The fiscal system is the heart of the economy; a finance minister would have to be extremely clever "" or reckless "" to mess around with it. But there are times when messing around becomes unavoidable, and there are men who cannot resist messing around, says Ashok V Desai.
Public finance in British India was by and large very conservative. Pre-Keynesian public finance theory was rather inertial anyway. The early governments of colonial India faced the problem of relying on a land revenue base that was not buoyant. But it easily overcame its reliance on land revenue by developing excise duties and income taxes. It was a low-cost government; it aimed to do little and did it efficiently. So it never faced difficult problems of raising resources, as revenue plus borrowings came to be known in the era of planning.
The first finance minister who broke out of this conservative mould was Liaquat Ali Khan. He was technically not finance minister of independent India, but India was independent in all but name when he took over, and he would have continued as finance minister of independent India if Jinnah and the Congress leaders had been able to patch up their differences.
Liaquat inherited an economy that had suffered six years of inflation and shortages during World War II. He decided to disinflate, and imposed a capital gains tax. It was not an unreasonable tax by later standards; it exempted assets held for seven years, compulsorily acquired property, assets of partnerships and companies under liquidation, etc.
But asset prices had risen so much during the War that the tax virtually amounted to a tax on sale of assets. It raised howls of protest, and Liaquat was accused of being a communal Muslim Leaguer intent on soaking Hindu capitalists. The capital gains tax went far towards persuading Hindu leaders that they should get rid of the Muslim League by acceding to the demand for Pakistan.
The next maverick finance minister was T T Krishnamachari. C D Deshmukh was an extremely capable finance minister, he presented seven budgets in his six years as finance minister. The early 1950s, when he managed the country's finances, were a period of reasonable if unspectacular growth; above all, it saw the dissipation of the shortages and tensions built up during the 1940s. But then Deshmukh became uneasy about Nehru's all-devouring socialist urge, and made the government's refusal to divide Bombay into Gujarat and Maharashtra an excuse for resigning.
Disaster followed his resignation. Foreign exchange reserves fell from Rs 746 crore in March 1956 to Rs 543 crore in November. In October, the British and the French invaded Egypt, and in retaliation, Nasser sank ships in the Suez canal and blocked it. At that time India was far more dependent on Britain than now; Nasser thereby cut off India's lifeline to Europe. (He also thereby prevented me from taking the shortest sea route to Britain, and gave me a leisurely and pleasant voyage via South Africa and Majorca).
TTK, who took over from Deshmukh, introduced two finance Bills in November 1956 which virtually amounted to a budget. Liaquat Ali Khan's capital gains tax was never repealed from the tax book, but its rate was reduced to zero in 1948; TTK brought it back. He also forced companies to deposit a certain proportion of profits with the Reserve Bank; they could get the deposits back only if they spent them on approved investments within the Plan.
These innovations were only a precursor. In 1956 Nicholas Kaldor came to India, and proposed his favourite scheme of taxation in which an array of direct taxes supplemented one another and created multiple checks on a taxpayer's capacity. On the basis of his proposals, TTK imposed a wealth tax and an expenditure tax in his 1957 budget.
These taxes remained in the books for decades. They yielded very little, cost a lot in collection, and were finally abandoned by more sensible finance ministers. There is a moral in the story which few finance ministers have learnt
The singles players...
Jawaharlal Nehru, Charan Singh, Rajiv Gandhi and Madhu Dandavate may be poles apart as far as economic ideology goes. But on one count, they share something in common. They are the nine finance ministers who have presented the budget once.
* Jawaharlal Nehru (1958)
While we should always be prepared to reconsider the methods we adopt, should this become necessary, we have to strive with all our strength for our planned development..
* Sachindra Chaudhari (1966)
The fact that we depend today to such a large extent on the PL-480 programme ...emphasises...the need for caution in governmental expenditure.
* Indira Gandhi (1970)
It is necessary to devise polices which reconcile imperatives of growth with concern for the well-being of the poor.
* Charan Singh (1979)
* have...put the maximum emphasis on agricultural and rural development and labour-intensive industry because...that is the only way we can eradicate poverty and unemployment.
* Rajiv Gandhi (1987)
* am committed to planning for socialism..., socialism that fits in with our genius but nevertheless socialism in its basic meaning of removing disparities....
* N D Tiwari (1988)
As a humble political worker, I am conscious that while we have made tremendous pro-gress, there is a great deal to be done to improve the condition of our people...
* S B Chavan (1989)
Kit culture-based consumerism is not the objective of our industrial and trade policy and must be discouraged.
* Madhu Dandavate (1990)
We have taken some resources from the rich and used them to give some relief to the poor and the common man.
* Yashwant Sinha (1991)
The room for manoeuvre, to live on borrowed money or time, has been used up completely. ..
...and the veterans
The award here easily goes to Morarji Desai "" if only for the ten budgets he has presented under Congress governments. This roll includes ministers who have presented more than three budgets.
* C D Deshmukh (1951-56): seven budgets.
I should like once again to emphasise the need to step up... the rate of savings... in order to match it with the investments we are under- taking. (1956)
* T T Krishnamachari (1956-1957 & 1964-1965.): six budgets.
We must also attempt a rationalisation of the tax structure so that it can sustain a...crescendo of development. (1957-58)
* Morarji Desai (1959 -1963 & 1967-1969): ten budgets.
The utmost cooperation, discipline, and even a measure of self-denial by all sections of the community will be necessary. (1968)
* Y B Chavan (1971-1974): seven budgets.
The steep rise in the price of crude oil and also some other commodities have turned the terms of trade sharply against us and has rendered our tasks exceptionally difficult. (1974)
* Manmohan Singh (1991-1996): six budgets.
After four decades of planning for industrialisation, we have now reached a stage of development where we should welcome, rather than fear, foreign investment. Our entrepreneurs are second to none. Our industry has come of age. Direct foreign investment would provide access to capital, technology and markets. It would expose our industrial sector to competition from abroad in a phased manner... (1991)