MINISTRY OF FINANCE

BUDGET 1978-79

Speech of Minister of Finance

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-

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

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.

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 <is compared to 1.6 per cent in 1976-77.

Agricultural

production which had declined sharply last year is expected

to more than make up the lost ground, Foodgrain produc-

tion is expected to exceed last year's level by about 10 million

tonnes despite

the natural disasters in the

South.

The

production

of commercial crops

is also expected to im-

prove considerably.

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

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,

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,

sharp

decline

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.

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

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

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

1976-77.

However, it has to be recognised that the lower

growth rate this year is to a large extent due to the shortage

198

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART T—SEC. T]

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*

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

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

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

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

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

dearness

allowance was sanctioned to them during the year, The rate

of interest on Government provident funds has been enhanced

199

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

200

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART I--SEC.I]"

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

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

/Ul

4as 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.

[

—

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 making ray proposals 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,

207

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.

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

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 12|

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.

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.

208

THE GAZETTE OF INDIA : EXTRAORDINARY

[PART 1—SEC. 1J

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,

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

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

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

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

litigation and accelerating the disposal of appeals and refe-

rences.

its

report

(he

Central

Direct

Taxes

Administration, the

Administrative

Reforms

Commission

had

recommended <haf amendments

the

tax laws

should

not be

rushed

through

the

annual

Finance

Bill,

which

needs

be passed

before a

prescribed

date, hut made through separate bills whose provisions can

bs considered in detail. Pursuant to this recommendation, I

propose to introduce separate legislation as early as possible

give

effect to the

main

recommendations

the

Chokshi

Committee

which

are

acceptable

to the Gov-

ernment. In

the meanwhile,a few changes recommended by

the committee, such as deduction of lax at source from race

winnings and voluntary payment of advance lax, which could

be easily incorporated in the tax law, have been introduced

through the Finance Bill.

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

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

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

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 ewes

209

93. Under Ttem 68 of the Central excise tariff, the rate of

duty leviable on^L'all articles, not elsewhere specified"

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

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 <ul valorem to 30 per cent ltd valorem. At present,

parts of refrigerating and air-conditioning machinery required

for installation in specified establishments arc assessed at a

concessional rate of 20 per cent. This concession is being

extended to ready assembled airconditioning units of the

window and package type, generally used by smaller

in-

dustrial installations. Last year I had raised the excise duty

on films substantially. There have been a number of re-

presentations against the increase and the manner in which

it affects the industry. T have carefully considered the matter

and propose

to reduce the excise,

duty

leviable

from

Rs. 7,500 to Rs. 5.000 on the third dozen slab of colour

prints, of length 4,000 metres or less. Suitable adjustments

arc being made in the case of brack and white films as well

as longer films. Duty on prints cleared for home consump-

tion after twelve months from the date of first release of

the film for public exhibition is also being reduced suitably.

These proposals together imply a relief of about Rs. 3 crores.

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

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.

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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