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Nine landmark budgets and their impact on Republic of India

The Narendra Modi government will present the last budget of its current term on February 1, 2019. The financial document, though interim, is expected to unveil some populist measures.

We take a look at some of the significant Budget presentations which gave a new dimension to the country on different fronts.
 

Independent India's first Budget

Independent India's first budget was presented on November 26, 1947, by the then finance minister R K Shanmukham Chetty. 

Since it covered a period of only seven-and-a-half-months — from August 15, 1947, to March 31, 1948 — the event itself began significantly.

(Photograph:Reuters)

First budget of Republic of India

It was presented by John Mathai, the finance minister in the Congress government, on February 28, 1950. This budget laid down the roadmap for the creation of the Planning Commission. 

High inflation, increased the cost of capital, low level of savings and thus low level of investment and production had marked the years following Independence, and so a body was needed to plan for the growth of the country.

How it impacted India

A large part of the credit for the Indian growth model goes to the Planning Commission.

(Photograph:Reuters)

1957 Budget

Tiruvellore Thattai Krishnamachari, minister of finance in the Congress government presented the Budget on May 15, 1957. It put severe restrictions on imports through an import licensing system, withdrew budgetary allocation for non-core projects and set up export risk insurance corp to protect exporters against payment risks. 

For the first time, an attempt was made to distinguish between active income (salaries or business) and passive income (interest or rent). 

This budget also brought in the wealth tax, a tax on expenditure and a tax on railway passenger fee and raised the income tax rates.

How it impacted India

The import curbs and high tax rates made things worse. Raising external debt became increasingly difficult.

(Photograph:Reuters)

1968 Budget

Morarji Ranchhodji Desai, deputy prime minister and minister of finance in the Congress government presented the Budget on February 29, 1968. 

It ended the requirement of stamping and assessment by the excise department authorities of goods right at the factory gate and introduced the system of self-assessment by all big and small manufacturers, a system still in use.

How it impacted India

Self-removal of goods was a major procedure relaxation that went a long way in boosting manufacturing. Administrative convenience in removal of goods made the process less complicated and tedious.

(Photograph:Reuters)

1973 Budget

Yashwantrao B Chavan, minister of finance presented the Budget on February 28, 1973. It is referred to as the 'black' Budget because the deficit for 1973-74 had surged to Rs 550 crore. 

The Budget provided Rs 56 crore for the nationalisation of the general insurance companies, Indian Copper Corp and coal mines.

How it impacted India

It is argued that nationalisation of coal mines had an adverse impact on coal production in the long run. The coal assets were bundled together under a single government-owned entity with no scope for market competition. 

There was little incentive for the deployment of efficient production techniques and the introduction of new technologies. India has been a net importer of coal over the past 40 years.

(Photograph:Reuters)

1986 Budget

VP Singh, finance minister in the Congress government presented the budget on February 28, 1986, which introduced the MODVAT (Modified Value Added Tax). 

This allowed credit/set-off of duty paid on raw materials against the duty on final products. He did it to reduce the cascading effect of taxes on the final price of goods.

How it impacted India

This was a modest beginning at major indirect tax reform that later culminated in the shift to the Goods & Services Tax (GST) regime.

(Photograph:Reuters)

1987 Budget

Rajiv Gandhi, who was the Prime Minister in 1987, also held the finance portfolio, presented the Budget on February 28, 1987. It introduced provisions related to minimum corporate tax, better known today as MAT or Minimum Alternate Tax. 

He did it with the primary objective of bringing into the tax net highly profitable companies that were legally managing to avoid paying income tax.

How it impacted India 

The budget estimates for collections of tax were modest (Rs 75 crore) but it has since become a major source of revenue, though the figures are no longer revealed.

(Photograph:Reuters)

1991 Budget

Manmohan Singh, finance minister in the Narasimha Rao government, presented the budget on July 24, 1991, instead of February 28 due to political developments. 

This budget is a landmark in India's economic history as it overhauled the import-export policy, slashed import licensing and went for vigorous export promotion and optimal import compression to expose Indian industry to competition from abroad. 

It also began rationalisation of duty structures by pruning the peak customs duty from 220 per cent to 150 per cent.

How it impacted India

India is today the second fastest growing economy in the world.

(Photograph:Reuters)

1997 Budget

Palaniappan Chidambaram, finance minister in the United Front government, presented the budget on February 28, 1997. 

The budget made tax rates moderate for individuals as well as companies and allowed companies to adjust MAT paid in earlier years against tax liability in subsequent years. 

It also launched the voluntary disclosure of income scheme or VDIS, to bring out black money. The ad hoc treasury bills used for financing the budget deficit were also phased out.

How it impacted India

India had a peak income tax rate of 97.5 per cent in the late 1960s and early 1970s. The moderation in rates improved overall compliance as those who used to find rates prohibitive earlier began to pay up instead of hiding their incomes. 

Since 1997-98, personal income tax collections have gone up from Rs 18,700 crore to Rs 100,100 crore during April 2010-January 2011. The VDIS garnered about Rs 10,000 crore. 

Higher disposable income in the hands of taxpayers helped generate demand. The incremental tax revenues were leveraged into developmental public expenditure on social welfare and the infrastructure sector.

(Photograph:Reuters)

2000 Budget

Yashwant Sinha, finance minister in the NDA government, presented the Budget on February 29, 2000. It phased out the incentives given by Manmohan Singh to software exporters. 

In the 1991 Budget, Singh had made income from software exports tax-free for three years and then extended the tax holiday to perpetuity in budget 1995.

How it impacted India

Singh had intended to promote India as a major software development centre in the world. The introduction of this tax holiday to software export sector was followed by exceptional growth in the Indian IT industry. 

At the same time, no industry can remain dependent on tax incentives in perpetuity. So while the credit for India emerging a major global software hub goes to Singh, Sinha perhaps contributed a great deal to infusing confidence in it.

(Photograph:Reuters)