The Budgets That Shaped India

28/02/2015 11:39 AM IST | Updated 15/07/2016 8:25 AM IST
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NEW DELHI, INDIA - FEBRUARY 27: Union Finance Minister Arun Jaitley with MoS for Finance Jayant Sinha and his team of officials giving final touch to the General budget 2015-16 on February 27, 2015 in New Delhi, India. Finance Minister Arun Jaitley will present tomorrow the first full year Budget of the NDA government, hyped as a 'make or break' exercise, that is widely expected to unveil sops for tax payers while pushing forward the 'Make In India' campaign. (Photo by Mohd Zakir/Hindustan Times via Getty Images)

The first India Budget was presented in 1859 by James Wilson, (Member Finance) of the India Council, which advised the Viceroy. Wilson is remembered for founding The Economist and Standard Chartered Bank.

The British budgets built a ceremonial tradition. The document was drafted in ostentatious secrecy and transported sealed, by the Royal Navy, from Calcutta to London. It was read simultaneously, at 5.30 pm IST (12 noon in the UK) in India, and in the House of Commons.

The ostentatious secrecy remains. So does the ceremonious delivery of a long speech. It would make more sense to just post the Finance Bill online. But which politician would forego the chance to grandstand?

During the British Raj, the Budget was essentially the annual presentation of accounts. After Independence, it became a statement of intent, outlining policy decisions and offering a narrative about economic continuity.

Many Budgets are forgettable. But some are highly memorable. A few have redefined the economy.

1950: Finance Minister, John Mathai, released the Finance Bill as a White Paper and gave a very short speech. Unfortunately, subsequent FMs reverted to line-by-line reading of tax rates. The 1950 Budget laid out the road map for the formation of the Planning Commission. The peak personal income tax was set at a "moderate" 78 percent or 12.5 annas per rupee (1 Rs = 16 annas).

1957: The rupee went decimal on April 1, 1957. The FM, T.T. Krishnamchari, faced a Balance of Payment crisis and took drastic measures. There were massive curbs on imports. Excise and customs duties were raised to peak rates of 400 percent. Wealth Taxes and Expenditure Taxes were introduced. The cure was much worse than the disease.

1973: The "Black Budget". Yashwantrao Chavan implemented twin nationalisations, of coal and insurance. We're still suffering from evil repercussions. The peak income tax rate was hiked to 97.5 percent.

1986: V.P. Singh introduced MODVAT. He also encouraged aggressive raids on tax evaders.

1991 (Also 1992, 1993, 1994): Dr Manmohan Singh's first four Budgets were all important. Each contained key measures that helped liberalisation.

But nothing will ever equal the impact of the July 1991 Budget. It was drafted in crisis. Foreign Exchange reserves covering just 14 days of imports. India had pledged gold to cover external obligations. The fiscal deficit was above 8 percent of GDP. Inflation was in double-digits.

That Budget started dismantling the License Raj (which still exists). Instead of 18 industrial sectors reserved as government monopolies, just three remained reserved (defence, railways and nuclear power). The rupee was devalued from Rs17/ USD to Rs26.

FDI of upto 51 percent was allowed. Peak import duties were cut from 220 percent to a mere 120 percent. Capital gains tax was reduced. SEBI was given power to act effectively as the stock market regulator. Electronic media was decontrolled. PSU disinvestment started. The stage was set for bank privatisation, and for private sector mutual funds.

Singh's speech ended by paraphrasing Victor Hugo: "No power on earth can stop an idea whose time has come. I suggest to this august House that the emergence of India as a major economic power in the world happens to be one such idea."

1992: The Sensex more than doubled within a month of the Budget. The "Big Bull", Harshad Mehta, sourced vast sums in dubious ways to pump it into stocks. Then, in 1993, Dr Singh said he wanted to move towards full convertibility where anybody could buy and sell the rupee for other currencies. We're still waiting for that. In 1994, he introduced Service Tax, which raised Rs179,000 crore in 2013-14.

1997: P. Chidambaram's so-called Dream Budget cut personal income tax and corporate tax. It introduced a Voluntary Disclosure of Income Scheme to flush out black money.

1999: Yashwant Sinha's Budget was pragmatic. But that's not why it's remembered. The NDA lost a No-Confidence Motion. The Finance Bill was implemented by a lame-duck, caretaker government (which retained power in the next election).

2002: Yashwant Sinha's 2002 effort is remembered as a "rollback budget". There were rollbacks of multiple proposals, including LPG cylinder price hikes, taxes on software exports, dividends, etc.

2012: Pranab Mukherjee introduced a retrospective change to the Income Tax Act, 1961, after Vodafone successfully challenged an income tax demand for Rs11,200 crore. The retrospective effect of the change would be in effect from 1961. Along with Nokia's tax case which led to the shut-down of the Chennai facility, this retrospective amendment is one of several tax-related reasons for overseas investors to be wary.

2015: This is the first full-year Budget for the Modi government. Expectations are very high. Mr Jaitley could kickstart a boom if he encourages foreign direct investment (FDI), rolls back the retrospective Income Tax change of 2012, offers clarity on goods and services tax (GST) and manages to revive the domestic investment cycle and consumption.

Finance Ministers Since Independence

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