Mr Arun Jaitley, take cue from these 7 Budgets that changed the Indian economy

All Budgets are important, but there are some which have driven major changes in our nation’s economy. As India awaits Finance Minister Arun Jaitley to present another spectacular one this year, we bring 7 momentous decisions taken in some of the most important budgets in the past which our Finance Minister may want to consider before he reads out the next budget. Take a look:

1951: FIRST BUDGET OF REPUBLIC OF INDIA
John Mathai who was the Finance minister in the Congress government presented Budget on February 28, 1950.

High inflation, increased cost of capital, low level of savings and thus low level of investment and production had marked the years following Independence. This budget laid down the roadmap for the creation of the Planning Commission. The Commission was entrusted with the responsibility of formulating phased plans for effective and balanced use of resources and identifying areas requiring greater attention. The launching of the First Five Year Plan in April 1951 initiated a process of development aimed not only at raising the standard of living of the people but also opening out to them new opportunities for a richer and more varied life. This was sought to be achieved by planning for growth, modernisation, self-reliance and social justice.

This budget also reduced the maximum rate of income tax from five annas per rupee, or 30 per cent, to four annas or 25 per cent. Incomes above Rs 1.21 lakh attracted a super-tax rate of 8.5 annas per rupee. The maximum rate of personal taxation was 12.5 annas or about 78 per cent.

1968: PEOPLE-CENTRIC BUDGET
Morarji Ranchhodji Desai, Deputy Prime Minister and Minister of Finance in the Congress Government presented the Budget on February 29, 1968. The day coincided with his birthday for the second time, the first being on the same date in 1964. He is also the only Union minister to have presented 10 budgets!

In this particular budget, where both a husband and wife were income tax payers, Morarji withdrew the spouse allowance. “It would be improper for any outsider to decide as to who is dependent on whom… to eliminate this unintended strain on the relationship of marriage," he had said in his Budget speech. This Budget also 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. Today, except for some goods such as cigarettes and alcoholic preparations most products are on the self-removal mode for the levy of excise duty. It reduced administrative burden on the Excise Department and curbed discretionary powers with its field officers. It is also seen as 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.

1973: THE BLACK BUDGET
Yashwantrao B Chavan, Minister of Finance in the Congress government presented the budget on February 28, 1973

It provided Rs 56 crore for the nationalisation of the general insurance companies, Indian Copper Corp and coal mines. This was a huge sum: the estimate for the budget deficit for 1973-74 was Rs 550 crore. It was considered absolutely necessary to maintain uninterrupted supply of coal in line with the growing demand for coal in various industries like power, cement and steel at the time. It was also believed that the interest of mine workers would be best served in a government-run set-up.

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

1986: THE CARROT AND STICK BUDGET
V.P. Singh, Minister of Finance in the Congress Government presented the budget on February 28, 1986.

The MODVAT (modified value added tax) credit which was introduced by him allowed credit/set-off of duty paid on raw materials against the duty on final products. It was aimed to avoid multi-level taxation effect on the final price of goods. It was a modest beginning at major indirect tax reform to culminate in the shift to the Goods & Services Tax regime. This budget also proposed the setting up of a small industries development bank, an accident insurance scheme for municipal sweepers and railway porters, bank loans with a subsidy for rickshaw pullers, cobblers and such self-employed people. It proposed the setting up of Unit Trust of India's mutual fund and Mahanagar Telephone Nigam Ltd. for Delhi and Mumbai. Singh oversaw the beginning of the dismantling of the license raj. He also gave teeth to the Enforcement Directorate of the Finance Ministry and the mandate to sniff out tax evaders. High-profile raids on suspected evaders - including Dhirubhai Ambani - forced Rajiv Gandhi to divest Singh of the portfolio.

1987: THE GANDHI BUDGET
Rajiv Gandhi, the Prime Minister in the Congress government presented the budget on February 28, 1987.

It introduced provisions related to minimum corporate tax, better known today as MAT or Minimum Alternate Tax. It was brought in with the primary objective of bringing into the tax net highly profitable companies that were legally managing to avoid paying income tax. The budget estimates for collections of this tax were modest (Rs 75 crore) but it has since become a major source of revenue, though the figures are no longer revealed. Cigarettes evoked a light moment in Rajiv Gandhi's only budget speech. "In looking for more revenue, I have to fall back on the ever dependable and reliable friend of Finance Ministers and the certified enemy of Health Ministers." He switched to the current system of basing the excise rate on the length of a cigarette rather than its printed price.

1991: THE EPOCHAL BUDGET
Manmohan Singh, Finance Minister in the Narasimha Rao government presented the Budget on July 24, 1991.

At this time, the balance of payments was precarious and any further postponement of long overdue steps would have been disastrous. Manmohan Singh’s Budget therefore 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. Notably, Singh introduced service tax in the 1994 Budget to tap into the fastest growing sector of the economy then. Service tax today fetches Rs 58,000 crore against Rs 400 crore in 1994.

1997: THE DREAM BUDGET
Palaniappan Chidambaram, the Finance Minister in the United Front Government presented the Budget on February 28, 1997.

In view of the fact that a little over one per cent of the population had been for income tax so far, Budget 1997 aimed to widen the tax base. Chidambaram 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. He also launched the Voluntary Disclosure of Income Scheme or VDIS, to bring out black money and phased out ad hoc treasury bills used for financing the budget deficit. 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. The incremental tax revenues were leveraged into developmental public expenditure on social welfare and the infrastructure sector.

(Image credit: PTI)