I rise to present the first Budget of a free and independent India. This occasion may well be considered an historic one and I count it a rare privilege that it has fallen to me to be the Finance Minister to present this Budget. While I am conscious of the honour that is implied in this position, I am even more conscious of the responsibilities that face the custodian of the finances of India at this critical juncture.
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. The long-term effects of the division of the country still remain to be assessed and we are too near the events to take a dispassionate view. When the ashes of controversy have died down, it will be for the future historian to judge the wisdom of the step and its consequences on the destiny of one fifth of the human race.
Whatever might be the immediate political justification of partition, its economic consequences must be fully appreciated if the two Dominions are to safeguard the interests of the ordinary man in both the new States. Regions which have functioned for centuries on a complementary basis have been suddenly cut asunder. 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 utilized while the unity was a fact.
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Economic challenges in India’s first budget
There has been a marked deterioration in the economic situation in the country since March last. The situation has been aggravated by the large scale disturbances, which burst out suddenly, more especially in the Punjab and the North-West Frontier Province. Apart from the serious economic consequences arising out of these disturbances, the human misery that it has caused cannot be measured in terms of money. Thousands of innocent lives have been lost in the two Dominions and migration on a scale unprecedented in history has taken place. The total number of people involved in this mass migration of population has reached colossal figures on either side giving rise to problems of great magnitude affecting the economy of the country. The Immediate effect of these tragic developments has been to divert the attention of the Government almost completely from normal activities. There has been an almost total breakdown of the economy of the East and West Punjabs.
The food position has continued to cause grave anxiety both to the Provincial Governments and the Central Government. The country has just weathered a serious threat of a breakdown of its rationing system. The results of the “Grow More Food Campaign” have been on the whole disappointing. During the three years 1944-45, 1945-46 and 1946-47 we had to import from abroad 43.80 lakhs of tons of foodgrains at a cost of over 127 crores of rupees. During the current year from April to September we have already imported 10.62 lakhs of tons of foodgrains at a cost of over 42 crores of rupees. Apart from its being a constant source of anxiety, the reliance on the import of foodgrains from abroad of such magnitude imposes a heavy strain on the finances of the Government. In recent years our exchange difficulty is almost entirely due to the import of foodgrains on such a large scale.
The deterioration in the economic situation has been particularly noticed in respect of prices which have shown an unchecked upward tendency. Between the 5th April and the 9th August this year the Economic Adviser’s index number of wholesale prices rose by 7 points while the Bombay cost of living index advanced by 14 points. Taking the Bombay cost of living index number, while it was 243 in August 1945 it rose to 267 in August 1946 and reached 284 in August 1947.
If the economy of this country is to be placed on a sound footing and maintained in a healthy condition, it is of the utmost importance to increase internal production. The chances of increasing the supplies of commodities by imports are not very bright. Until recently we had a fair chance of sizable imports of consumer goods from the British Commonwealth countries from accumulated balances, but with the blocking of the major part of these and the growing adverse balance resulting from the large scale importation of foodgrains, the hope of procuring supplies from abroad is growing weak. We have therefore to fall back on our own resources.
I have budgeted for a revenue of Rs. 171.15 crores and a revenue expenditure of Rs. 197.39 crores. The net deficit on revenue account in the period covered by these estimates will be Rs. 26.24 crores. But the final figure may be higher because the actual amount likely to be required for meeting the expenditure in connection with the relief and rehabilitation of refugees is still very uncertain and some help may also have to be given to the new Provinces of West Bengal and East Punjab.
The total expenditure for the year is estimated at Rs. 197.39 crores, of which Rs. 92.74 crores is on account of the Defence Services, the balance representing Civil expenditure. The reconstitution of the Armed Forces in India into two Dominion forces was an inevitable consequence of the partition of the country. This decision came at a time when the Armed Forces were in the process of rapid demobilisation. While a substantial measure of demobilisation had already been achieved, the process was arrested as a consequence of the decision to divide the remaining forces between the two Dominions on a communal cum optional basis.
The complete nationalisation of India’s Armed Forces in the shortest time possible is the accepted policy of Government. Due, however, to various reasons which are now a matter of history, we have had a shortage of Indian officers for filling some of the posts in the technical services and the senior appointments.
The peak figure which the sterling balances reached was Rs. 1,733 crores on the 5th April 1946. Thereafter, they have declined very rapidly. At the end of March 1947 they stood at Rs. 1,612 crores showing a reduction of Rs. 121 crores in twelve months. In the middle of July 1947, from when our new agreement became effective, they stood at about Rs. 1,547 crores. These large decreases were due largely to heavy imports mainly of food grains and of consumer goods, of which the country had been starved during the period of the war. They also reflected some movement of capital from India, largely British.
And what about the general financial position of the country? Here again while there is no room for complacency, there is equally no reason to take a pessimistic view. There is no doubt that economically and strategically the partition of the country has weakened both the Dominions created by it and it is a truism that an undivided India would have been in every way a stronger State than either. But the Indian Dominion, with its acceding States, would still cover the larger part of the country, with immense resources in men, material and industrial potential. Our debt position is also intrinsically sound and for a country of its size, India carries only a relatively small burden of unproductive debt. Our external debt is negligible and we have considerable external resources in the accumulated sterling balances.
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Inflation & food crisis in Shanmukham Chetty budget speech
The only disturbing features in the position are the persistence of inflationary trends and the unsatisfactory food position to both of which I have drawn attention elsewhere. The only real answer to inflation is to increase our internal production and thereby close the gap between the available supplies and the purchasing power in the hands of the community which in present circumstances imports cannot bridge.
For the first time in two centuries, we have a government of our own answerable to the people for its actions. It is the duty and the privilege of such a government to render an account of its stewardship to the representatives of the people, but it has also the right to ask for the co-operation of the entire community in the carrying out of the accepted policies.
Events of the last few weeks have unmistakably shown that the political problems arising out of our status have not yet been fully solved. While we have secured freedom from foreign yoke, mainly through the operation of world events and partly through a unique act of enlightened self-abnegation on behalf of the erstwhile rulers of the country, we have yet to consolidate into one unified whole the many discordant elements in our national life.
If the fabric of the State is not built on durable foundations, it will be futile to try and fill it with the material and moral contents of a good life. If India, just risen from bondage, is to realise her destiny as the leader of Asia and take her place in the front rank of free nations, she would require all the disciplined effort her sons can put forth in the years immediately ahead. The willing help and co-operation of all sections of the community is required in maintaining peace and order, in increasing production, and in avoiding internecine quarrels—whether between communities or between capital and labour.
I am sure my appeal for this help and co-operation will not go in vain.
Editor’s Note: This is an abridged version of RK Shanmukham Chetty’s November 1947 speech presenting the first budget of independent India. Read the full speech here.
This is part of ThePrint’s Great Speeches series. It features speeches and debates that shaped modern India.