For
the first time in living memory, India is struggling to cope with a crisis
imported from the West. Without silver bullets from global institutions, the FM
will have to dig deep into domestic resources for
solutions.
On July 3, India's diminutive finance minister will stand in the Lok Sabha and start speaking in his strongly Bangla-accented English. Across the world, every word he???ll utter will be picked over for import and substance.
Stripped down, the budget is about how the government spends money, and how it taxes us to get it. It's also about the gap between the two: the consequences of wide and slim deficits. And the tussle for funds between city and village, farm and factory, guns and butter. So, what???s the big deal?
What makes India???s budgets rivetting is the politics behind the numbers, the pulls, pressures and lobbying that ultimately shape that 90 minute speech. This will determine how you, your business and everything you use, will be taxed ??? and priced ??? through the year ahead.
(##include msid=3157120,type=9 ##)
For sheer drama, nothing beats the opening words of Shanmukham Chetty, the first finance minister of India, on November 26, 1947: ???I rise to present the first budget of a free and independent India. This occasion may well be considered an historic one and I count it a rare privilege that it has fallen to me to be the finance minister to present this budget.???
Chetty???s travails are endless: he has to cope with the largest forced migration in history, a tottering treasury and dwindling reserves. He has to separate the accounts of India and Pakistan and fund vast projects to cope with displacement. Survival is the only priority. Yet, even discussing Partition, Chetty is focused on his job: ???When the ashes of controversy have died down, it will be for the future historian to judge the wisdom of the step and its consequences on the destiny of one fifth of the human race... its economic consequences must be fully appreciated... to safeguard the interests of the ordinary man in both the new States.???
Finally, even though the accounts can???t be balanced, India???s first finance minister is upbeat ??? and prophetic: ???If India, just risen from bondage, is to realise her destiny as the leader of Asia and take her place in the front rank of free nations, she would require all the disciplined effort her sons can put forth in the years immediately ahead.???
But less than 20 years later, things looked bleak once again. By February 1966, the economy was in trouble and Nehru???s successor Shastri, had suddenly died in Tashkent. A veteran finance minister, T T Krishnamachari had been replaced by Sachin Chaudhuri, a lawyer who liked to dabble in economics, but had no insight into budget-making. Yet, Chaudhuri???s budget, drafted largely by veteran babu L K Jha and economist I G Patel, helped pull India back from the edge of the cliff. Soon afterwards, Morarji Desai became finance minister.
By 1969, Desai had elevated himself to deputy prime minister through some shrewd manoeuvring. His budget that year tinkered with taxes and it looked like the government would scrape through with a modest surplus after many years.
Morarjibhai even took a swipe at filmmakers like Ritwik Ghatak, too radical for his taste, with a tax proposal. ???I am assured on good authority that in the topsy-turvy world of the cinema, the highest achievements of subtlety belong to those who are accustomed to think in terms of black and white. Accordingly, I propose to give some relief to the black and white cinematograph films and raise the incidence on colour films.???
What Morarji didn???t realise was that his machinations ??? along with cronies like Atulya Ghosh and Sanjiva Reddy ??? to seize power within the Congress would invite swift punishment. Indira Gandhi struck. She booted Morarji out of finance, stripped him and his cronies of all powers and split the party.
On July 3, India's diminutive finance minister will stand in the Lok Sabha and start speaking in his strongly Bangla-accented English. Across the world, every word he???ll utter will be picked over for import and substance.
Stripped down, the budget is about how the government spends money, and how it taxes us to get it. It's also about the gap between the two: the consequences of wide and slim deficits. And the tussle for funds between city and village, farm and factory, guns and butter. So, what???s the big deal?
What makes India???s budgets rivetting is the politics behind the numbers, the pulls, pressures and lobbying that ultimately shape that 90 minute speech. This will determine how you, your business and everything you use, will be taxed ??? and priced ??? through the year ahead.
(##include msid=3157120,type=9 ##)
For sheer drama, nothing beats the opening words of Shanmukham Chetty, the first finance minister of India, on November 26, 1947: ???I rise to present the first budget of a free and independent India. This occasion may well be considered an historic one and I count it a rare privilege that it has fallen to me to be the finance minister to present this budget.???
Chetty???s travails are endless: he has to cope with the largest forced migration in history, a tottering treasury and dwindling reserves. He has to separate the accounts of India and Pakistan and fund vast projects to cope with displacement. Survival is the only priority. Yet, even discussing Partition, Chetty is focused on his job: ???When the ashes of controversy have died down, it will be for the future historian to judge the wisdom of the step and its consequences on the destiny of one fifth of the human race... its economic consequences must be fully appreciated... to safeguard the interests of the ordinary man in both the new States.???
Finally, even though the accounts can???t be balanced, India???s first finance minister is upbeat ??? and prophetic: ???If India, just risen from bondage, is to realise her destiny as the leader of Asia and take her place in the front rank of free nations, she would require all the disciplined effort her sons can put forth in the years immediately ahead.???
But less than 20 years later, things looked bleak once again. By February 1966, the economy was in trouble and Nehru???s successor Shastri, had suddenly died in Tashkent. A veteran finance minister, T T Krishnamachari had been replaced by Sachin Chaudhuri, a lawyer who liked to dabble in economics, but had no insight into budget-making. Yet, Chaudhuri???s budget, drafted largely by veteran babu L K Jha and economist I G Patel, helped pull India back from the edge of the cliff. Soon afterwards, Morarji Desai became finance minister.
By 1969, Desai had elevated himself to deputy prime minister through some shrewd manoeuvring. His budget that year tinkered with taxes and it looked like the government would scrape through with a modest surplus after many years.
Morarjibhai even took a swipe at filmmakers like Ritwik Ghatak, too radical for his taste, with a tax proposal. ???I am assured on good authority that in the topsy-turvy world of the cinema, the highest achievements of subtlety belong to those who are accustomed to think in terms of black and white. Accordingly, I propose to give some relief to the black and white cinematograph films and raise the incidence on colour films.???
What Morarji didn???t realise was that his machinations ??? along with cronies like Atulya Ghosh and Sanjiva Reddy ??? to seize power within the Congress would invite swift punishment. Indira Gandhi struck. She booted Morarji out of finance, stripped him and his cronies of all powers and split the party.
On February 28, 1970, Indira
Gandhi, as prime minister and finance minister, presented her first ??? and
only ??? budget. Indira sensed that the mood of India was radical and she
decided to ride it. Devoid of all rhetoric, her budget nevertheless packed the
punch of a nuke: ???The marginal rates of income taxation will be increased
progressively in all personal incomes above Rs 40,000 per year. With the
addition of the surcharge at 10%, the maximum rate of 93.5% will now be reached
in the slab over Rs 2 lakh.???
That fiscal nuke was preceded by the nationalisation of 14 banks. More nationalisations followed ??? of insurers, mines and so on. Trade and foreign exchange controls were slammed into place. Industry???s hands were tied. All of these plunged the economy into deep trouble. It spawned a genre of movies where smugglers played larger than life roles and a culture where bootlegged Johnny Walker and imported polyester shirts became symbols of upward mobility.
It took 21 years and India???s most severe foreign exchange crisis to undo the damage. On a July morning in 1991, the industry ministry called a press conference. There, prime minister Narasimha Rao, acting as industry minister, announced to the world that he was scrapping India???s notorious system of industrial licensing. He also told journalists to listen to the budget speech of Manmohan Singh, scheduled later that evening.
That evening, India???s economy really opened up to the world. Singh concluded with Victor Hugo???s ???an idea whose time has come??? analogy for India, and added these prescient words: ???Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.???
On July 3, Pranab Mukherjee will have to deliver on that 18-year old promise. Can he? His last Budget, delivered 25 years ago, played to the priorities of another age: higher taxes on imported zippers, duty cuts for polyester, and a cut in taxes on table and ceiling fans, ???To help the Hon???ble Members in keeping their tempers cool.??? Today, that kind of tinkering won???t suffice.
India is a vastly more open and productive economy than ever before. Yet, for the first time in living memory, it???s struggling to cope with a crisis imported from the rich west. Without silver bullets from global institutions, Mukherjee will have to dig deep into domestic resources for solutions.
Expectations are sky high, but with the government???s revenue deficit ??? the gap between what it spends on itself and what it gets as taxes ??? quadrupling in a year, there???s little room for profligacy. But after many years, Mukherjee ??? and the Congress party ??? have politics on their side.
(The author is consulting editor, ET Now)
That fiscal nuke was preceded by the nationalisation of 14 banks. More nationalisations followed ??? of insurers, mines and so on. Trade and foreign exchange controls were slammed into place. Industry???s hands were tied. All of these plunged the economy into deep trouble. It spawned a genre of movies where smugglers played larger than life roles and a culture where bootlegged Johnny Walker and imported polyester shirts became symbols of upward mobility.
It took 21 years and India???s most severe foreign exchange crisis to undo the damage. On a July morning in 1991, the industry ministry called a press conference. There, prime minister Narasimha Rao, acting as industry minister, announced to the world that he was scrapping India???s notorious system of industrial licensing. He also told journalists to listen to the budget speech of Manmohan Singh, scheduled later that evening.
That evening, India???s economy really opened up to the world. Singh concluded with Victor Hugo???s ???an idea whose time has come??? analogy for India, and added these prescient words: ???Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.???
On July 3, Pranab Mukherjee will have to deliver on that 18-year old promise. Can he? His last Budget, delivered 25 years ago, played to the priorities of another age: higher taxes on imported zippers, duty cuts for polyester, and a cut in taxes on table and ceiling fans, ???To help the Hon???ble Members in keeping their tempers cool.??? Today, that kind of tinkering won???t suffice.
India is a vastly more open and productive economy than ever before. Yet, for the first time in living memory, it???s struggling to cope with a crisis imported from the rich west. Without silver bullets from global institutions, Mukherjee will have to dig deep into domestic resources for solutions.
Expectations are sky high, but with the government???s revenue deficit ??? the gap between what it spends on itself and what it gets as taxes ??? quadrupling in a year, there???s little room for profligacy. But after many years, Mukherjee ??? and the Congress party ??? have politics on their side.
(The author is consulting editor, ET Now)
