate without some concurrent explanation in the statement of the financial position presented to tho I legislature at the time of the budget, and T propose to consider for next year whether we oannot give a clearer picture of the situation by separating out, in some way, extraordhiri ry or non-recurrent, from ordinary or recurrent, expenditure. Jt is, of course, true that expenditure of the former kind is in one sense recurrent, because there will always be a normal flow of demands for those kinds of ex- penditure. But it is always possible, in a ease of grave financial difficulty, to call a halt to the admission of new items of this nature, in a way u hioh is not possible with the normal recurrent cost of the existing establishment. I shall, during the forthcoming year, devote consideration to a different method for dealing with this kind of ex- penditure.

36. For the present, T will call atten- tion to certain special items which are included :

First, we have to find aw mucli as 29 lakhs for India House in London which is expected to be completed next year so that it v* ill not appear again,

33. T think it in fair to say that this obligation should be considered to- gether with the general obligation of Government to make provision for the writing off of their total debt. As Uon'ble Members are aware, the provisions for the existing debt redemp- tion scheme were outlined in the Finance Department Resolution of the 9th of December 1924 and in para. 33 of my predecessor's budget speech of the 28th February 1925. This scheme is to be in force to the end of the \ear 1929-30 and will accordingly have to bo reviewed before the estimates for the following year are framed. 1 have, therefore, thought it justifiable and indeed fairer to this Assembly and to tho country that an\ ])io\ ision for amortising the accrued obligation in respect of cash certificates should be considered logether wi+h tho general debt redemption scheme and riot super-imposed in advance upon it. Pro- posals, therefore, for dealing with this provision will be worked out before the presentation of next budget.

3i. The group head Civil Administra- tion shows a very large

Oivx.AdmmiHtwhoi.. i n C r e a S (? of Ug M^a>

Again, we are providing Itr4 lakhs for agricultural researoh of which only 1*4 lakhs represent normal recurrent expen- diture and 15 lakhs represent the initial grant towards a total Endowment Fund of 25 lakhs. I h'tpe to be able to provide the remaining 10 lakhs in 1930-31. But in the event of financial stringency, it may be possible to post- pone thin, and in any case, these pay- ments represent initial payments which wilt not recur. As Hon'blc Members are aware, the Agricultural Commission recommended an initial Endowment Fund of 50 lakhs, but, in substitution for this, the Government of India propose to create an Endowment Fund of 25 lakhs and to supplement this with an additional voted endowment of 5 lakhs each year. Normal recurrent charges on account of staff are estimated to amount to 2-25 lakhs, so that when the full scheme is going, the normal recurring charge will be 7-25 lakhs as, against the provision of 16'4 lakhR made in 1929-30.

a matter which demands a special ex- planation. This head includes a great number of items of a non-recurring nature, and I have already explained that it is certain of these items which can justifiably be met, for this year at least, by a draft on the Revenue Reserve Fund.

B

The next item for special consideration is 20 lakha for additional expenditure on oivil aviation. This again represents very largely initial expenditure of a non- reourring nature on the preparation of ground organisation, though I feel bound to point out that if an active policy of Government encouragement to the deve- lopment of civil aviation is to be oarried out, there will be recurring oharges under this heading. The exact amount of these recurring oharges cannot be estimated until the amount of subsidy that has to be paid to the parties undertaking the service is known. The point, however, which I wish to make at preeont, is that, so far as concerns tho present programme, it includes nothing except the estimated subsidy for six months for an overland service from Karachi to Delhi, and Government retain complete liberty of decision as regards further extensions. Oar finan- cial commitments, therefore, at the moment are still under control, and a substantial part of the item of 20 lakhs, now provided for, need not necessarily be recurring.

Apart from the above items, the head with whioh 1 am now dealing includes votes for general beneficial expenditure, suoh as, 5 lakhs for the additional grant to the Benares Hindu University; 2 lakhs for the Boso Research Institute; 4 lakhs for reclamation operations in the Andaman Islands; and If lakhs for special grants to the Pasteur Institute of India.

All these items to which T have re- ferred are special items and they account for no less than 78 lakhs. It is rolevant to mention that there are other itoms of non-recurring expenditure of a beneficial character elsewhere in the estimates, r g., 6 lakha for general measures for the im- provement of the conditions of the poorer population of Old Delhi and 8| lakhs for irrigation and other development projects in the North-West Frontier Province, Baluchistan and other Minor Administra- tions.

37. The future offorts of Government to provide money for beneficial and con- structive purposes, such as I have specially mentioned, must, of course, depend on the financial position, but I should like to take this opportunity to emphasise my own view that it would be unworthy of this country if Government did not take steps to pro- vide themselves with revenue for meeting obligations of this nature.

Departmental transactions, 1029-30. 38. The contribution payable by the „ ,, Railways to General Revenues will be 6"25 orores, inclusive of 13 lakhs on account of the one-third share of the excess over 3 crorcs of the amount available for transfer to the Railway Reserve Fund. The total contribution is 79 lakhs more than the revised estimate for the current year.

39. The prospects of the Indian Posts and Telegraphs Depart- grapf und T

The Indo-European Telegraph Depart- ment is expected to show a loss of 5# lakhs against a loss of about 1\ lakhs in the current year. The loss in working the two Departments together will thus be about 22 lakhs less than in 1928-29. 40. Lastly, [ have to inform this House „.,.. ,.. of the position as re-

MUitarv expenditure. , f,.

..

gards military expendi- ture. Apart from the grant of 10 lakh.s to cover the Shea Committee measures in connection with the Territorial Force, to which I shall not refer again, the net demand is 55 crorea. Hon'ble Members will not be surprised to see this figure, as it was indicatod by Sir Basil Blackott, in introducing the budget last year, that there was no prospect of reduction for some time to come. The general situation which Government had to face in con- nection with the Ariny was also ex- plained to this House at length in a statement and in a memorandum laid on the table by my Hon'ble friend, the Army Secretary, on the 5th of September last. I need not therefore enter into an exhaustive examination of the details of this question ; but I wish to give this House a short explanation of the present position in my own words.

41. It will be remembered that in the year 1922-23 when Lord Inohcape's Committee conducted their enquiry, tho

aotnal net expenditure on Defence amounted to 65 J crores. As a result of that enquiry, the Committee recom- mended that, in the following year, the .scalo of military expenditure should not exceed 57§ crorcs and that, in sub- sequent yearn, the estimates should be reduoed to about 57 crores. They iirged that a close watch should be kept on the details of military expenditure with the object of bringing about a progressive reduction in future, and indicated that, provided a further fall in prices took place, it might be*possiblo to reach the figure of 50 crores.

42. The Committeo's recommendations were accepted, subject to certain well- known reservations by Lord Rawlinson, and resulted in a reduction from an actual expenditure of 65J crores in 1922- 23 to 56J crorcs in the following year. Slight further reductions have since been effected, and during 1927-28 and 1928-29 the expenditure has been about 55 crores. The substantial fall in prices which the Committee envisaged when they contemplated the possible reduction to 50 crores after some years, has not yet been realised, while Army expenditure to-day includes considerable additional charges due to causes which the Re- trenchment Committee could not fore- see—principally the necessity of improv- ing the pay of tho officers of the Army and granting passage concessions on the scale of Civil officers oil Government in accordance with the recommendations of tho Lee Commission. Further, tho Army now pays customs duty on imported stores, and also pays the cost of all stationery and various other services rendered by other Departments of Government. These additional charges amount to approximately one crore of rupees, and were referred to by His Excellency the Commander-in-Chief in his speech in thia House last March.

43. By 1926 it became evident that stringent curtailment in expenditure had produced deficiencies in certain essential equipment, and also that the Army in India was failing to keep pace with modern developments adopted by the British and other armies. For this reason, my predecessor, in introducing the budget for 1927-28, warned the House that only the strictest economy and vigi- lance would prevent a rise in the military budget. The Houso will also recollect the situation as regards the efficiency of the Army as explained to the Public Accounts Committee in 1927. Again, in introducing last year's budget, Sir Basil Blackett reiterated his warning of the previous year.

44. The programme for the modernisa- tion of Army equipment which was ulti- mately worked out was explained in the statement made by the Army Secretary to this House on the 5th September, to which I have already referred. This programme included the expansion of the Air Force by two t-quadrons and a pro- vision for tho modernisation of the equipment of that Force in India ; also a provision for measures in connection with anti-aircraft and anti-gas regula- tions and for the mechanisation of the transport and of fighting units together with the repletion of the Reserves. The total cost of the full programme was estimated at 10 crores made up of 8 crores for the specific measures defined above and 2 crores to rover subsidiary requirements not yet exactly defined.

45. The revelation of these needs oreated a difficult financial problem. Government decided that the mili- tary budget could not, in any case, be allowed to exceed the figure of 56 crores, and that the special expenditure required must be found within the limits of that sum. Certain automatic savings were in sight, principally those due to the reduction in the pay of British troops, amounting altogether to a saving of moro than one crore; and over and above these savings, the Army authorities undertook to carry out a special eco- nomy campaign in order to provide the additional money that was required.

46. Accordingly, it was possible to devise a plan which provides that if the Army budget is maintained at a figure of 55 crores for four yeajs—starting with the year ] 928-29—then, apart from any abnormal or unforeseen circumstances, the necessary special expenditure will be found within the limits of this sum. As it is impossible to forecast exactly the rate at which the new equipment will be provided and as it is important to avoid fluctuations in the military budget from year to year, it is proposed to adopt the procedure of transferring to a Suspense Account any sum within the limit of 55 crorcs not spent in any particular year, on the understanding that this Suspense Account can be drawn upon in subse- quent years. This is really a logical corollary to the system of net grants with liberty to reappropriate savings to meet expenditure on essential new

services—a system the advantage of which, as a temporary arrangement at any rate, was recognised by tho Public Accounts Committee in 1927.

47. Provided that a close check is kept throughout by the Finance Department on all expenditure, it mny bo claimed that there are considerable advantages in an arrangement on those lines, for it has the effect of removing all inducement to the Army authorities to rush through ex- penditure before the end of a financial year in order to avoid the lapsing of a particular grant. I think, indeed, that in the carrying out of such a programme of re-equipment as I have explained abovo, it is essential to ha.ve some pro- vision of this nature for equalising the actual appropriations over a period of years. A further advantageous result which, acoording to my information, the experience of tho working of the arrange- ment since last summer has demonstrat- ed, is that it results in the whole-hearted co-operation between tho Army authori- ties and the Finance Department in the search for all possible economies, for the Army authorities know that the com- pletion of the programme of re-equip- ment is dependent on the discovery of such economies. I am glad to be able to take this opportunity of testifying to the helpful attitude adopted by tho Army authorities in this matter.

48. In order to show how the arrange- ment is actually working out, I may stato that for the current year, 1928-29, the expenditure on normal standing^harges of the Army will be 53J crores,leaving approximately 1^ crores which will have been devoted to the special programme. Tt is further estimated for 1929-30 that the ordinary maintenance charges in the Army will amount to 52"94 crores, leaving a margin of 2'0C orores for expenditure on tho special programme.

50. Although these ultimate savings are in sight, I am fully conscious that the House must sharo with me. as a Finance Member on tho threshold of his term of office, a feeling of disappointment that no immediate relief for the budget can be obtained from the economies which are really being effected in the standing military charges of the Army. It will, however, at least be something of an achievement if an important programme for modernising the equipment of the Army, costing about 10 orores, can be carried through in 4* years without an increase in the budgetary provision.- Moreover, it can be definitely stated that when the programme is completed, the country will be provided with a more efiioient force at a smaller cost. To give the country better value for its money must indeed be the key-noto of our policy. To this extent at least, I hope that all can agree that the programme which I have outlined is a movo in the right direction- a directio?i in which future progress must constantly and energetically be sought.

51. I wish io make it clear that, in giv- ing the explanation which I have just completed, my object has been to lay the facts as fully as possible beforo this House and to indicate to them the pro- gramme which Government have in mind. At the same time, there will be no change in tho existing system of financial control, while Government arc under no binding obligation in the matter. Un- foreseen circumstances, such as an acute financial crisis, or constitutional changes occurring before the programmo is com- pleted, might modify its execution. If, however, circumstances remain normal, it is the settled intention of Government to work upon the lines which I have explained.

52. The more impoitant variations .. from tho revised esti- mate may now be sum-

marised as follows :—

(In lakhs of rupooa.)

Better, Worse.

4ll

1,30

42

,,

36

Ttevenuo from Customs . Revenue liorn Sail; "RovBTiue from Opium . Revenue tiom Currency. -Expenditure on auoount of

J,ls Civil Administration .

Nut contributions rrora Hail-

..

WflVB .

49. Tho normal cost of tho standing military charges if" thus being steadily cut down and it is, therefore, possible to hold out a very definite hope that when the four years' programme of re- equipment is completed, that is to say, after the year 1931-32, the total mili- tary budget will, apart from any cir- cumstances which cannot at present be foreseen, bo substantially reduced. It would be utiwise for me at present to oommit Government to promising a definite figure, but I can assure the House that the Finance Department will exercise the closest scrutiny of the execution of the programme,

70

Lo"w on the working of tho PoHts and TYlegrapliH \)c- partment . . ..

22

7 Other heada

2,97

1,77

TotaJ

Net

i.ao

The net result for 1929-30 is therefore 1,20 lakhs worse than for 1928-29, or in other words, instead of the surplus of 30 lakhs, which the revised, estimates show for the current year, we shill have to make up a balance of 90 lakhs in 1929-30 from other sources.

53. If it had not been for the fact that 1928-29 has gained 65 lakhs from Halt revenue at the expense of 1020-30, the latter would, aotually have shown, on balance, an improvement of 10 lakhs over 1928-29, and the amount required to balance next year's budget \\ o ild have been no more than 25 lakhs. Taking this into consideration, and in view also of the fact that the Civil AdminisJ ratio.i estimates this vear contain a number of special items to which T have already referred and some of whioh need not necessarily be repeated, T have, as already explained, thought it justifiable to provide the necessary balance from the Revenue Reserve Fund and to defer any ques- tion of imposing new taxation. The Revenue Reserve Fund, as already explained, is expected to stand at 1,04 lakhs on the 31st March 1929, so that, by providing from this source the sum of 90 lakhs which is required to balance the budget for 1929-30, there will still remain a balance of 14 lakhs left in the Fund at the close of that yeai.

54. I have dealt so far with the normal budgetary situation

New taxation j i_ l iu.

not designod for the advantage of the general revenues of the Central Govern- ment but for a specific purpose which has been unanimou&rv recommended by the Committee, mid which, I have no doubt, will bo welcomed by this House. The Committee, as I might remind Hon'ble Members, was appointed in consequence of a resolution moved in the Council of State. It consisted of 14 members of the two Chambers including representatives of all parties and of the Government, and it was presided over by my Hon'ble and learned friend, Mr. Jayakar, to whom I should like to take this opportunity of expres- sing my sincere admiration for the manner in which he accomplished his task. The subject is of great importance for the economic, social and political progress of the country generally and of the rural population m particular. It is a subject on which many divergent views are held, and it is complicated by the constitutional relations of the Central and Provincial Governments. Neverthe- less, the Committee has submitted unanimous recommendations which appear to be generally acceptable, practical in their immediate application, and charged with far-reaching possibili- ties of futuro development.

The report has an added, though indeed a sad, interest in that it was signed by the late Lala Lajpat Rai, who gave much time and labour, in co-opera- tion with representatives of all other parties and of Government, to this constructive effort for the welfare of the country.

55. The main figures of the budget, after i-mHi r,Huit. avowing for the trans- fers to and fiom the Revenue Reserve Fund and for the additional taxation and its disposal just referred to, stand as follows :—

Budgot

1,34-06 ftnvenuo , Expenditure

and have left one particular proposal till the end. The Finance Bill, which I shall very shortly beg leave to introduce, contains a pro- vision, necessitated bv the recommen- dations of the Indian Road Development Committee, for the increase, from 4 to 6 annas per gallon, of the import and excise duties on motor spirit. The additional revenue expected to be realised on this a,coount is 6 lakhs in the current year and 83 lakhs in the next. These amounts have, accordingly, to be added to tho estimates of customs revenue which 1 have already mentioned to the House. But there will also be a corresponding addition to the charges under the Civil Works head, representing blook grants of the same amounts, which will be credited lo a Road Development Fund from which disbursements will be made from time to time to Provincial Governments and others on the general linos recommended by the Committee. I have to make it clear that this is a measure of taxation whioh is

(In ororofl of riipoea.) Revised . 1,31-20 . 1,31 2U

WAYS AND MEANS.

56. I must now turn to a review of the

ifcvK-wofthepast W t*ys and means posi-

tion, and before I give any detailed account of the probable results for the current year and of my forecast of requirements for the forth- coming year, I wish to attempt some general review of the situation. It would be natural for me to do this at the commencement of my term of office. But, quite apart from this, I think the

time has arrived when it is necessary to take stock of our position—to stand back and take a viow of the progress over the past years and of the course upon which we are set.

57. The dominating feature that strikes tho eye when ono turns to review the course of past years is the great amount of capital development which has been achieved with a comparatively small increase in the public debt of Govern- ment.

58. Let mo give certain figures illustrat- ing the position. In the five years from the 1st April 1923 to the 31st March 1028, Government undertook capital expenditure amounting to about Rs. 1,20 crores and about £49£ millions. As against this sum, they raised, by way of loans to the public, a net amount (by which expression I mean the net proceeds of the new loans less the amount of old loans and treasury bills paid off) of about Rs. 1:3 crores and about £13 millions . That is to say, during these five years, sums of no less than Rs. 1,08 croros and £36J millions were provided from sources other than an increase in what is generally known as the public debt. Of the total amount of the capital ex- penditure to which I have referred, by far the greater part is accounted for by expenditure on the railways, the amount here being Rs. 69 crores and C48£ millions. Other capital works account for Rs. 12 crores and about £J million ; and Advances to the Pro- vincial Loans Fund, Rs. 39 crores.

59. The question which Hon'ble Members will naturally ask in, from what sources the rest of this money has been provided and whether it is possible to rely on Iheso sources to the same extent in the future.

To give figures which are exact in every detail would involve a very Jong and complicated statement. It will be sufficient for my prosent purpose to give approximate figures of the main head- ings which I may state as follows :

Tost Offlcti Cash Certificates and Poat Office Savings B a nk do- posits

. . .. 37 orores. i6f „ Other Savings Bank deposits .Revenue surpluses (inoiuding thoao

in Revenue Reaocvo Fund )

y

Provision for reduction or avolfl- auoe of d^bt . . .. Other appropriations from revenue Beduotion in opening cash balanoe

in India . ..

2BJ „ .Depreciation and Keaorvo I'unds Provident Fund balances from Rail-

way companies Gain by Exohange

9 71 „ These items together amount to 1,52$ crores, and out of this sum the balance of 1,08 crores to whioh I have already re- ferred, has been found, leaving a surplus of 44 J orores. The balanoe of sterling capital expenditure of £36£ millions to which I have already referred, has been found by the remittance of this surplus of 44f crores supplemented by a reduc- tion of £4J millions in the sterling balances.

60. These results indioate a remark- ablo achievement and a very great strengthening of the intrinsio position of the country and tho security which it oan offor for future loans. The provision which has been made from revenue, and even the utilisation of the Railway Reserve and Depreciation Funds, to which I shall have occasion to refer again, represent a prooess which, to use a commercial expression, amounts to the " putting back of surplus earnings into the business " which is the process by whioh most sound and prosperous undertakings are built up.

61. At the same time, an examination of the figures which I have quoted does force one, in giving consideration to tho future, to ask whether the resources which havo thus been relied on in the past to supplement borrowing, will be available in the same measure in the future. It is clear that, to some extent at least, this cannot be tho case. Government balances have been reduced to the lowest reasonable level; budget surpluses for the future can hardly be counted on to the. same extent; the sale of cash certificates shows a progres- sive diminution year by vear, though, as far as this is concerned, the result does not neoessarily indioate that the money that was provided through this channel may not be available for invest- ment in Government securities in some othor form, now that the yield on suoh other securities has improved relatively to that on cash certificates. As regards the use of Railway Reserve and Depreciation Funds, and the maintenance of the aocretions to the funds on the same scale, this of course raises debatable issues into which I oannot fully enter now, but which must be further disoussed during the examination of the Railway Convention which is to take place this year.

For my present purpose, it is suffi- cient to draw, from the review which I have given, the conclusion that Govern- ment must be prepared in the future for

having to raise a larger proportion of their capital expenditure in the form of public loans. There is an obvious co- rollary to this, viz., t h at we must keep our capital expenditures under effective con- trol a nd be watchful to limit it in acoord- ance with tho amounts which we can provide without over-straining t he credit of Government in t he open market.

62. I shall have something more to say later on t he general policy affecting Gov- ernment loane, b ut before doing this, T wish to explain t he ways a nd means position for t he curront year a nd next year. An examination of tho position for these two years confirms t he conclu- sion to which my survey up to this point has led me,

In 1928-29, it was already necessary to resort to borrowing on a larger scale and the forecast t h at was presented with t he budget for t he year proved to havo under-estimated t he needs in this direc- tion.

and railway capital expenditure was 2£ crores more, than contemplated. The position during the year has also worked out worse than was anticipated. First, railway capital expenditure again threat- ened substantially to exceed tho original estimate, and, in spite of an application of the brake in August, is likely to amount to 26 croves instead of 24 crores as estimated; secondly, the net recoipts from cash certificates have latterly shown signs of falling off as I have already explained; lastly, the weather conditions referred to at the outset of my speech have resulted in considerably larger drawings by oertain Provinces. All these factors combined made it necessary to strengthen tho position temporarily by the issue of sterling bills in August for £6 millions and eventually to provide for a more permanent reinforcement by the issue of a 4£ per cent, loan in January last in London for £10 millions at 91. Tho prooeeds of this loan will be direotly used to pay off the sterling bills and to meet the purchase price for the Burma Railways.

63. I have prepared a summary, in tho a usual form, of t he Summary. •,

ways and means posi- tion for the current year and next year :—

(in crores of rupees.)

Budget, 1029-30.

Revised, 1928-29.

Liabilities.

Kailwoy capital outlay

-2&r,

(ooDHtmotion)

Purohaso of Railways

7-0

Other Capital outlay

•1-0 1-7

2'1

Provincial Governments'

1 21

7'2

transactions .

Discharge of public debt

(net) . . ..

ID'U

Other transactions (net) .

14

•4

04-1

48-1

Total

65. Apart from this transaction, events followed closely the course anticipated. The rupee loan issued in July was successfully launched in the form of a 4^ per cent. 1955-60 Loan and 4^ per cent. 1934 Bonds, which brought in 9*06 crores (nominal) and 25"98 crores (nominal) respectively, or a net total of 33"8 orores. It will be seen from what I have said that the current year has already provided an illustration of the need for inoreased borrowing, if a pro- gramme of capital expenditure on the present scale is to bo continued. But there are certain special points to whioh attention should be called.

iicaowrcce.

LS-0

;)3'8

12-L

7-0

Kupee loan (net) Starling loan (net) . Postal Cash Certificated

3-7

5-3

40

4

5-6

o-o

and Savings Bank Other unfunded debt Debt redemption . Depreciation and .Reserve

Funds . . ..

fi-8

— 2 ;j

11

Reduction of oaah balanooa

04-1

Total

48-1

64. Dealing with the current year, the following are the main

Current year. . "°. mi

First, the capital expenditure inoluded 4 crores for the purchase of the Burma Railways which may be regarded in a sense as an artificial addition to normal needs ; secondly, even for this year with its largor sterling and rupee loans, the net amount borrowed from the public in India and England together in the form of loans and treasury bills, after allowing for discharges and conversions, has only been 26 crores as against an aggregate capital outlay of just under 44 crores for Central Government's capi- tal expenditure and drawings by Provin- ces. The treasury bills outstanding with the public, which, according to the budget estimates of the current year, should have stood at 9 crores, are now expected items of interest. The opening balance, taking India and England together, turned out to be 4 ororos less than estimated a year ago. This was because actual issues of treasury bills in Maroh last were 1J orores less,

general state of industry and trade in the country is at least somewhat below par, public expenditure on work which gives a great deal of local employment should be suddonly and drastically cut down.

to be reduoed to 6*95 crores at the olose of the current year. It will bo my ondeavour further to reduce the out- standings of treasury bills so t h at these do not remain a permanent feature in t he local money m a r k et conditions.

On the whole, it may, I think, fairly be claimed t h at Government, in spite of difficulties, find themselves at t he close of the current year in a .stronger position t h an they held at t he beginning.

(30. I can now t u rn to consider t he

prospects for 1929-30.

N-xt year. mi J. 1 -J.I I • 1

68. On the other hand, I have kept constantly before me tho conclusions which my earlier review of the situation has revealed, and, in framing a programme for next year, my guiding rule of policy has been this—that, while avoiding hasty action or serious dislocation of current work, we must get the course of capital expenditure well under control so that its pace can be rogulated according to financial conditions, and so that, in case of difficulty, it can be slowed down without involving any damaging jar to the machine.

69. In the end, wo have provided, as has boen indicated in the figures which 1 havo already given, for a capital expenditure of 26| crores on the rail- ways—a substantial sum—but tho real featuro in the programme is this ; that the bulk of the money is to go on the execution of current Mrork and that new commitments have been cut down to a minimum. There could thus, if necessary, be a substantial reduction hi 11)30-31, while measures have been adopted to ensure that the allotment for' 1929-30 will not be overspent. On the other hand, work is being continued on a scale which avoids the necessity of any general dismissal of construction staff, so that, if at the beginning of 1930, prospects are not unfavourable, new projects" can again oxpeditiously be put in hund. The working off of old commitments which is taking place this year, \\ ill mean that, if anything like tho same amount of capital can be provided next year, a far larger proportion will be available for taking ivp fresh projects for new lines.

The task with which [ found myself faced was this. The Railways—our chief consumers of capital —were in tho course of executing a large programme containing many projects. Their organisation for carrying out now construction had been developed to

67. Apart from this, it seemed to me very undesirable that, at a time when the