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REGISTERED No. n.(D.)-72

The Gazette of India

EXTRAORDINARY

PART I—Section 1

PUBLISHED BY AUTHORITY

No. 53] NEW DELHI, WEDNESDAY, MARCH 1, 1978/PHALGUNA 10, 1899

Separate paying is given to this Part in order that it may be filed as a separate compilation

837 GI/77—1

(191)

MINISTRY OF FINANCE

tribution and a policy of restriction on money and credit. The issue of cereals nnd sugar from the public stocks has been liberal. Large quantities of edible oil, cotton and artificial fibres were imported to make up domestic short- falls. Exports of a number of essential commodities were regulated and export duties were adjusted in order to increase domestic availability. Both administrative and monetary steps were taken to ensure that speculative hoard- ing did not take place and cornered stocks came on to the market. At the same time an active support programme was pursued with regard to many commodities other than cereals to ensure incentives for adequate production. We can justifiably claim that significant progress was made towards evolving an integrated price and distribution policy for essential commodities.

5. I derive added satisfaction from the fact that relative price stability has been maintained against the background of a rapidly expanding economy. The gross national product will register a satisfactory growth of 5 per cent in the current year

6. This result has been, achieved in part due to good wea- ther but to an even greater extent because of the increased irrigation potential, increased use of fertilizers, pesticides and high yielding variety seeds, Additional irrigation potential created during the year will be 2-23 million hectares—the highest achieved in a single year so far. The use of ferti- lizers is expected to go up by 23 per cent to 4.2 million tonnes. The area under high yielding variety seeds is expected to increase to nearly 35 million hectares in 1977-78, an increase of more than 2 million hectares over the pre- vious year. Clearly the basis now exists for a more dyna- mic growth of agriculture in the years to come,

BUDGET 1978-79

Speech of Minister of Finance

7. The balance of payments continues to be strong. Ex- port growth has, however, slowed down considerably. Slow growth of the world economy, growing protectionism, a sharp decline in some commodity prices and a lack of demand for others account for this, Jt is im- portant, therefore, that we do not relax in our export efforts. We should indeed continue to strengthen (he export organi- sation that has been built up and the image of Indian exports that has been created wliile simultaneously improv- ing the competitiveness of our exports further.

28th February, 1978

PART 'A'

Sir,

1 rise to present Budget for the year 1978-79.

2. The Economic Survey has presented a detailed review o[ the trends in the Indian economy for the current year. I shall, therefore, refer only briefly to them.

3. We inherited a highly explosive inflationary situation when we took office. Prices in 1976-77 went, up by over 12 per cent. In a year in which real gross national product increased by less than 2 per cent, money supply went up by 20 per cent. Thus at the beginning of 1977-78, the econo- my was faced with a massive excess of liquidity which threatened to unleash n fresh boul of inflation. In (he early part of the year, our Government, in the process of honour- ing its commitments made to the people, withdrew the com- pulsory deposit scheme and also restored the statutory bonus of 8.33 per cent. These measures no doubt further added to the pressure of demand. Against this background, it is most gratifying that the economy has been so managed during the current year as to ensure that prices did not increase. Hon'ble Members will be pleased to note that the wholesale price index is today lower than the level in- herited by UK from the previous Government.

4. This relative price stability has been achieved by pursu- ing an active policy of supply management and public dis- 8. The country's foreign exchange reserves have risen fur- ther, despite an increase in imports, because of continued inward remittances and a small surplus on trade account. Since reserve accumulations amount to lending abroad, these should be drawn down and used for internal develop- ment by a poor country like India,

9. A number of steps have been taken to utilise ihese reserves but the continued accretion indicates that these are not enough. I, therefore, propose to create a new facility under which term lending financial institutions and public sector banks will provide rupee finance on appropriate terms to cover the import costs of approved projects. This will be in addition to the rupee finan?c which is already being made available to cover domestic cosls. A consortium of banks will be formed to provide such lonns, supplementing the finance by the term lending institutions.

10. At the same time, I want to dispel Ihe impression that our reserves are so large that they have to spent without any real justification. The fluctuations in our balance of payments arising from swings in agricultural production and in the prices of some of our essential imports are large, and we do not have a secondary line of reserves as the developed countries have. A substantial volume of re- serves is thus necessary for us to have manoeuvrability and flexibility in our development policy. We should, therefore, use them wisely to increase our development potential and not fritter them away.

11. Industrial production in the current fiscal year is ex- pected to show an increase of 5-6 per cent. This is no doubt less than the growth of industrial production is 1976-77. However, it has to be recognised that the lower growth rate this year is to a large extent due to the shortage

of power which is directly attributable to the past neglect of this vital sector. Besides, a substantial part of the increased output of major industries in 1976-77, such (is iron and steel and coal went into inventories rnther than in satisfying final demand. By contrast, inventories in these industries have shown a healthy decline in the current year.

12. It goes without saying that we cannot be satisfied with the present rate of growth of industrial production. We must strive for acceleration in industrial growth since it can make a material contribution in generating new employment opportunities, maintaining price stability and providing sav- ings for future growth. An increase in public investment, particularly in infrastructurai facilities such as power, coal, transport and irrigation can provide the necessary fillip. In addition, there is an urgent need to improve project imple- mentation and make an effective use of resources.

13. An improvement in the .-itais of consumer goods industries depends upon cost reduction through more efficient operation and modernisation and on generation of a more broadbased demand, An increase in rural incomes resulting from the increased emphasis on Agricultural investment and rural development should prove beneficial lo a wide rung* of industries. This only reinforces our conviction that rural development should constitute the heart of the future stra- tegy of growth.

14. The role of exports should not be underestimated in this regard. Export demand has sustained to a significant extent industries like engineering, leather, iron and steel, textiles and sugar. Though in a continental economy like India, export led growth may be out of question, the im- portant role which exports can play in sustaining produc- tion and investment needs to be emphasised. The relative freedom and manoeuvrability which growing export earnings have given to policy making underscore the importance of a sustained export drive.

15. In spite of the considerably better economic perfof. raance during the current year, the basic problems of un- employment and poverty continue to be with us. A year is too short a period to make any serious impression on these gigantic problems. We made a beginning last year by allocating more resources to agriculeure and ancillary ser- vices, irrigation and rural infrastructure. We will have to persist along these lines because .'t Is only over time that the necessary increase in output Hnd employment will come about. The effort to plan, build an implementation organi- sation, arrange supply lines of mputs and marketing will have to go on unremittingly. The details of this general strategy of development will be available to us when the new Plan is presented to the nation next month.

16. Certain broad decisions which will be part of this strategy have already been taken. Government have, formu- lated a target of creating an additional irrigation potential of 17 million hectares in the next 5 years. Nine million hectares will be under major irrigation and 8 million hec- tares will be under minor irrigation so that an optimal use will be made of both surface and ground-water resources. Simultaneously efforts will be made to ensure that (his potential as well as existing facilities arc used effectively. The supply of inputs will be increased through investment in industries like electricity and fertilizers. Government will also promote the use of organic manures along with chemi- cal fertilizers to protect the quality of the soil over the long run. Command area development programmes will be implemented vigorously.

17. In many parts of the country a large proportion of the area under cultivation is without irrigation at present and it will be without irrigation in the future as well becnu.se of lack of adequate surface or ground water resources. These areas also have to prosper if rural disparities are not to widen. Therefore much more attention will have to be paid to dry cultivation methods. This is extremely . im- portant because all of our milets, and a large proportion of pulses, oilseeds and cotton are grown under such conditions, leading to low growth of output and violent fluctuations in output and prices.

18. Along with agriculture small industries and rural in- dustries have an important part to piny in the elimination of poverty and unemployment. The new Industrial Policy Statement embodies this goal of government policy. Large areas of production have been reserved for cottage and small industries and an improved organisation which will help them grow faster has been ou'lincd. At the same time, since many of these industries may not bo viable without & great deal of technical improvement, trnirc is an urgent need to undertake research and render technical assislance to them. I earnestly hope that efforts in this direction will be made by public sector enterprises and others in the orga- nised sector,

19. Industrial unrest has been causing n great deal of anxioty this year. A certain reaction to the earlier con- straint under the obnoxious emergency regime is under- standable. Hut output is likely to be affected seriously if this unrest is allowed to continue unabated. While the I n- timate demands for additional emoluments should be met, these have to be appraised against the socio-economic reali- ties of the country. It is, therefore, important to have guide- lines to determine a wages, incomes and prices policy. We have appointed a study group to suggest guidelines for such a policy. Its report is due to be submitted shortly. A loss of production is not in the interest of the country. It is, therefore, of the utmost importance that labour, manage- ment and government cooperate in bringing about harmoni- ous industrial relations.

20. The availability of resources for development does not seem to have kept pace with the need for investment. This la because of the rapid increase in non-development expenditure and the erosion of the resource base. Therefore, it is necessary to practise the utmost economy in administrative expenditure and to curtail the various concessions and subsidies given to different sections of society without adequate economic justi- fication. We should aim at greater cost effectiveness through better project planning and implementation. The working of public sector projects should be improved still further so that their surpluses contribute more to the public exchequer.

21. There is also an urgent need to increase individual and corporate saving if increased investment expenditure is to take place without any adverse pressures on prices. This would re- quire greater simplicity in the life style of those individuals who can save, and a greater efficiency and a reduction in in- essential expenditure on the part of corporations.

Revised Estimates for 1977-78

22. In the Revised Estimates for 1977-78, the revenue from income and corporation taxes shows a shortfall of Rs. 36 crores and Union excise duties are expected to yield Rs. 140 crores less than the Budget Estimates pf Rs. 2336 crores and Rs. 4593 crores respectively. This is mainly due to the slower growth of industrial production in certain sectors. The yield from customs revenues and tjie interest-tax, on the other hand, is expected to show an improvement of Rs. 52 crores and Rs. 16 crores over the Budget Estimates of Rs. 1728 crores and Rs. 99 crores respectively. After allowing for States' share of taxes and duties, which remains at Rs, 1799 crores as in the original Budget, Centre's share of tax revenue will bo less than the Budget estimate by Rs. 100 crores.

23. Market loans will exceed the Budget figure of Rs. 1000 crpres by Rs, 183 crores. because of larger deposit accretions with banks. But net receipts on account of external assistance will be lower than the Budget Estimate of Rs. 1052 crores by Rs. 275 crores. This is due to the fact that a larger proportion of aid received now is project aid which is by nature slow disbursing. Programme assistance, which would have been utilised quickly, has been reduced because of the improve- ment in our balance of payments.

24. During the course of the year a number of decisions taken by Government for the benefit of large sections of the population cast additional burdens on the Budget, To bene- fit farmers, the procurement prices of paddy and wheat were increased durinp the year without raising the issue prices from the public distribution system. Again, urea prices were further reduced by Rs. 100 per tonne In October last year, though in the course of the year the cost of imported fertilizers increased siuhificantly and the retention prices to domestic manufacturers of fertilizers were raised to improve their viability. This policy of pricinc fertilizers involves a subsidy from the Central Bud- get which is much more than the revenue from import and excise duties on furtilizers.

25. A number of benefits w"re given to Central Govern- ment employees. An additional instalment of dearness allowance was sanctioned to them during the year, The rate of interest on Government provident funds has been enhanced

and [he incentive bonus scheme for those subscribers who do hot make withdrawals.' has been limber liberalised. The pensioners too were sanctioned another instalment of relief from September, 1977, These and other concessions given add up to a substantial expenditure.

26. Non-Plan revenue expenditure, excluding Defence, fa likely to exceed the Budget. Estimate of Rs. 5436 cror.es by Rs. 118 crorcs. Of this increase, Rs. 84 crores is under export pro- motion, due mainly to a spill over of payments; pertaining to 1976-77 and the introduction in the current year of a system of quicker disbursement of assistance lo exporters. Barring this increase, non-Plan revenue expenditure has been kept practically within the original Budget despite ihe additional burdens already mentioned. This is a welcome departure from the trend in the past several years of a steep increase in non-Plan expenditure. We have been able to achieve it by enforcing the utmost economy and pruning in essential ex- penditures to the maximum extent possible.

27. The variations in non-Plan capital expenditure have been 3omcwhat wider. There has been a net increase of Rs, 100 crores on account of technical credits to foreign countries under bilateral rupee trade agreements. These credits will be repaid when the imbalance in trade is corrected subse- quently. The net outgo on account of fertilizer imports will be Rs. 190 crores more due partly to bunching of imports towards the end of the year, and partly to a rise in international prices.

28. As Hon'ble Members are aware, we have restored to the workers the minimum bonus of 8.33 per cent for the year 1976. A wage settlement waw also reached with port and dock workers involving arrear payments from January, 1974. These have imposed an additional financial burden on public sector enterprises. This and certain other adverse factors have led to an increase of Rs. 113 crorcs in the budgetary support to public sector undertakings).

29. The expenditure on Defence continues to be the same

as in the original Budget, viz. Rs, 2752 crorcs.

30. Revised Estimates show that Plan expenditure from the Budget on pclrolcum, fertilizers, steel and telecommunica- tions is going to be substantially lessi than in the Budget. This was mainly due to slippages in delivery schedules of machinery and equipment and in civil construction. Also, a few public sector undertakings were able to generate more internal resour- ces than anticipated earlier and therefore needed less budgetary support for financing their Plan outlay.

31. On the other hand, the total outlay on agriculture including rural development is expected to increase by Rs. 12 croren. Plan expenditure on health will also be higher by Rs. 13 crores, mainly on account of the intensification of the malaria eradication programme. Mew schemes and accelerated work on on-going schemes, specially those linked to steel and power planty, have led to an increase of Rs. 13 crorcs in the outlay on the coal sector.

32. Overall, the budgetary outlay on Central Plan schemes is expected lo be Rs. 230 crorcs less than the original Budget provision of Rs. 3978 erorcs. 1 am not at all happy about the pace at which expenditure on Plan projects takes niace. What is needed is a drastic change in organisation ? It is proposed to devote much greater attention to this question in the coming months.

33. Central assistance to the. Stales' Plans will be Rs. 2031 crorcs as against Ks. 1617 crorcsi provided in the Budget, An additional sum of Rs. 414 crores was provided as a cover for the gap in States' resources for financing their Plans and as advance Plan assistance to the States affected bv the recent unprecedented natural calamities.

34. When I presented the Budget last, year I had estimated a budgetary deficit of Ra. 84 crores. This was after I had taken credit for n borrowing of Rs. 800 crorcs from the Reserve Bank of India on the assumption that foreign exchange reserves would be drawn down dining the year." My antici- pation of the country's ability to draw down the foreign exchange reserves has not materialised. Since I had made a clear commitment that I would use this credit from the Reserve Bank only if the reserves were drawn down, I do not propose to resort to this borrowing. The total budgetary deficit is.' now expected to be of the order of Ks. 975 crores. This may appear to be a sizeable sum but let me first clarify that of this amount, the sum of Rs, 414 crorcs is directly

387 GI/77

accoLinied for by the additional assistance which I was com- pelled to make to the States on account of their deficits. IVf embers will recollect that [ h;id drawn attention lo the improvident financial policies of the outgoing Governments in the Stales. In addition a number of States which suffered scrioirj damage on account of cyclones and Hoods had also to be assisted, As a result there was substantial erosion of resources. It was my duty to assist the new Governments' of the States so as to enable them to start on a reasonably clean slate. Having done so, T can reasonably expect Ihem to manage their affairs hereafter in such a way that they do no!, need to have recourse to unauthorised overdrafts, 1 would like to slate categorically that, it will be my endeavour to put a stop to this unhealthy practice.

35. Another large sum of Rs. 190 crorcs is accounted for by importation of fertilizers. We have in fact by this process converted foreign exchange into a valuable fertilizer stock posilion and in this process we have not added to the money supply. Tlon'blc Members will appreciate that dopite whfll seemingly appears to be a major deficit, 1he Government's prudent policies of supply management and credit restraint have controlled any possible adversje effects and indeed we have ended the year with no inflation at. all.

BudRct Estimnles for 1978-79

36. The Annual Plan for 1978-79 has been prepared pend- ing the finalisation of the new National Plan. The Fif'h Plan is being terminated at the end of the current financial year and the new Plan will start from 1st April, 1978. The Planning Commission is presently engaged in formulating the new strategy of development in keeping with the changed priorities. Tl will be finalised after |he National Development Council deliberates upon it next month.

37. Hon'blc Members will appreciate that planning being a continuous process, at any point of time there is a large number of schemes and programme.! under way which cannot be given up. Besides, many of these projects ore in advanced stages of completion and therefore adequate provision is neces- sary if theya arc to yield timely results. These considerations have circumscribed our freedom in reordering Plan priorities for 1978-79. Nevertheless, 1 venture to say, the Annual Plan for (978-79, as it has emerged, reflects the present Govern- ment';,' comniitment lo a new agriculture-oriented and employ- ment-intensive strategy for development.

38. The tolal outlay on the Annual Plans of the Centre. States and Union territories for 1978-79 will be Rs. 11649 crores as against Rs. 9960 crorea in 1977-78. This represents an increase of 17 per cent. Continuing schemes absorb as much as RH. 10465 ciores of this outlay. Out of the remainder, Rs. 150 crores have been allocated for starts on new power projects and Rs. 1034 crores for schemes under other yectors. As rmi('/i as 80 per cent of the latter i.e. Rs. 828 crorcs, is accounted for by agricultural and other schemes subserving the development of rural areas,

39. The Central Budget for 1978-79 contains a provision of Us. 7281 crorcs for the Central Plan and for assistance to- wards the Plans of States,' and Union territories. The corres- ponding figure for 1977-78 was Rs. 5790 crores.

40. A provision of Rs. 27ft 1 crores has been made for Central assistance for States' Plans and for Union territories' Plans, the sub-Plans of the Hills and Tribal areas. North Eastern Council and assistance to the Rural Electrification Corporation. A provision of Rs. 4520 crores has been made in the Budget towards the Centra! Plan. Together with the internal and other resources of public sector nnderfatines, the Central Plan will be Rs. 5664 crorcs in 1978-79 as againsl Rs. 4939 crorcr,' in 1977-78. Inclusive of Ihcir own resources, the Plans of States and Union territories will add up to Rs. 5985 crores as compared to Rs 5021 crores in 1977-78.

41. For the first time in many yearn, the Slates and Union 'territories' Plan together will be laifier th;in the Central Plan. The step un in the outlay on States' Plans as a whole is 19 per cent while the Plans of the Union territories will go up by 27 per cent. The Central Plan, on the other hand, will increase by 15 per cent, This? reflects a reordering of our Plan priorities in favour of agriculture, irrigation, power and rural development all of which figure prominently in States' Plans and in some measure a shift, towards greater decentra- lisation in plunning. Full provision has been made in each State's Plan for meeting the requirements of agriculture, the

on-going major and medium irrigation projects as well us power projects. Adequate provision has also been made for essential new schemes in these two sectors.

42. In keeping with our emphasis on agriculture and rural development, the Plan outlay for agriculture has been raised by Rs. 490 crores to Rs. 1754 crorcs for 1978-79. Tn parti- cular the outlay on Command Area Development has been stepped up from Rs. 49 crores in 1977-78 to Rs. 82 crorcs in 1978-79 and that on Small. Farmers' Development Agency in the Central Plan from Rs, 45 crores to Rs. 115 crorcs in 1978-79. The outlay on the drought prone area programme has been raised from Rs. 51 crorey in 1977-78 to Rs. 76 crores for 1978-79, The desert development programme is being allocated Rs. 20 crores for 1978-79 as against only Rs. 6 crores in 1977-78.

43. In [he new planning strategy, block development plans will be a major instrument for achieving full employment in rural areas in a time bound programme, The details of this programme are being worked out. In the meanwhile, I have made a token provision of Rs. 20 crores for this programme, This provision will be enlarged as the full details of the programme are known.

44. As part of the new strategy for rural development, it is proposed to launch a massive programme of dairy deve- lopment'—Operation Flood II—which will raise the nutritional standards of the people, generate employment for about 4 million people in the first phase and augment the incomes in rural areas through a viable subsidiary occupation. Tho project which is estimated to cost nearly Rs. 500 crorcs is being processed for implementation but meanwhile action on certain essential prc-programmo elements has already been authorised so that the main work on the programme may start in time.

45. Having regard to the extensive coastline of our country and the large numbers of people engaged in fisheries, the outlay on fisheries in the Central Plan is being raised from Rs. 33 crores in 1977-78 to Rs. 61. crores in 1978-79. This enhanced outlay will, apart from strengthening basic infrastruc- ture! facilities, enable us to enlarge employment and augment the incomes of fishermen.

46. Tn my last Budget speech, I had indicated that as part of a comprehensive programme of rural infrastructure deve- lopment it was necewsary to accelerate the construction of all-weather approach roads and the provision of drinking water facilities in problem villages. In 1978-79, the outlay on rural roads in the States' Plans has been stepped up to Ra 115 crores as against the current year's outlay of Rs. 85 crores. The provision for rural water supply in the Slates' Plans in 1978-79 will be Rs. 105 crores as against Rs, 70 crorcs in the current year. This will be supplemented by a special provision in the Central Plan to the extent of Rs, 60 crores. The promise made last year that the allocations for rural water supply and rural roads will be enhanced has Ihuu been redeemed, T will go further and extend an assurance to the States that if these programmes arc implemented effectively I shall be prepared to consider increasing these allocations.

47, I have already emphasised the need to improve the opportunities for gainful employment in rural areas through the development of rural and small scale industries. The total allocation for these in 1978-79 will be RK. 219 crores against Rs. 145 crores in 1977-78.

48, The programmes for welfare of the Scheduled Castes and other backward classes will receive a special impetus with a step up in the outlay from Rs. 86 crorcs in 1977-78 to Rfl. 125 crores in 1978-79. The outlays in the Stntts' Plans for tribal development will be increased from Rs. 258 crores in 1977-78 to Rs. 343 crores in 1978-79. In addition, the special Central assistance for tribal sub- Plans will be stepped up from Rs. 55 crorcs in 1977-78 to Rs. 70 crores in 1978-79.

49, The creation of an additional irrigation potential of 17 million hectares during the next five years is an ambi- tious programme which will will for a large increase in investment and a restructuring, strengthening and stream- lining of the organisational set-up for planning, execution and monitoring, The outlay on major and medium irriga- tion projects for 1978-79 will be Rs. 1166 crores as against Rs. 1032 crorcs in 1977-78. The Plan outlay for minor irrigation will be Rs. 235 crorcs in 1978-79 as cgainstj Rs. 206 crorcs in 1977-78. It will be supplemented to a.,' large extent by loans from the Agricultural Refinance and Development Corporation. It is expected that an additional irrigation potential, of 3 million hectares will be created during 1978-79 fis against 2.23 million hectares in 1977-78.

50. Inadequate allocations in the past for power and the leisurely pace of execution of electricity projects have led to a chronic shortage of this basic infrastructure facility. Both these need to be corrected if recurrent power shor- tages are not to hold up our progress. Therefore the Plan for 1978-79 envisages a massive addition to generating capacity and the development of the transmission and dis- tribution system. Woiks on schemes with a total capacity of about 30000 MW would be in different stages of execu- tion in the coming year. Of this about 3500 MW will be commissioned, in 1978-79 as against about 2000 MW expec- ted in the current year and the total generating capacity jn the country will then be raised to 29000 MW,

51. In the Central sector, provision is being made for fresh starts on a .number of projects such as the Korba super thermal project, the Ramagundam super thermal project, the power sfaiion including the second mine cut at Neyveli, tho Badarpur thermal station stage III, tho Bokaro thermal station of DVC, and the pumped storage plant of Panchet Hill. Provision has also been made for taking up new 400 KV transmission lines in the Central sector asso- ciated with super thermal stations and in the States. Work on load despatch stations is also being accelerated. This should give the House an idea of ihe programme of power generation which we are going to undertake.

52. A sum of Rs. 244 crores has been provided in the Central Plan for power development. The outlays in States' and Union territories' Plans, which account for bulk of the provision for power, s>dd up to Rs. 1953 crores. The provi- sion in 1978-79 for the power sector would be Rs. 2217 crores compared to Rs. 1925 crores in tho current year. In view of the importance of rural electrification the provision for it has been raised to Rs. 297 crores as compared to Rs. 195 crores in the current year, We shall ensure that these projects are implemented quickly and efficiently so that the economy derives full benefit from such a large volume of investment.

53. A provision of Rs. 630 crorcs is being made for the oil sector in 1978-79 because there can be no slackening of our efforts towards self-sufficiency in crude oil. This is yet another step forward in the nations march towards self-reliance.

54. A Budget provision of Rs. 563 crores is being made for steel in 1978-79 as against Rs. 511 crores during 1977-78. The requirements of Bhilai and Jlokaro expansion programmes, the cold rolled grain ojienled plant at Rour- kela and the Salem steel plant have been met. The outlay on Kudremukh project is being stepped up from Rs. 142 crores in 1977-78 to Rs. 213 crores next year, in order to' be able to meet the deadline set for the completion of the project,

55. An impression has been sought to be created that this Government is giving less emphasis to family planning. Such an impression is totally unwarranted. Our commitment to a vigorous and nation-wide programme of family planning is firm and clear. A provision of Rs. 393 crores is being made in 1978-79 for health and family welfare us ngainsl only Rs. 284 crores in 1977-78. It is now felt that instead of concentrating only on the narrow aspects of family planning a broader concept of family welfare will lead to n better acceptance of family pi inning practices. Funds have also been provided on an adequate scale both in the Central and Slates' Plans for expansion of health cover for rural areas including the Scheme for community health workers,

56. This Government fully recognises that science and technology have a valuable contribution to make in the modernisation of our economy and in the growth of agricul- ture and industry. Hon'ble Members will be glad to know that the outlay on science and technology has been increased from Rs. 1977 crores in 1977-78 to Rs. 220 crores for 1978-79, i.e., an increase of 23 per cent. Similarly tho provision for the Indian Council for Agricultural Research

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4 as been increased from Rs. 37 crorcs ia 1977-78 to Rs. 51 crores for 1978-79. The Indian Satellite Project (INSAT-I) for which a provision of. Rs. 23 crores has been made for 1978-79 also needs special mention. Thjs project is unique in that it combines a package of facilities covering telecommunications, meteorology and television.

57. Non-Plan revenue expenditure, other than Defence, is estimated at Rs. 3908 crorcs showing an increase of Rs. 354 crorcs over the Revised Hstimaiis for the current year. Interest payments and grants to Slates toed her account for an increase of Rs. 384 crorcs. II we exclude these two items, the other non-Plan revenue expenditure will be less than the Revised IZstimaies for the current year. This has been made possible by a rigorous scrutiny of non- Plan expenditure, pruning it with a view to achieving the utmost economy. The various y.ibsidy payments have also been reviewed in the light of their continued relevance in the present economic situation and the provisions therefor have been suitably reduced. Non-Plan budgetary support to public sector enterprises will also be Rs. 127 crorcs less than in (he current year.

58. Defence expenditure next year will be Rs. 2945 erores,

as against Rs. 2752 crorcs in the current year.

59. Gross tax revenue for 1978-79, at the existing rates of taxation, is expected to amount to Rs. 9636 croroes show- ing an increase of Rs. 730 crores over the Revised Estimates for the current year. Income tax und corporation tax receipt are expected to go up by Rs. 115 croroes and Rs. 145 crorcs respectively. Union excise duties are estimated to yield Rs. 374 crores more. The yield from customs revenue will also be more by Rs. 70 crores. States' share of taxes and duties, at Rs. 1929 crores, will be higher by Rs. 130 crores.

60. Market loans will yield Rs. 1650 croroes as compared to Rs. 1183 croroes in the current year, Net external assis- tance, after providing for repayments and interest payments, is estimated at Rs. 1138 crores, including disbursements against new credits,

61. Taking other receipts into account, total receipts in 1978-79 are estimated at Rs. 17021 crores. Total expendi- ture for the coming year will be Rs. 18417 crores. The over- all budgetary gap nt the existing ra'es of taxation will thus be Rs. 1396 croroes. Hon'ble Members will recollect that Government announced yesterday their decision to sanction with effect from 1st January, 1978 another instalment of dearness allowance to Central Government employees. Gov- ernment's new policy in regard to su^nr industry was also announced yesterday. These two decisions may cast an additional burden of the order of Rs. 80 crores on the Cent- ral exchequer next year. Understandably I have not taken this into account in my Budget proposals. It is, however, my Hope that this additional burden will be substantially accom- lodated within the Hudget Estimates by economy measures vhich arc being progressively implemented.

2 06

T HE G A Z E T TE OF I N D IA : E X T R A O R D I N A RY

[ P A RT I —- S E C. 1 .1 '•

Budget 1978-79

Speech of Minister of Finance

28th February, 1973

PART B

62. The gup of Rs. 1396 crorcs is clearly a very substan- tial gap and places on my .shoulders a difficult and challeng- ing responsibility to find ways and means of bridging the gap, I have already enumerated a number of favourable factors in. the national economy which give us ihe necessary strength and opportunity to manage (he economy even with £i large though reasonable deficit without creating inflationary condition. However, prudence would require that the deficit, no matter how reasonable, should be kept as low as possible and it is, therefore, necessary lo mobilise additional resourc- es to the maximum extent possible. I am sure that the nation will willingly make a substantial contribution towards the fulfilment of a national Plan cf a. mngnitude which will enable us to reach our objectives at a faster pace.

63. In makingrayproposals for resource mobilisation I have borne in mind the salutary principles of tax policy which have been laid down in the Economic Policy Resolu- tion of the Janata Party issued in November, 1977. These principles bear repetition.

"We believe that, the taxation policy of the Government

must, keep in mind live considerations:

(1) Increased public investment expenditure must neces- sitate increased public income The people of the country, therefore, have to accept the burden of higher taxation need- ed for investment in the future.

(2) Taxation policy must simultaneously aim at redistri- butive justice and must take inio consideration the capacity to pay.

(3) Taxes should be easy to collect and it should be easy for the taxpayer to know what he has to pay. There is ur- gent need for the simplification and rationalisation of the tax administration.

(4) Taxes must have an in-built growth potential and in-

herent buoyancy.

(5) Taxation policy must aim at stimulating national growth

and must encourage production and savings."

64. I have had the advantage also of receiving advice from all sections of society and from all parts of the country. In addition I have received two important reports—ihe interim report of the Chokshi Committee on Direct Taxes and the final report of the Jha Committee on Indirect Taxes, These reports contain a number of valuable suggestions and I have given them respeciful consideration.

65. Before I come to my taxation proposals I would like to make some important policy announcer-ems which have a bearing on the budgetary position.

66. The demonetisation of high dcnorninnMon bank notes was a step primarily aimed at controlling illegal transactions. It is a pnrt of a series of measures which Government hits taken and is determined to take against anti-social elements. Despite the utmost vigilance of the Customs authorities and considerable seizures and confiscations of smuggled gold, it is an unfortunate and distressing fact that gold smuggling has to some degree continued. The substantial difference bet- ween Tndian gold prices and international gold prices has served as a temptation to smugglers. Gold smuggling is not only illegal but has helped to sustain black /noney operations and foreign exchange rcckereering. It is, therefore, neces- sary for us to think of economic measures in addition to preventive measures to tackle this evil of gold smuggling. We have given very careful thought to the question and have decided to commence the sale of gold from the stocks held by Government. The details of the scheme are being worked oul and will be announced shortly,

67. There is an excellent market for Indian gold jewel- lery abroad which would nol only enable us to earn a signi- ficant amount of foreign exchange but also gainfully employ the undoubted craftsmanship of Indian jewellers. Hitherto the export of gold jewellery has been inhibited by the high local pnee of gold, restrictions placed on such exports and the complex and cumbersome bonding procedures. Government have, therefore, decided to introduce a simplified scheme for the encouragement of the export of gold jewellery. Such exports will be facilitated either by allowing importation of gold or by the sale of Government gold stocks at interna- tional prices. The details of .he scheme will be announced very shortly.

68. Members will recollect that the Janata Party mani- festo hud contained a promise Ihat the question of removing sales lax and octroi duties would be duly considered by the Government. 1 have had a series of discussions with the Chief Ministers and Finance Ministers of the States to achive this desirable objective. The total revenue from sales tax is of the order of Rs. 2500 crores, and it is growing steadily. It constitutes the main source of revenue of (he Stales. The Chief Ministers of the States have generally showed a lack of enthusiasm for the abolition of the sales tax. In view of the attitude of the States and since sales tax is a Stale subject, the task of persuading the States to give up sales tax calls for persistence and patience. It certainly cannot be regarded as something which can be accomplished in the immediate future.

69. The octroi duty, however, stands on a different foot- ing. The revenue from octroi duty is of the order of Rs. 250 crores. There has been a long standing demand for the removal of this obnoxious levy which causes great inconve- nience to trade and the transport industry, All committees which have gone into the subject have unanimously proposed its abolition. Studies have also revealed that the cost of col- lection of the octroi duty is unduly high. There can be no two opinions that the removal of octroi duty will be widely welcomed since its abolition will assist the orderly and healthy growth of the transport system in the country and will considerably reduce freight costs. T, therefore, propose to request the State Governments to introduce suitable legisla- tion for the removal of octroi, The octroi revenues a' e at present going to the local authorities. Quite understandably they will seek from the State Governments a reimbursement for the loss of revenue and in turn the State Governments will no doubt claim a measure of compensation from the Centre. We shall hold discussions with the State Govern- ments for finding a satisfactory solution.

70. I have now to say a few words on behalf of my col- league the Minister of Communications, The upward re- vision of emoluments of employees in the past few years has resulted in substantial increase in the expenditure of the Postal Branch of the Posts and Telegraphs Department which is highly labour intensive. The revenues have not, however, kept pace with the expenditure and the cost of various pos- tal services exceed the revenues earned Consequently, The Postal Branch has been incurring a. deficit which is estimated at about Rs. 23 crores in the current year. While there is justification for increasing the tariffs for most of the postal services, it is proposed to touch only those services which will not affect the common man, particularly in the rural areas, A memorandum showing the proposed changes in the postal tariffs is being circulated along with the Budget papers.

71. The tariff revisions, which will be given effect to from a date to be notified by the Government after the Finance Bill is passed, arc estimated to bring in an additional re- venue of Rs. 13,73 crores per annum. The yield during 197K-79 is estimated at Rs. 11.44 crorcs. The" results of the tariff revisions have been accounted for in estimating the internal resources of the Posts and Telegraphs.

72. I shall now deal with my proposals in the sphere of

direct taxes.

73. I have kept in view the fact that a substantial in- crease in investment has necessarily to be backed by increas- ed efforts at mobilisation of savings. My proposals in the field of direct taxes are accordingly designed to promote larger savings; to curb extravagant and wasteful expenditure in businesses and professions ; and to channelise funds for stimulating growth and production. I have also sought to 387 GI/77—3

provide some tax relief in selected areas with a view to encouraging larger investment in desired directions.

74. In order to mobilise additional resources in the form of savings, 1 propose to raise the rates of compulsory de- posit in the case of income-tax payers. While taxpayers hav- ing current income up to Rs. 15,000 will continue to enjoy immunity from the requirement of making compulsory depo- sit, in the case of incomes exceeding Rs. 15,000 and up to Rs. 25,000 the rate will be raised trom 4 per cent to 4£ per cent. On the slab of Rs. 25,001 to Rs. 70,000, compul- sory deposit is currently made at the rate of 10 per cent. 1 propose to split this slab into two. While the rate on the slab of Rs. 25,001 to Rs, 35,000 will be 11 per cent, the rate on the slab of Rs. 35,001 to Rs. 70,000 will be 1 2| per cent. On the slab over Rs, 70,000 the rate will be raised from 12 per cent to 15 per cent. Approximately Rs. 25 crores will accrue in 1978-79 as a result of this measure.

75. I propose to liberalise the concession in respect of long- term savings through life insurance, provident fund contri- butions and other approved forms of saving. At present, 100 per cent of the first Rs. 4,000 of the qualifying savings, 50 per cent of the next Rs. 6,000 and 40 per cent of the balance is allowed as deduction in computing the taxable income. I propose to allow a deduction equal to 100 per cent of the first Rs. 5,000 of the qualifying savings. The quantum of deduction in respect of the next Rs. 5,000 will continue at the existing rate of 50 per cent and, in respect of the balance, at the existing rate of 40 per cent. The monetary limit for the savings qualifying for deduction under this provision is also being raised from Rs. 20,000 to Rs. 30,000. These measures will result in a revenue loss of Rs. 10 crores in a full year and Rs. 7.5 crores in 1978-79.

76. Investors understandably prefer investment which brings them a safe return, which is provided by fixed deposits in banks or shares of established companies with a good record for payment of dividends. This results in new companies not attracting adequate support. In order to stimulate such invest- ment, 1 propose to give a deduction in the computation of taxable income of 50 per cent of the amount invested in equity shares of new industrial companies. The maximum investment in a year qualifying for this deduction will be limited to Rs. 10,000. This will entail a loss of Rs. 5 crores in H full year and Rs. 3,5 crores in 1978-79. I would cheerfully accept a much larger loss if it results in stimulat- ing larger investments.

77. Last year, I had introduced a provision to exempt capital gains in cases where the sale proceeds arising from the transfer of an asset are reinvested within six months in units of the Unit Trust of India, shares of Indian compa- nies, bank deposits and other specified assets. In order that this concession leads to the flow of investible funds into fresh ventures, I propose to provide with immediate effect that investment in shares of Indian companies will be taken into account for the purposes of exemption from capital gains tax only where the investment is made in equity shares of new industrial companies.

78. Banks allow substantial advances against the security of fixed deposits with them. Hence, taxpayers who get exemp- tion from capital gains tax by making such deposits obtain an unduly large tax benefit without commensurate sacrifice. I have, thrcfore, decided that fixed deposits with banks made nfter today will not qualify as an eligible mode of investment for the purposes of this exemption.

79. The annual letting value of a newly constructed house is reduced for tax purposes by an amount up to Rs. 1,200 in respect of each residential unit for a period of a period of five years. With a view to providing a stimulus for construc- tion of houses, particularly tor persons in the low and middle income brackets, I propose to raise the monetary limit of Rs. 1,200 to Rs. 2,400.

80. Initial depreciation allowance is currently granted at the rate of 20 per cent on the cost of new buildings erected by employers for their low-paid employees. In order to give a greater impetus to the construction of buildings for workers, I propose to increase the rate of initial depreciation allow- ance from 20 per cent to 40 per cent.

81. The foreign remuneration of Indian citizens employed outside India ia liable to Indian income-tax if their stay in India exceeds a specified period. As this results in avoidable hardship and discourages such persons from spending even a reasonable period or vacation in their home country, i propose to provide that Indian citizens employed outside India may stay on vacation in the country for 89 days in a year without attracting such tax liability.

82. In order to ensure that winnings from horse races are effectively brought within the tax net, I propose to provide for deduction of tax at source at the rate of 34.5 per cent from winnings in excess of Rs. 2,500. This measure would yield Rs. 4 crores in a full year and Rs. 3.5 crores in 1978-79.

83. Extravagant and socially wasteful expenditure is often incurred on advertisement, publicity and sales promotion. In order to put a curb on such expenditure at the cost of the exchequer, I propose to provide for the disallowance of a part of such expenditure in the computation of taxable profits. Where the aggregate expenditure on advertisement, publicity and sales promotion in India does not exceed 1/4 per cent of the turnover or gross receipts of the business or profession, 10 per cent of such expenditure will be disallowed in computing the taxable profits. Where such aggregate ex- penditure exceeds 1/4 per cent but does not exceed 1/2 per cent of the turnover or gross receipts, the disallowance will be made at the rate of 12+ per cent; and where such expenditure exceeds 1/2 per cent of the turnover or gross receipts, the disallowance will be made at the rate of 15 per cent. These provisions will not apply in cases where the aggregate expenditure on advertisement, publicity and sales promotion does not exceed Rs. 20,000 in a year. Newly established industrial concerns will also he exempted from this provision for an initial period of three years. This measure will yield Rs. 31 crorocs in a full year and about Rs. 25 crores in 1978-79,

84. A weighted deduction is currently allowed in the com- putation of taxable profits with reference to expenditure in- curred by Indian companies and resident taxpayers, other than companies, on development of export markets. The weight- ed deduction is allowed at the rate of 150 per cent of the actual expenditure in the case of widely-held companies and at the rate of 133.3 per cent in the case of other taxpayers. While the full deduction of expenditure incurred for develop- ment of export markets is entirely justifiable, and no part of such expenditure will be disallowed under the proposed provi- sion for disallowance of expenditure on advertisement, puhli- clty and sales promotion, I do not see adequnte justification now for continuing to subsidise such expenditure by the grant of weighted deduction. I. tehrefore. propose to discontinue the frant of weighted deduction in relation to such expenditure incurred after 31st March, 1978. This measure is likely to yield Tis. 10 crorcs in a full year and Rs. 8 crores in 1978-79.

85. In the case of a taxpayer who has previously been assessed to income-tax, advance tax becomes payable only if a notice in this behalf is issued by the Income-tax Officer. Hence, if an advance tax notice is not issued in the case of such a taxpayer, he will have no liability to pay any ad- vance tax. On the other hand, taxpayers who have not been assessed to Income-tax, are required to pay advance tax on their own on the basis of their estimated current income. To my mind, the existing legal position is clearly unsatisfactory. I, therefore, propose to provide that advance tax shall be voluntarily paid by every person if his current income oxceeds the specified limit.

86. The Direct Tax Laws Committee under the chairman- ship of Shri S. C. Chokshi submitted its interim report last December. The report contains a number of valuable sug- gestions for simplification and rationalisation of fax laws, streamlining assessment procedures, reducing the area of litigation and accelerating the disposal of appeals and refe- rences. In its report on (he Central Direct Taxes Administration, the Administrative Reforms Commission had recommended

87. The exemption limit for estate duty, which is Rs. 50,000 was fixed as long ngo as 1958. As this exemption limit is unduly low, I propose to raise it to Rs, I lakh. Since, in this matter, we can move only with the concurrence of the State Legislatures, a Bill for implementing this proposal', and certain other proposals in relation to estate duly, will be introduced later this year.

88. The total additional revenue from the various measures enumerated by me will yield Rs. 30 crores in a full year and Rs. 25.5 crores during 1978-79. Besides, additional re- sources of about Rs, 25 crorcs will accrue in the form of compulsory deposits in the financial year 1978-79,

89. May I now turn to my proposals relating to indirect taxes ? Our basic national problem, and indcod this is a problem facing all developing countries, is that the base for direct taxes is extremely narrow and the vast funds required for national development cannot, therefore, be raised, at our present stage of development, from direct taxes alone. While framing the proposals relating to indirect taxes, how- ever, I have in mind the need to protect small scale in- dustry and to minimise the hardship to the poor and the middle class consumers,

90. Hon'ble Members are aware that Government had appointed a committee, to review the existing structure of the indirect tax system, under the chairmanship of Shri L. K. Jha. The committee has now submitted its final report. Amongst the important recommendations made by the com- mittee are restructuring of the pattern of centra] excise and customs duties, measures to assist the small scale sector, the general reoricntation of the tariff to make it incomc-elaslk and the desirability of introducing a value added tax so a< to avoid the cascading effect of taxes on raw material ant components of finished products. The committee has alst made some recommendations regarding indirect taxes leviec by State Governments and local authorities. Governmen¹ has been examining all these recommendations with the cart which they deserve. In my last Budget, I had in fact ntceptec and implemented a few of the recommendations which wcr< available to us in the interim report of the committee. Thi proposal's which T am making today incorporate some of thi recommendations made in the final report. Other recom mendations which involve a major restructuring of the systen would require further study.

91. Tn the Plan outlay the topmost priority has been accorded to power. The Plan provision for power generation and distribution is of the order of Rs. 2,200 crorcs in 1978-79. I feel that with our enormous investments in power, there is sample justification for claiming a contribution from those who benefit from these investments. T am, therefore, proposing to levy a duty of 2 paise per kilowatt-hour on electricity generated. Electricity generated for captive con- sumption, as well as that used in the auxiliary plants in the generating stations for the generation of electricity, is being exempted. I also propose to give a rebate of the duty to the producer in respect of electricity used for agricultural purposes so that agriculturists are not affected. This levy is expected to yield a revenue of Rs. 145 crores.

92. After the nationalisation of the coal mines. r-oal production has increased from about 72 million tonnes in 1971-72 to about 100 million tonnes in 1976-77. This is the result of enormous investments made by (he State after ""* '"'"' ' 'hich we will continue to make. could, r think, justifiably be called upon to bear a small levy of central excise durv on coal. T propose to fix this at rates varying from Rs, 5 lo Rs. 10 per tonne. Tho lowest rate of Rs. 5 would cover three-fourths of the coal produced in (he country Thi" measure is expected to yield a revenue of Rs. 58 e w es

93. Under Ttem 68 of the Central excise tariff, the rate of duty leviable on L'all articles, not elsewhere specified" is at present 2 per cent ad valorem. I propose to raise this to Ihe level of 5 per cent ad valorem. While doing so, T pro- pose to exempt some sensitive categories of goods, namely, pesticides, weedicides, insecticides and fungicides, drugs and medicines other than proprietary or patent drugs and medi- cines, Pharmaceuticals and drug intermediates, from the whole of the duty leviable under this item, Newspapers and periodicals are also being exempted completely. The exis- ting exemption in respect of small manufacturers whose clearance of excisable goods does not exceed Rs. 30 lakhs in the preceding year will continue. These proposals will yield a revenue of Rs. 100 crores.

94. In view of the paramount need for mobilising re- sources for development without creating fresh distortions in the tax structure L propose to levy a special duty at the rate of l/20th of the basic excise duties presently collected on each item in the Central excise tariff, Jn doing so, T propose to exempt coal, electricity and goods which are assessed under Item 68 of the tariff. This measure will result in an additional revenue of Rs. 214 crores on indigenous produc- tion and a sum of Rs. 15 crores by way of increase in countervailing duties on imports.

95. May 1 now turn to the reliefs which T propose to give. First of all, consistent with the policy of the Government to encourage the small manufacturer and to widen the en- trepreneurial base in (he country, T propose to provide suffi- cient relief to small manufacturers so as to enable them to compete successfully with larger units. The duty exemp- tions at present available to small scaTc manufacturers arc not based on any one pattern. Over the course of years, a number of ad hoc concessions have been given and the principles of relief have varied very widely. In defining the small units, a variety of formulae have been adopted, such as, value of clearances per annum, quantity of clearances per annum, value of capital investment on plant and machine- ry, number of workers, use of power, and a combination of two or more of these criteria. Keeping in view the need for rationalising the pattern of relief to small industries and bcarini; in mind Ihe recommendation made by the Iha Committee, T propose to exempt all smaJf scale units manu- facturing specified goods, whose clearances in the preceding year did not exceed Rs. 15 lakhs, from Ihc duty payable on the first clearance of Rs. 5 lakhs. The exemption will cover 69 items including, amongst others medicines, soap and detergents, paints and varnishes, household electrical goods, steel furniture, metal containers, aerated waters, vege- table non-essential oils, ceramics and other items notified. This measure will benefit about 24,000 units currently under excirc control. It will reduce considerably the procedural requirements which these units are required to follow. It will also remove the anomaly, under which relief is presently lost totally in many cases, the moment the threshold limits of exemption are crossed. This refief will be effective from the beginning of the next financial year and involve a revenue sacrifice of Rs. 28 crores,

96. I propose to exempt power-driven pumps mainly used in agriculture from the whole of the excise duty leviable thereon. The measure will involve a loss of Rs. 1.5 crores per annum.

97. T also propose to extend the concession currently avail- able to motor-vehicles used as taxis to 3-wheelcr auto-rick- shaws as well, by reducing the rate of duty leviable on the latter by 2-J- per cent ad valorem. Whole milk powder is being exempted from payment of the duty leviable thereon in an effort to make available this commodity at a cheaper rate. T also propose to reduce the rate of duly leviable on small refrigerators of a capacity of 100 litres and less from 40 per cent

98. In pursuance of Government's decisions on the Oil Prices Committee's Report, the tariff structure relating to lub- ricating oils and greases has also been rationalised. This measures of rationalisation will yield Rs, 63 lakhs net in a year.

99. T have also carried out some modifications in res- pect of coated fabrics, cigars and cheroots, tea waste, vegetable products for industrial purposes and non-cellulosic wastes, the details of which arc given in the Budget docu- ments. These proposals will yield a revenue of Rs. 6 crores.

100. I have taken note of the significant suggestions in regard to customs duties made by the Jha Committee. As a measure of relief and particularly with a view to bringing down capital costs, I propose to reduce the customs duties on specified items of capital equipment not produced in- digenously from the current level of 40 per cent to 25 per cent. The revenue loss will be of the order of Rs. 9 crores.

101. T also propose to reduce the duty leviable on con- denser tissue paper and polypropylene film used in the manufacture of capacitors, by 111 per cent and 155 v^ cent respectively. Use of capacitors will reduce transmission losses and will thus help the more efficient transmission of power. Duty on electrical insulation paper is also being reduced. These proposals will involve a revenue sacrifice of about Rs. 4 crores.

102. Certain reliefs are also being given in respect of specified items of cinematograph machinery, electronic com- ponents and imported feature films. These together will in- volve a revenue sacrifice of Rs. 58 lakhs.

103. T have only one proposal for upward modification of the customs tariff, not so much as a measure of raising re- venue but as a measure of protection to Tndian industry. T propose to increase the import duty on polyester filament yarn from 120 per cent to 200 per cent and ad valorem. This will yield ahout Rs. 6.4 crores in a year.

104. My proposals for Customs and Central excise duties put together will yield an additional revenue of Rs. 499 crores for 1978-79.

105. The fiscal strategy underlying my proposals seeks to take advantage of the favourable food and foreign exchange situation for generating fresh expansionary im- pulses in our economy. The big step up in public investment is one element of this strategy. Monetary policy must also be used to reinforce fiscal policy,

106. The House will recollect that Government had im- posed a tax in 1974 on interest income of banks. Hon'bie Members will agree with me that, now that prices arc rea- sonably stable and there is urgent need to stimulate produc- tive investment, this tax has lost its economic justification. I propose, therefore, to withdraw the interest-tax with immediate effect. As a sequel to this fiscal concession with a monetary intent, the Reserve Rank of Tndia will be announcing later in the day the realignment of the interest rate structure.

107. The Budget Estimates for 1978-79 have taken credit

for an amount of Rfl- 130 crores on account of interest-tax. •Since the interest-tax for the months of January and February. 1978 will be payable in the coming year, the actual loss of revenue will be of the order of Rs. 108 crores.

108. To sum un, my efforts at mobilisation t.f additional resources will yield in 1978-79 Rs. 549.5 crores, of which Rs. 499 crores will be from Union excise and customs duties, Rs. 25.5 crores from direct taxes and Rs. 25 crores as com- milsory deposits. Out of this, the States' share will be Rs. 95 5 crorcs and the Centre's share Rs. 454 crores. With the withdrawal of interest-tax, the net additional resources accruing to the Centre will lie Rs. 346 crorcs.

_ 109. Despite the effort which T have made at rnisinc ad-

ditional resources, T am leaving an uncovered budgetary crip

210 THE GAZETTE OF INDIA : EXTRAORDINARY |PART I—SE^.. ^

of RB. 1,050 crores. This figure will be reduced by the recei- pts from sales of Government gold, For reasons which Hon'ble Members will appreciate 1 shall not attempt to esti- mate this figure. But I should share with Hon'ble Members the view 1 hold that, apart from preventing any resurgence of gold smuggling, it is also justifiable, in our present cir- cumstances, to utilise a part of our accumulated gold to reduce the expansionary effect of budgetary transactions. It is on the same reasoning that we have been anxious to deploy a part of our foreign exchange reserves to offest the expan- sionary impact of larger Plan and investment outlays; and I am confident that in the coming year the steps initiated to liberalise imports and the major investment programme that we now propose to undertake, will lead to a significant draw down of foreign exchange reserves. These two factors combined with continued vigilance regarding credit should limit the net increase in money supply to safe levels.

110. I am satisfied that the resultant monetary expansion will not lead to any inflationary pressures particularly in view of the large stock of foodgrains and the much greater ability that we have at present to import essential consumer goods.

The experience we have gained and the instruments we have forged in supply management through procurement and public distribution and demand management through credit and monetary policy should also enable us to contain such pres- sures.

11). In conclusion let me summarise what I seek to achieve through this Budget. My goal is to set in motion a process of sustained increase in output and employment, particularly in the rural areas. The programme of government expendi- ture on investment is the main instrument I wish to use to attain this goal. Investment expenditure in infrastructure faci- lities is being raised steeply so that bottlenecks cpming in the way of further growth are removed and there is an im- provement in tho general economic climate. This has made it necessary for me to ivncrtake sizable additional resource mobilisation. At the same time I have not hesitated to offer incentives and tax concessions where these are called for to promote investment in agriculture and industry.

112. The economic situation of the country is exceptionally favourable at present for a bold step forward. This Budget is such a step.

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