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Sunday, March 02, 2008

As a single economic unit a subcontinent peopled by a fifth of the human race meant by itself a great advantage

Budget Rewind: The planning begins ET 26-28 Feb 2008, Vikram Doctor On the 60th anniversary of the first full Budget of independent India (the 1947 Budget was technically an interim Budget), ET went into the archives to look at past Budgets — their presentation, content and context — to see how the nature and style of the Budget has changed over time. It’s a process that can throw up interesting questions.

Let’s go back to November 26, 1947 when the first Interim Budget was presented by Sir RK Shanmukham Chetty, industrialist, erstwhile Diwan of Cochin state and Constitutional Adviser to the Chamber of Princes. Despite not coming from a Congress background, but the more conciliatory Justice Party, Jawaharlal Nehru had picked him as India’s first finance minister, possibly at Sardar Patel’s behest since he felt that an industrialist outside the regular Congress fold might help reassure Indian industrialists nervous at the ascent of the Congress...When Chetty did rise to present his Budget in November, he made full note of its historic nature, but equally noted the tragedy of Partition that shadowed it.

“The partition of the country has cut across its economic and cultural unity and the growth of centuries of common life to which all the communities have contributed,” he said sombrely, and noted the economic cost: “To have had as a single economic unit a subcontinent peopled by a fifth of the human race meant by itself a great advantage for the teeming millions of its population an advantage not fully realised, and perhaps not properly utilised while the unity was a fact.”

Perhaps not realising, or hoping against, the hostility that would dog Indo-Pakistani relations, he hoped that the two ‘dominions’ would find ways to work together...Chetty’s second Budget, and the first full Budget, was greeted with more enthusiasm...Not long after presenting the Budget he resigned in circumstances that have never been made quite clear...

A more realistic view is that Nehru never wanted Chetty, distrusting his non-Congress origins and closeness with all those shawl-wearing industrialists. So when allegations surfaced that Chetty, possibly at Patel’s behest, had told income tax authorities to go easy on investigations of some industrialists, Nehru seized on this to get him to go. He was replaced by the candidate Nehru had wanted all along, John Mathai, ex-director of Tata Sons and the first railway minister. Mathai’s first Budget, for 1949-50, was a workmanlike exercise where the main interest today is to see how closely world events still impinged on India — he starts by speaking of “the impasse in Berlin, the civil war in Greece, the Palestine question, civil strife in China, the disturbances in Burma”... But what’s really of interest is his Budget the following year, the first in the Republic of India, under its new Constitution...

Wars in the region, first in Korea during Deshmukh’s tenure, and then the Suez crisis, during the tenure of his successor TT Krishnamachari (TTK) also were noted for their effect on the Budget. But as the country got increasingly focused with the Plans, they seem to become less important...

Deshmukh had resigned in 1956, for an oddly current sounding reason. In the face of the Samyukta Maharashtra agitation, Nehru had unwillingly agreed to the linguistic division of Bombay state, but it looked like he might listen to the views of Gujaratis and include Bombay city in their state. Deshmukh was unhappy with the idea and resigned — his transformation from bureaucrat to politician had perhaps gone further than Nehru had intended. He was replaced by TTK, the industrialist turned politician, who in a businesslike way got down to squeezing money out of tax payers with none of Deshmukh’s sense of apology...

Until the ‘80s Palkhivala’s audience had not had an easy time of it. Nehru had disregarded them, Mrs Gandhi had despised them and if they had learned anything from the chaos of the Janata years, it was that they should scrimp and save, yet somehow send their children abroad to escape. But in the ‘80s this started to change. As the growing numbers for Palkhivala’s lectures indicated the size of the middle class was increasingly hard for the government to overlook, and both the chastened Mrs Gandhi, and her ideology unencumbered son Rajiv were now willing to indulge them.

R Venkataraman and Pranab Mukherjee made token attempts in the early ‘80s, but it was in 1985 that V P Singh offered what was a dream budget before Chidambaram took a copyright on that phrase. His sops like abolition of estate duty and concessions to industry may seem small now, but were greeted as almost miraculous at that time. Even Palkhivala offered praise.

Problems were lurking though, not least in the innocuous seeming figure of Singh himself. Plucked from obscurity in UP politics thanks to his clean image, Rajiv Gandhi might have thought that he was a political lightweight who wouldn’t rock the Congress boat. But proving again how the power of the FM’s post, and the platform afforded by the Budget can upset calculations, Singh suddenly started emulating Morarji Desai’s increasingly assertive FM’s role (his ostentatiously clean politics was another parallel with Desai). Bofors and Fairfax erupted and Gandhi’s attempt to sideline him as FM by moving him to Defence backfired and Singh staged a high profile exit from the government...This period is currently the forgotten one in recent history. Not far enough away for nostalgia, but not overlaid either with the retrospective rosy sheen of liberalisation cast over the late ‘90s...

The government also finally acknowledged the growing importance of the stock markets, and in 1987 announced the need for an institution to regulate it (though it would still be a few years before Sebi was formed). And through the Budgets, there are many small measures for relief that would have long-term consequences. For example, one wonders the extent to which Singh’s announcement that “the requirement of taking out a licence in the case of radios, television sets and VCRs is being dispensed with” helped encourage ‘80s video parlour boom that caused such a change in our entertainment habits.

Yet, in retrospect, all this is overshadowed by the looming economic crisis that finally hit the country by 1991, with the government, whatever its composition in that period of revolving door coalitions, forced to go to the IMF for a bail-out. The best thing that can be said about this was that it finally made easier introduction of real reforms by Manmohan Singh when he took over the FM’s chair the following year...

Today, as another south Indian finance minister prepares his Budget, we know that the era of grand Budget schemes is over, but in small ways we are more connected to it than ever. We may no longer have a need of a champion like Palkhivala to dissect and challenge the Budget, but we do need all the detailed coverage provided by papers like this to help us understand the Budget. Sixty years on the nature of the Budget has changed in many ways, but its importance to us remains. Focus on Aam aadmi in Budget session Pre Budget

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