REGISTERED No. L. 3131 .
The Gazette of India
EXTRAORDINARY .
PUBLISHED BY AUTHORITY .
NEW DELHI , SATURDAY , FEBRUARY 27 , 1937 .
GOVERNMENT OF INDIA .
FINANCE DEPARTMENT .
SPEECH BY THE HONOURABLE FINANCE MEMBER ON INTRODUCING THE BUDGET PROPOSALS FOR 1937-38 .
( 77 )
[Price 4 annas . ]
79 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
Speech by the Hon'ble Finance Member on introducing the Budget Proposals for 1937-38 .
1. In my two provious Budget speeches I have had to tell a story of good fortuno, of oxpectations more than realised, of reductions of taxation and of grants for various kinds of development . Today I have a different kind of story to tell , a story of disappointment , and of unexpected difficulties super- imposed upon those which we expected and had braced ourselves to bear . Nevertheless the story will , I hope, show that the difficulties can be surmounted with little hardship or even inconvenienco and that boing so, the confidence in the future which I have hitherto expressed need only he tempered and cortainly not abandoned .
Having thus aroused your curiosity I will proceed at once to the first of my three tasks, viz . , that of rosurrecting a financial year which has been for a long while dead .
FINANCIAL YEAR 1935-36 .
2. When I presented the budgot a year ago I anticipated a surplus of Rs . 1,97 lakhs for the year ending the 31st March 1936 and this I asked the House to transfer to a Revenue Reserve Fund to help out the finances of 1937-38 , the first year of Provincial Autonomy. This carry - forward has turned out to be Rs . 1,84 lakhs o Rs . 13 lakhs less than wo expected. There were im- provermonts of Rs . 27 lakhs under Taxes on Income and there was an increase of Rs. 16 lakhs under intorost receipts combined with a saving of Rs . 13 lakhs under interost payments . There were also miscellaneous increases of receipts amounting to Rs . 19 lakhs but all these improvements were more than swallowed up by decreases of Rs . 27 lakhs under Salt and of Rs . 61 lakhs under Customs . The former was due to postponement of clearances at the ond of the year . This usually happens when there is an expectation of a roduction in the rate of duty but in this caso the expoctation was singularly ill - founded for it was based on nothing more than what I may porhaps without unduo disrespect call one of the more optimistic votes given by the Party opposite . Of tho rocession under Customs no less than Rs . 36 lakhs was attributable to the sugar import duty alone and this heavy doterioration represented a complete reversal in the last two or three months of the financial yoar of the tendencies which had been in vogue in the earlier months . I would remind Hon'ble Members that Idrow their attention to it during the debates on the Finance Bill, when I said " We now have 11 months figures to go on and to give only one oxample , the receipts from the sugar import duty in February were only Rs. 5 lakhs whereas the corresponding figuro for the year before was something over Rs . 20 lakhs , I believe, and it is now quite clear that we have overshot the mark in the rovised estimates for the yield of sugar import duty. "
The striking declino in the volume of sugar imports was accompaniedby some diminution in the general import trade , and particularly the trado in the more highly dutiable commodities . The putting into effect of sanctions 80
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
against imports from Italy must have contributed something to this unfavour. able result . At the same time imports of silver began to show a marked increase, a diversion of India's purchasing power into a channel which , at any rate from the revenue point of view , is comparatively sterile and unprofit- able, since the incidence of the duty on these imports is much lower than on imports of merchandise .
FINANCIAL YEAR 1936-37 .
3. The tendencies which disclosed themselves in February and March certainly did not disappear with the end of the financial year but were an only too accurate prosage of what was to come in 1936-37. The revised fore- cast for that year shows , instead of a surplus of Rs . 6 lakbs , a deficit of Rs . 1,97 lakhs . There is an excess of Rs . 25 lakhs in oxpenditure and a deterioration in revenue of Rs . 1,78 lakhs .
Excluding Railways , the figures are as follows :-
(Rs . lakhs .)
Revised,
Budget,
1936-37.
1936-37 .
83,14
81,36
Rovenue
83,33
83,08
Expenditure
6 Doficit
1,97
Surplus
Hon'ble Members will find the estimates set out in dotail in the Financial Secrotary's memorandum but I shall naturally be expected to supplement tho figuros with a fow explanations.
Revenue .
4. To turn first to Revenue . The main elements in the total deteriora- tion of Rs . 1,78 lakhs aro as follows : -
Deficits of Rs . 2,16 lakhs , Rs . 37 lakhs and Rs . 28 Jakhs undor Customs , Income Tax and Currency, respectively and Improvements of Rs . 41 lakhs , Rs . 37 lakhs and Rs . 10 lakhs undor Contral Excises , Miscellaneous and Salt .
5. Customs . As I have just indicated we now expect a shortfall of Rs . 2,16 lakhs . Thoro are two largo surpluses , viz. , Silvor Rs . 1,53 lakhs and Artificial Silk Piccogoods Rs . 55 lakhs but in practically overy other commodity there has been a decline. Sugar Rs . 1,45 lakhs, British piecegoods Rs. 75 lakhs , Metals other than iron and steel Rs . 40 lakhs, while the large number of smallor deficits over the remainder of the field add up to nearly Rs . 12 crores .
The extremely heavy fall in the rocoipts from imported sugar tells its own talo, but I cannot refrain from pointing out the justification which this affords for my refusal in the last two years to corumit myself to a programme of remis- sions of taxation on the strength of the more or less indefinite continuance of this source of revenue. As regards British piecegoods, it is clear that the exaggerated apprehensions that wore expressed in certain quarters when the recommendation of the Tariff Board was accepted were unfounded. In spito of the reduction in the duty the U. K. products have not so far succeeded in recapturing any part of the markets which they hold till comparatively rocently, 81 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
and the prices have remained largely beyond the reach of the Indian purchasor . The decrease in the import of motals reflects the onhanced European domand for rearmament purposos , which, togother with the inevitable riso in prices , has restricted delivery of supplies to India . The contraction in other fiolds of our import trado may also be ascribed in part to the difficulty and uncor- tainty which attends tho fulfilment of orders for manufacturod goods from Europe . I have alroady mentioned the offect of the sanctions against Italy, the imports from which completely ceased for some months and aro still only slowly being resumed. Another reason for the weakening of the import trade may perhaps be sought in the effect of the rural indebtedness moasuros passod in various provinces : theso have, for the moment at any rate produced a contraction of credit and reduced the expenditure of the cultivator ospocially on caremonial occasions , and his purchasos of dutiable goods . Finally, I am prepared to admit that our estimates may have been pitchod too high , and that in our efforts to turn the flank of the accusations of deliberato under- budgetting which have beon so plentifully thrown at us we may have advancod somewhat too far .
6. Iwill now comment briefly on the variations in some of the other heads ofRevenue .
(i) Taxes on Income . Tho deterioration of Rs . 37 lakhs under this head isdue in the main to two causos . The first is a decline in income tax receipts from sugar manufacturing companies . The ostablishment of an unnecessarily large number of sugar factories in certain aroas has inevitably led to price- cutting, started primarilyby companies which owing to financial or climatic roasons were unable to hold stocks . This has entailed a considerable reduction in the profits of the industry as a whole. The other cause is the fall in the profits of money- lenders . Provincial Rural Indebtedness Acts while improving the position of the debtor have reduced recoveries and made the lender loss willing to make further advances so that there has been a falling off both as regards his rate of profit and as regards his volume of business .
( ii ) Currency. The variation hero is due to a decrease of Rs . 29 lakhs inthe Govornment share of the Reserve Bank's profits owing to the low yield obtainable on the somewhat restricted typos of security, in which alone the Bank is allowed by law to invest its assets .
( iii ) Central Excise Dutics. The rapid attainment of self- sufficiency in sugar is responsible for an increase of Rs . 35 lakhs undor sugar excise but this is of course greatly outweighed by the heavy fall in customs duty.
(iv) Miscellaneous . The increase of Rs . 37 lakhs under Miscellancous includos Rs . 24 lakhs on account of Post Office Cash Certificates issued prior to 1923 and Rs . 10 lakhs of gain on exchange . In future the amounts of any Cash Certificates unclaimed for more than 3 years aftor maturity will be creditod to revenue. Of course if cortificates aro subsequently prosonted they willbo paid and there will be a corresponding dobit to revenue .
Expenditure .
7. I now turn to expenditure where the revised forecast shows a net increase of Rs . 25 lakhs over our original ostimates . Owing to heavier dis- charges of Post Office Cash Cortificates Intorest Charges are expected to be Rs. 46 lakhs up . For the rost there are a number of savings under Civil Administration and Civil Works which together add up to Rs . 20 lakhs or so . The more important of these aro the underspendings on the provision for tho Delhi refuso and sewage disposal schemes .
82
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
Defence.
8. On Defence I must as usual elaborato somowhat.
The estimatefor the year was Rs . 44,85 lakhs ordinary expenditure plus Rs . 60 lakhs for Quetta or a total of Rs . 45,45 lakhs . In the ordinary budget the Revised Estimates reveal the following variations : --
There have been underspendings totalling Rs . 65 lakhs in all . Most of those are vory small the only items of note being Rs . 9 lakhs on account of the absence of troops from India and Rs. 12 lakhs owing to the effects of the War Block" scheme having been more rapid than was expected . On the other hand there have been excesses amounting to Rs . 33 lakhs-the bulk of this being due to increased demands for storos and a number of minor new and unforeseen expenditures adding up to Rs . 151 lakhs . Then we have had to provide Rs . 111 lakhs for the Waziristan oporations and in the final analysis underspending has been no more than Rs . 51 lakhs and this is the amount which we expect to lapse to the Defence Reserve Fund.
During the year in addition to the Rs . 51 lakhs mentioned above sums of Rs . 33 lakhs representing contributions to military equalisation funds and Rs . 45 lakhs representing postponed liabilities will be doposited in the fund. As regards expenditure on Quetta about Rs . 50 lakhs will have actually been spent on reconstruction work , etc. and Rs . 10 lakhs will be carried forward to meet further expendituro on this account in 1937-38 . This latter figure of Rs . 10 lakhs is included in the sum of Rs . 45 lakhs which I have just men- tioned above .
Posts and Telegraphs .
9. To round off my survey of the current year I say a few words about Posts and Telegraphs . The revised forecast provides for a surplus of Rs . 8 lakhs as against a nominal surplus of Rs . 1 lakh anticipated in the original budget. This is the result of savings of Rs . 12 lakhs under working expenses and Rs . 1 lakh under interest charges and a deterioration of Rs . 6 lakhs under receipts. The saving under working expenses is due partlyto economies in expenditure and partly because certain claims from other dopartments did not materialise . The Revised estimate of receipts takes into account a refund of about Rs . 9 lakhs to Provincial Governments on account of their share of unified stamps for the years 1930-31 to 1933-34.
The rovenue and exponditure figures are :-
(Rs. lakhs .)
Budgot , 1936-37 .
Revised , 1936-37 .
11,74 11,68
Gross receipts
10,93 10,81
Working expenses
81
87
Not receipts
80
79
Interest chargos
1
8
Surplus
83 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
Position as at 31st March 1937 .
10. So, on the basis of these figuros the position is that we are faced with a deficit of Rs . 1,97 lakhs in the curront year . This roprosonts a considorablo falling off from our hopes of a year ago and it is bound to mako us ro - oxamine with sosome care the foundations on which the Niemeyer proposals for subven- tions and allocations of rovonuo to the Provincos rest . However , I propose to leave this examination ovor until after we havo considered the estimates for 1937-38 .
FINANCIAL YEAR 1937-38 .
11. I am afraid that Hon'ble Mombors will be rather puzzled when they see the budget statoments to be distributed at the end of my speech , for there are considerable changes both in the form and scope of the estimates . These I will explain as briefly as I can and I hope without tedium. First of all there are the changes of form :---
The present system of account heads was introduced in 1921 whon a general transformation of the accounts was necessitated by the soparation of the revenues and expendituro of the Contre from those of Provincial Govorn- monts . Although there have boen minor modifications from time to time the general composition has romained the same throughout and thore is an obvious convenienco in maintaining the present structuro with no moro than tho minimum of change required to adapt it to the new constitution which is boing introduced on April the 1st . Apart from the conversion of a fow of the prosont minorheads into major heads the important changos adopted aro as follows:--
(i) All- India Excise dutics which aro lovied by the Central Government are , with the oxception of the salt duty , at present included under the head " I-Customs " . They are of course not customs duties at all and in view of their importance in the Federal Finance schemo separate major heads have been introduced for them both on the receipt and on the oxpenditure side . The duty on kerosene oil and motor spirit produced in Burma has hitherto beon shown as an excise duty . But with the separation of Burma on the 1st of April 1937 the duty on these articlos imported from Burma will appear as an import duty under " I- Customs " and only the duty on kerosene and motor spirit produced in India proper will be shown as an excise duty. This will lead to large changes in the figures for import and oxcise duties on these two items for next year as contrasted with proceding years .
(ii) A new major head " Corporation Tax " has been opened and the desig- nation of the existing major head " Taxes on Incomo " has boon changed to " Taxes on Income other than Corporation Tax " .
(iii) The House will remember that in the budget speech last year I remarked that I could not see any sufficient reason for the exhibition of our interest payments under two separate major heads and it has now been decided that all these payments should be classified under the same head " Interest on debt and other obligations " .
(iv ) Most of the expenditure which , under the existing classification, is shown under the heads " Political " , " Frontier Watch and Ward " and " Terri- torial and Political pensions " together with part of the expenditure at present shown under certain other heads in some of the Area Demands will appear under new heads " Payments to Crown Representativo " , " Tribal Areas " and " External Affairs " .
84
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
All sums required on rovente account by His Majesty's Representativo for the exercise of the functions of the Crown in its relations with Indian Statos under Section 145 of the new Government of India Act , less any revenuo re- ceipts realised by him in the exorciso of such functions will be shown under the head" Paymonts to Crown Reprosentative " . The cash contributions referred to in Section 146 of the Act will as hitherto appear as " Payments from Indian States" .
(v) A new major head " Grants - in -aid to Provincial Governments " has been introduced to cover the grants given to the Provinces under the Niemeyer Award .
(vi) At present all sterling receipts and expenditure of the Central Gov- ernment and Provincial Governments are finally brought to account in England and as a result each Government has two sets of accounts , one for sterling and the other for rupee transactions . But in future all sterling transactions , with tho exception of a few debt head transactions which are essentially of a sterling nature, will be broughtto account finally in India . As a result the separate column in the Budget Statements for English transactions and the separate demands for all the expenditure incurred in England by the Secretary of Stato and the High Commissioner will not be necessary.
All these changes havo boen incorporated in the budget statements for 1937-38 and to make comparison easior the figures for 1935-36 and 1936-37 have, as far as possible , been recast correspondingly .
12. But apart from the changes of form there are two major changes of scope which affect the ostimates for 1937-38 . I refer of course to the Separa- tion ofBurma and to the Niemeyer Award including in this term all the other alterations consequent upon the introduction of Provincial Autonomy . The effects of these changes run through practically every head of the Budgot and in ordor to present them as conveniently and clearly as possible to Hon'ble Members I have had a special table drawn up (Table I in the Financial Secre- tary's momorandum ) which will show how much of the variation in each head between 1937-38 and 1936-37 is attributable to the Separation of Burma and to Provincial Autonomy respectively . This Table will make it unnecessary for me to comment on variations in the Heads of Revenue and Expenditure except where they arise from canses other than the two main ones . It will be seen that the gonoral effect of the Separation of Burma is a net reduction of Revenue of Rs . 3,38 lakhs and a net roduction of Expenditure of Rs . 92 lakhs- these figures taking no account of a betterment of Rs . 13 lakhs in the net balance of the P. & T. Department . The not cost of separation is therefore Rs . 2,33 lakhs . At this stage I should explain that on the Rovenue side we have taken credit for the receipt , under the Amery Award , of
(i) Rs . 2,29 lakhs in respect of the dobt and other liabilities taken over byBurma, and
( ii) Rs . 94 lakhs in respect of Burma's liability for pensions in course ofpayment on the 31st March 1937.
The formor amount is the provisional figure of the annuity payable by Burma for the next 45 years and the latter represents the first of a series ofannual payments which will diminish gradually to zero over a period of 20 yeurs . Apart from these the net loss on account of soparation would be Rs . 5,56 lakhs . Necdloss to say all those figures are of a provisional character . There are many uncertain factors to be taken into account particularly under the heads Customs and Taxes on Income and moreover the final material 85 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
for the calculation of the annuities payable by Burma will not be available until some time after the 31st March .
As regards Provincial Autonomy , the net results are a reduction of Rs . 51 lakhs in Rovenue combined with an increase of Rs . 1,34 lakhs in Expendi- turo , i.e. , a total cost to the Centre of Rs . 1,85 lakhs .
The sum of those two figures , viz . , Rs . 4,18 lakhs represents the extra burden on our budget ( i.c. , additional to that assumed in earlier years ) arising from the constitutional changes duo on 1st April next . The chargos assumed in earlier years including the devolution of 50 por cent . of the Jute Duty and the subventions to the N.-W. F. P. , Sind and Orissa amount to more than as much again .
13. Provincial Borrowing. This is perhaps a convenient place for me to explain the arrangements which will rule between the Centre and the Provinces as regards payment of existing debts and future borrowings .
As the House is aware a Provincial Loans Fund was established in 1925 in order to systematise the arrangements by which advances wore made by the Centro to the Provinces . This was financed out of Central Government monies and all advances sanctioned by the Contral Government to Provincial Governments wero mado from it ; the interest charges and the terms of repayment were fixed for all provinces alike at appropriate rates to ensure the solvency of the Fund . It has now been realised that this procedure will be totally inappropriate under the changed conditions more particularly as serious dofocts in it have manifested themselves even under the prosent regime.
The Government of India have , therefore , with the sanction of the Secre- tary of State , reached the following decisions :-
(i) No further loans will be sanctioned to the Provinces from the Provin- cial Loans Fund with effect from the current year . Essential requirements during this last year of the old regime will be met by loans to be given by the Centre direct for a period not exceeding 18 months and which will before the end of that time have to be converted into regular loans under the new system .
( ii) The Provincial Loans Fund will be wound up .
( iii) All future borrowing by Provinces whether for long or short term , will ordinarily be from the market through the medium of the Resorve Bank .
In exceptional circumstances a province may be forced to borrow from the Centre and in such cases the loans will be for specific round amounts on fixed terms while the rate of interest will include an element to compensate the Centre for expenses and risks . The terms of each loan to a province will be settled ad hoc in relation as regards interest rates , maturity and the time of issue- to particular operations of the Centre . The Government of India will not normally, if at all, lend for the purpose of meeting revenuo deficits ; and
( iv) existing provincial debts to the Government of India will be conso- lidated on the terms set out in Appendix III to the Niemeyer Report .
As a result of this consolidation the balances of the Provincial debts to the Government of India as on the 1st April next will , with the exception of the Lloyd Barrage debt , certain loans advanced to the Bombay Government , andRs . 10 crores of the pre - 1921 Punjab debt , be funded into fixed annuities of amounts sufficient to repay the whole liabilities over a period of forty- five 86
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
years . The interest olement in these annuitios will be credited to the Budget hoad" Interest on Deht and other Obligations " while the capital element will be taken straightto the reduction of debt outside the Budget .
With those possibly somewhat too extensive proliminaries I turn to the estimates for next year , 1937-38 .
FINANCIAL YEAR 1937-38 .
Revenue .
14. The total figure for revenue, including a contribution of Rs . 15 lakhs from Railways , is Rs . 79,99 lakhs , or Rs . 1,37 lakhs less than the rovised Esti- mate for 1936-37 . Hon'ble Members will remember that the constitutional changes are responsible for a reduction of Revenue of Rs . 3,76 lakhs .
15. Customs . The budgot estimato for next year is Rs . 44,66 lakhs against the current year's revised of Rs . 46,73 lakhs , in other words , a decrease ofRs . 2,07 lakhs . If, however , we exclude the loss of Rs . 4,26 lakhs due to the separation ofBurma, the estimate for next year provides for an improvement over the current year's revised forecast of Rs . 2,19 lakhs , which is distributed over a large number of items .
16. Taxes on Income . The budget estimate for next year is Rs . 14,30 lakhs against the current year's revised of Rs . 15,30 lakhs. After allowing for a loss of Rs . 1,40 lakhs owing to the separation of Burma, the estimate for next yoar anticipates an improvement of Rs . 40 lakhs, of which Rs . 20 lakhs is duo to the measures to be taken under the Income Tax Bill which has alroady passed this Chamber .
Expenditure.
17. The total figure for expenditure , of course oxcluding Railways , is Rs . 83,41 lakhs or Rs . 8 lakhs more than the rovised estimate for the curront year . But as the two constitutional changos I have described in detail are expected to produce an incroase of Rs . 42 lakhs there is really a not roduction ofRs . 34 lakhs over the remainder of the field.
This figure of Rs . 34 lakhs we can put down as the resultant of the follow- ing decroases and increases :-
due to a considerable diminution in " Bonus on Post Office Cash Certificates ". Intorost payments show a net reduction of about Rs. 87 Thero is also a saving due to the repayment of the 51 por cent sterling loan but the main benefit of this accrues to the Railways and other borrowers . The separation of Aden will produce a saving of Rs . 20 lakhs a year which of course accruos to the Defence Budget. On the other hand ordinary Defence Expenditure apart from the saving on account of Burma and Adon is upby Rs . 26 lakhs . " Civil Works " aro up by Rs. 25 lakhs owing partly to an increased transfer to the Road Fund and partly to provision being made for various Government offico schomes such as rebuilding the Customs House in Calcutta and the erection of Central Offices in Bombay . Incidentally I must say that as regards Bombay the rents saved will more than cover interost on the cost of the now building and the maintenance of it . Finally thore is an increase in " Civil Administration " partly caused by the nocossity for ro - voting some of the expenditure on the Delhi refuso schome.
18. Defence . The Defence Estimates total Rs. 44,62 lakhs. Of this Rs. 43,87 lakhs relates to ordinary exponditure and Rs . 75 lakhs to expendi- ture on the rebuilding of Quetta .
87 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
The figure of ordinary expenditure for 1936-37 is Rs . 45,45 lakhs less Rs . 60 lakhs for Quetta , i.e. , Rs . 44,85 lakhs . From this should be doducted Rs . 1,24 lakhs being the reduction allowed for in the 1937-38 estimates on account of the separation of Burma and Aden . The comparable figure for 1936-37 is therefore Rs . 43,61 lakhs or Rs . 26 lakhs less than the estimate of Rs . 43,87 lakhs now presented. Included in this excess is a special provision of Rs . 6 lakhs towards the expenses of sending a Contingent of the Army in India to the Coronation . The real excoss is therefore Rs . 20 lakhs . This is much more than accounted for by increases of Rs. 25 lakhs under Ordnanco Services , Rs . 14 lakhs under grain prices , Rs . 3 Jakhs under transportation due to the withdrawal of a Railway concession , Rs . 7 lakhs under the pay of British soldiors and miscellancous unavoidable increases totalling about Rs . 11 lakhs . So that taking those into account there has been a roduction over the rest of the field of something like Rs . 40 lakhs. This represents the contribution which the Defence authorities have been asked to mako to our , I hope , tem- porary difficulties in this most difficult of yoars . But this expedient cannot bo repeated very often if at all for, as H. E. tho Commander- in - Chief has pointed out to me, the figures have only been reached by the help of a curtailment of services which are bound to be provided for sooner or later and sooner rather than later . Indeed His Excellency , while he is prepared to face in this year the curtailments involved , has warned me that ho is seriously con- corned as to the adoquacy of the present figures for the real needs of defence.
19. Posts and Telegraphs .It is anticipated that the working of the department in 1937-38 will result in a small surplus of Rs. 4 lakhs after allowing for the soparation of Burma and Adon. For purposes of comparison I give below the figuros including and excluding Burma and Aden :-
(Rs . lakhs.)
Budget, Budget,
1937-38
Revised, 1936-37 . including Burma and Aden.
1937-38 excluding Burma and Adon .
Gross recoipts
11,68 10,81
11,16 10,39
11,91 11,21
Working expenses
70
87
77
Net receipts .
79
79
73
Interest charges
-9
+4
+8
Surplus or deficit
Comparing like with like , the budgot ostimate of gross receipts provides for an increase of Rs . 14 lakhs over the rovised figure for 1936-37, apart from the special rofund of Rs . 19 lakhs I mentioned proviously. The main items in the increase of Rs . 40 lakhs under working expenses aro Rs . 12 lakhs for increments, Rs . 8 lakhs for the Empire Air Mail Schome and Rs . 5 lakhs for additional postal facilities in rural and urban areas .
The estimates for next year provide for two small changes in rates . The first is a change in the book packet rate . The prosont rate is anna for the first five tolas and anna for every additional five tolas . As the 88
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
House is aware , it has frequently been urged that this rate affects trade adversely and it has been pointed out that it is cheaper to send a book packet from London to Delhi than from Bombay to Dolhi . We propose , therefore , to reduce the rate to half an anna for the first 24 tolas and one quarter of an anna for every additional 24 tolas . This concession will cost about Rs . 8 lakhs . The second change is the removal of an anomaly in the parcel rates . The present minimum parcel rate is 2 annas for parcels weighing not more than 20 tolas with the result that as soon as a letter weighs more than 3 tolas it is possible, by sending it as a parcel ,to pay less than the lotter rate . At certain stages the parcel rates become even cheaper than the book packot rates . Wo therefore propose to eliminato the 2 anna rate for parcels so that all parcels weighing 40 tolas or less will be charged 4 annas . This will yield an additional revenue of about Rs . 8 lakhs which will just balance the loss due to the con- cession in the book packet rate .
Summary of the position for 1937-38 .
20. I am now in a position to summarise the estimates for 1937-38 and the figures are as follows
Revenue
79,99 lakhs .
83,41
Expenditure
Gross deficit
3,42 lakhs .
Against this we have Rs . 1,84 lakhs in the Revenue Reserve Fund and so our Net Deficit is Rs . 1,58 lakhs .
But, before dealing with the problem of meeting this shortage , I turn aside for the usual review of our Ways and Means position .
WAYS AND MEANS .
21. Remittance . The ways and means forecast for the current year assumed our sterling requirements to be £41 millions , including about $ 17 millions for the repayment of the 5 per cent . Stock 1936-38 and the revised forecast shows practically no change. Between the 1st April 1936 and the 31st January 1937 the Reserve Bank purchased nearly £41 millions of sterling. The Banking Department held at the end of January more than $16 millions of sterling assets while in the Issue Department the ratio of gold and sterling to liabilities was nearly sixty instead of the statutory forty per cent. The position of the Bank is thus a very strong one in spite of this repaymont of £ 17 millions of sterling liabilities . Although the net exports of treasure dropped from Rs . 32 croresto Rs . 14 crores in the first nine months of the year Exchange has remained firm throughout the year mainly on account of the large favourable balance of trade in merchandise whichhas been accompanied by steadily rising prices of primary products . During the first nine months of the current financial your this favourable balance amounted to Rs . 50 crores against Rs . 19 crores during the correspond- ing period last year . It certainly does not look therefore as if the rupee woro over- valued-in fact there is a good deal more to be said for the contrary view.
The requirements for next year are estimated at £35 millions, inclusive of £6 millions which it is anticipated will be transferred to the Commissioners appointed under the Family Pension Funds Order in Council and £2 millions which will be needed for the repayment of the capital portion of the Railway Annuities and the Railway Sinking Funds .
89 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
22. Provincial Requirements . The revised estimate of the requirements of Provincial Governments amounts to Rs . 6,57 lakhs against the budget estimate of Rs . 5,61 lakhs ; the increase is more than accounted for by the withdrawal by certain provinces of the amounts available in their Famine Relief Funds for direct investment . With the introduction of Provincial Autonomy and the separation of the balances of Provincial Governments from the 1st April next the transactions of those Governments will not appear in the accounts of the Central Government . In the first year, however , we shall have to hand over to them in cash a portion of the balances which the Central Government has hitherto held on their account . The cash to be transferred to Provinces on the 1st April is Rs . 2,39 lakhs for minimum bank and treasury balances and Rs . 6,21 lakhs as their free and other carmarked balances . We shall also have to give the Government of Burma Rs . 2,00 lakhs in cash but this amount will be taken into account in the financial settlement with that Government. The total sum included in the estimates for all these items is Rs . 10,60 lakhs .
23. Borrowing programme. The budget for the current year assumed an increase of Rs . 11 crores in our liability in the shape of Treasury Bills , but made no provision for a rupee loan . Later in the year Government decided to take advantage of the exceptionally favourable conditions in the money market and issued a 24 per cent . loan 1949-52 for Rs . 12 crores at par . Con- sequently there will be no increase in Treasury Bills and the balance outstand- ing at the ond of the current year will in fac ! be slightly less than that at the boginning of the year , namely , Rs . 30 crores . As I have already said a sterling loan of £ 17 millions was repaid during the year and thus in offect we have been able to repatriate a considerable sterling liability and at the same time lower the cost to the taxpayor by reducing the rate of interest .
No rupco or sterling loans mature next year and on present showing it may not be necessary to issue any now ones . Butto repeat what I said a yoar ago , should conditions again prove favourable Government will hesitate to take full advantago of them. not
The balance of Treasury Bills outstanding at the end of next year is ex- pected to bo Rs . 34 crores . That is Rs . 4 crores more than at the beginning of the year and is more than accounted for by the Rs . 5 crores we shall have to pay the Reserve Bank of India for the surplus rupees they will return to us under Section 36 ( 1 ) of the Reserve Bank Act .
24. Post Office Savings Bank Deposits and Cash Certificates . The net receipts from Post Office Savings Bank deposits are now estimated at Rs . 7,50 lakhs in the current year against the original estimate of Rs . 8,25 lakhs and last year's actuals of Rs . 8,95 lakhs . If we make allowance for exceptionally heavy deposits of over Rs . 24 crores in September 1935 when two Government of India loans were ropaid, the estimated receipts during the current year will bemore than last year in spite of a reduction in the rate of interest from 24 por cent . to 2 por cent . with effect from the 1st July 1936. Next year we antici- pate a net receipt of Rs . 8,00 lakhs .
As a result of the reduction in the yield on Post Office Cash Certificates from 3 per cent . to 21 per cent . also with effect from the 1st July last we now anticipate a net discharge of Rs . 75 lakhs in the current year and of Rs . 1,50 lakhs next year .
PROPOSALS FOR 1937-38 .
25. As a proliminary to my proposals for dealing with the shortage of Rs . 1,58 lakhs in the accounts of 1937-38 I will deal with the question which I posed at an earlior stage of my speech , viz . , have we in the disappointments of the year 1936-37 any reason for doubting the soundness of the conclusions of 90
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
the Niemeyer Report in regard to the ability of the Centre to bear the cost of the successive stages by which the new Constitution is being introduced ? A year ago I prophesied that with the help of a Revenue Reserve Fund of Rs . 2 crores we could see our way through 1937-38 and that thereafter the normal growth of revenue would provide step by step for the liabilitios which would come upon us from year to year. Our Rosorve Fund has turned out to be somewhat less than we expected and Revenue has shown a distinct falling off. Contrary to our hopos thereforo we are betweon Rs . 1 and Rs . 14 crores short of a balanco in 1937-38 and unless we assume a growth of revenuo during the year greater than we have any right on past exporience to expect this should connote a deficit in 1938-39 too of something like the same amount . Are our calculations then all wrong and are we pursuing a chimera in judging that we can financo the new constitution ? I do not think so .
First lot us take the disquieting factors .
The restriction of rural credit caused by the Indebtedness Bills is certainly for the time being affecting the purchasing power of the cultivator with the inevitable effects on revonne . It is also diminishing the money -lender's profits . But in the long run these measures are bound to increase rural pros- perity and with it the prosperity of the country as a whole and with an increase in prosperity and activity the money - londer will once more be able to employ hisidle funds . On the whole then I judge this effect to be a temporary one .
Another bearish feature is the substitution of silver imports for imports of goods subject to a higher rate of duty a re - appearance in fact of the old hoarding tendency . It would perhaps be optimistic to prophesy any vory carly disappearance of this though it is to be hoped that it will disappear in time .
Again, the height of the protective and possibly of the revenue dutics as well is bringing about the inevitable diminishing returns and these are operat- ing more rapidly than we had bolieved possible . Nevertheless we had all along assumed that the revenue from protected articles would ultimately docline to much lower levels and the fact that these levols aro being reached unexpectedly quickly means again a temporary rather than a permanent embarrassment .
On the other sido there are definitoly oncouraging signs . Railway traffic returns indicate quito clearly a substantial increase in prosperity. The steadily increasing pricos of primary products point to the same conclusion . Further , the almost phonomenal increase in exports of merchandise must soon result in an enhancement of purchasing power and altogether we have many pointers towards a greater resiliency of revenue in the not distant future. And finally disappointing as it is , we mustbe careful not to exaggerate the importance of a gap of one or two crores in a budget of over Rs . 80 crores .
On the whole I do not think that I shall be indulging in unjustifiable optimism if I say, as a result of considering the various factors at work, that there is no reason why the Niemeyer prognostications should not be realised in the long run and that even in the nearor future his programme can ho ful- filled with the help of no more than a very modest addition to our resourcos , which I should estimate to be roughly the Rs . 14 to Rs . 12 crores by which wo are short of a balance this year . Of course I am always pre- supposing the absonce of internal disordor or external strifo . How are we to find this extra amount ?
26. Personally I believe that , given time , we could find it by improving and tightening up the administration of existing taxes . The Amendment in the Income Tax Act brought forward in the current session is expected, 91 THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
besides arresting the further doterioration which would have attended the continuance of the practice with which it dealt , to yield an immediate improve- ment of Rs . 20 lakhs in the coming yoar and crodit for this amount has been taken in the estimates I havo placed before the House . The other recom- mendations contained in the Income Tax Enquiry Report are broadly speaking of two kinds . Some are concerned with changes in the Indian incomo tax system, and involve questions of principle on which it is dosirable that public opinion should he elicited before it is decided to put forward logislation to curry them into effect . I have already taken stops to consult representative bodios and interests on these suggestions . The romaining recommendations of the Report are concerned with the administration of the department, and consist of proposals for tightening up the machine so as to securo the most officiont assessment and collection of the tax, accompaniedby suggestions for alleviation of cortain hardships which are regarded as affording ground for logitimato complaint by the taxpayeг . І ргороso to tako up without delay tho consideration of the possible improvements in administration with a view to the early introduction of reforms which aro agrood to bo necessary. Simi- larly, in the sphero of Customs administration determined action is alroady being taken to close the loopholes through which smuggling had boon found to be taking placo, particularly on the frontiors of the French settlemonts of Pondicherry and Karikal . Again , in the increasingly important field of Contral Excisos , where arrangements improvised somowhat hastily in recent years still continue in forco, we are considering the desirability of introducing improv- edmachinery under direct central control . I have always felt that the efficient administration of the rovonuo system is of such vital importance as to call for unremitting attention , and I have no doubt that the steps we are taking will in due course yield a substantial roturn . But they cannot be counted upon to make an immediate contribution sufficient to solve the problem of supplo- monting the revenues of the coming financial yoar by the Rs . 14 to Rs . 12 crores which is necessary to balance the oxpenditure. I must therefore address mysolf directly to that problem, and I have two proposals to make.
27. (a) In the first place I propose to increase the sugar excise from Rs . 1-5-0 to Rs . 2 a cwt . The main single cause of the present weakness in our revonue position is the virtual disappearance of the revenue from imported sugar. I would remind the House that in 1930-31 this item accounted for no less than Rs . 10 crores . That customs revenue has now practically gone and in its placo we are to be left with an excise rovenue of under Rs . 24 crores . It is hardly necessary to emphasise the tremendous strain which a loss of 7 or 8 crores in the yield of the consumption tax on a single commodity must impose on the finances of a country . The present level of internal prices is such that the consumer , oven when he has fully shouldered the burden of an additional 11 annas a ewt . will be paying no more for his sugar than he was until a very recent dato . As regards the manufacturer , I have already men- tioned the plight to which over- production has reduced the industry . In so far as the enhanced excise will chock this tendency by eliminating the weak and inefficient producer it will have a salutary effect , and by arrosting further deterioration will preserve the position pending the fuller enquiry which is shortly to be held by the Tariff Board . For the same reason 1 helieve that the effect on the cultivator will also be beneficial , for it is no advantage to him to bo induced to grow cane for supply to a precarious manufacturer who cannot be relied on to take the crop off his hands . I estimate the additional revenue from the increase in the sugar excise at Rs . 1,15 lakhs .
The change in the excise duty involves a change in the customs tariff . The protective duty was imposed , in accordance with the recommendation of 92
THE GAZETTE OF INDIA EXTRAORDINARY , FEBRUARY 27 , 1937 .
the Tariff Board , in April 1931 at Rs . 7-4-0 a cwt . , but in the emergencyBudget of September 1931 the surcharge of 25 per cent . was added which brought it to the presont level of Rs . 9-1-0 a cwt . When , instead of the revenue surcharge being removed , the excise was introduced in 1934 , it was thought desirable to maintain an additional margin of 8 annas a cwt, between the duty on domestic sugar, which was fixed at Rs . 1-5-0 a cwt. and that on imported sugar . This additional margin was based on a subsidiary recommendation of the Tariff Board , which apprehended that in certain circumstances the price of imported sugar might fall below the figure which the Board estimated to be the fair selling price for the Indian product . In present conditions Indian sugar is being sold at prices so far below the price of imported sugar that there is no necessity or justification for maintaining any addition to the substantive pro- tection of Rs . 7-4-0 a cwt ,to which the industry is entitled until the 31st March 1938. The import duty will therefore be fixed at Rs . 7-4-0 a cwt . plus the exciso for the time being in force.
In order to prevent forestalling and minimise the dislocation of the market Ihave decided that these changes should take effcet forthwith , and a declara- tion under the Provisional Collection of Taxes Act has been attached to the relovant clauses of the Finance Bill . I should also mention that the sugar- producing Indian States are being approached with a view to bringing them into line with British India and securing that the onhanced exciso is also lovied on their output.
(b) My second proposal for filling up the gap in revenue is to raise the duty on silver from the present level of 2 annas to 3 annas an ounce . I do not think that this modest increase is likely to stimulate a recrudescence of the smuggling which we encountered when the duty was 5 annas or more and I estimate that the additional yield will be Rs . 50 lakhs . This change also will tako effect at once .
FINAL SUMMARY .
28. With the additional revenue of Rs . 1,05 lakhs we expect from theso measures our net deficit of Rs . 1,58 lakhs for 1937-38 is turned into a small surplus of Rs . 7 lakhs . Incidentally the measures will yield Rs . 5 lakhs or so in the current year and thus reduce the deficit for 1936-37 to Rs . 1,92 lakhs .
Additional taxation always arouses controversy and thero is no parti- cular reason why I should expect to escape from the operation of this uni- versal law but the new burdens I am imposing are modest and to the best of my belief no part of them will fall on the shoulders of the poorer classes . The price we have to pay for balancing our budget is not therefore an exact- ing ono. The economic position of the country is undoubtedly improving and in spite of the temporary set back in our budgetary affairs we have cer- tainly no cause for pessimism but rather considerable cause for optimism . And in any case let us not forget that in this very budget we aro paying nearly Rs. 24 crores for the separation of Burma and are providing over Rs . 64 crores ofassistance to the other Provinces .
P. J. GRIGG .
The 27th February 1937.
PUBLISHED BY MANAGER OF PUBLICATIONS , DELHI , PRINTED BY THE MANAGER , GOVERNMENT OF INDIA PRESS , NEW DELILI .