10 Budgets that changed India

All Budgets are important, but some Budgets are more important than others. Business Today chooses 10 that have had the most impact on the nation's economy. Text by Puja Mehra

1947: Independent India's first Budget

India's first finance minister R.K. Shanmukham Chetty presented the Budget on November 26, 1947.

The Budget decision: Well, the decision to present a budget itself, since it covered just 7-1/2 months, from August 15, 1947, to March 31, 1948. With the Partition of India and the emergence of two independent governments, the Budget for 1947-48 passed by the Legislature the previous March ceased to be operative. New Delhi could have authorised the expenditure necessary for the rest of the financial year, but it was felt that the newly freed country would like a budget to be presented at the earliest.

1951: The first Budget of the Republic of India

John Mathai, Finance minister in the Congress government presented the Budget on February 28, 1950.

The Budget decision: This budget laid down the roadmap for the creation of the Planning Commission. High inflation, increased cost of capital, low level of savings and thus low level of investment and production had marked the years following Independence.

How this changed India: A large part of the blame or the credit - whatever way it is looked at - for the Indian growth model goes to the Planning Commission.

1957: The 'Krishnamachari-Kaldor' Budget

Tiruvellore Thattai Krishnamachari, Minister of Finance in the Congress government presented the Budget on May 15, 1957.

The Budget decisions: Put severe restrictions on imports through an import licensing system; withdrew budgetary allocation for non-core projects, set up Export Risk Insurance Corp to protect exporters against payment risks. Brought in wealth tax, a tax on expenditure and a tax on railway passenger fee. Raised peak excise to 400 per cent. First attempt to distinguish between active income (salaries or business) and passive income (interest or rent). Raised income tax rates.

How this changed India: The import curbs and high tax rates made things worse. Raising external debt became increasingly difficult.

1968: People-sensitive Budget

Morarji Ranchhodji Desai, Deputy Prime Minister and Minister of Finance in the Congress government presented the Budgte on February 29, 1968.

The Budget decision: Ended the requirement of stamping and assessment by the Excise Department authorities of goods right at the factory gate and introduced the system of selfassessment by all big and small manufacturers, a system still in use.
 
How this changed India: Selfremoval 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.

1973: The black Budget

Yashwantrao B. Chavan, Minister of Finance in the presented the budget on February 28, 1973

The Budget decision: 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.

How this changed 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 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

VP Singh, Minister of Finance in the Congress government presented the Budget on February 28, 1986

The Budget decision: Introduced MODVAT credit. This allowed credit/ set-off of duty paid on raw materials against the duty on final products. Why he did it: To reduce the cascading effect of taxes on the final price of goods.

How this changed India: This was a modest beginning at major indirect tax reform that will culminate in the shift to the Goods & Services Tax regime. With the introduction of Cenvat Credit Rules in 2004, cross credit between service tax and excise was allowed for the first time, reducing effective tax costs and boosting industry.

1991: The epochal Budget

Manmohan Singh, Finance Minister in the Narasimha Rao government presented the Budget on July 24, 1991

The Budget decisions: 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. Began rationalisation of duty structures by pruning the peak customs duty from 220 per cent to 150 per cent.

How this changed India: India is today the second fastest growing economy in the world.

1987: The Gandhi budget

Rajiv Gandhi, Prime Minister in the Congress government presented the Budget on February 28, 1987.

The Budget decision: Introduced provisions related to minimum corporate tax, better known today as MAT or Minimum Alternate Tax. Why he did it: 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.

How this changed India: 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.

1997: The dream Budget

Palaniappan Chidambaram, Finance Minister in the United Front government presented the Budget on February 28, 1997

The Budget decisions: Made tax rates moderate for individuals as well as companies. Allowed companies to adjust MAT paid in earlier years against tax liability in subsequent years. Launched the Voluntary Disclosure of Income Scheme or VDIS, to bring out black money. Phased out ad hoc treasury bills used for financing the budget deficit.

How this changed India: India had a peak income tax rate in the late 1960s and early 1970s of 97.5 per cent. 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.

2000: The millennium Budget

Yashwant Sinha, Finance Minister in the NDA govt presented on February 29, 2000

The Budget decision: Phase out of Manmohan Singh's incentive for software exporters. In Budget 1991, Singh had made income from software exports tax-free for three years , and then extended the tax holiday to perpetuity in Budget 1995.

How this changed 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 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.