Learn more about the history of the first-ever Union Budget of independent India and some of the other Budgets from the time.
(Note: This podcast was first published in January 2018 and has been repurposed for Moneycontrol listeners.)
India's first Finance Minister, Sir R.K. Shanmugham Chetty, presented the first Finance Budget of independent India on November 26, 1947. His choice for finance minister was, at the time, a controversial one due to his pro-British leanings.
In the 1949-50 budget, the government abolished the much abused tax evasion instrument, the Capital Gains Tax. This is the tax that must be paid when one sells real estate for a profit, for instance. The concept of Capital Gains Tax, which was abolished a few years earlier, was brought back in the budget of 1956-57. This move was carried out by C.D. Deshmukh.
The 1950-51 budget announced a cut in the super-rich tax rate, so as to push savings. In the words of John Mathai, it was proposed to abolish the distinction between earned and unearned income and to levy a uniform rate on both.
The 1951 Budget by John Mathai laid down the road map to the creation of the Planning Commission. After independence, it was hoped that the five year plans would steer the Indian Economy towards balanced growth.
The 1954-55 budget announced plans to set up a specialized financial institution to offer loans to industry. This institution would one day become ICICI.
The 1957-58 budget proposed a new direct taxation instrument called the Wealth Tax. This would remain in use for the next six decades. Also called a capital tax and equity tax, it is a levy on the total value of personal assets.
Gift Tax was a then new tool that was used with some success in the West. This was introduced to India in 1958-59 by a one time Budget Presenter: Jawaharlal Nehru.
The 1960s and 1970s
There was a major structural change in India's annual accounting exercise in 1959-60. For the first time, budget estimates were clubbed under 2 broad heads: Plan and Non Plan expenditure.
The Expenditure Tax that was applicable on all expenditure above Rs.36,000 per annum no matter from which source the money for expenditure came. It was presented in the 1964 Budget, but abolished 2 years later.
India’s first-ever Voluntary Disclosure Scheme of unaccounted wealth, offering people the window to deposit undisclosed cash with the RBI on which a tax was deducted, was proposed in 1965-66.
The price of imported cars saw a sharp jump after this budget, since it was seen as a `status symbol’. The import duty was raised from 60 to 100%, bringing it at par with other frivolous luxury items.
A tax was levied on foreign travel at the rate of 20 per cent on all tickets purchased in rupees; tickets paid for in foreign exchange was exempt. This was done to clamp down on cash deals, and was introduced in 1971-72.
The so-called Black Budget of 1973-74 provided Rs 56 crore for the nationalisation of the general insurance companies, Indian Copper Corp and coal mines. This was to allow uninterrupted supply of coal in line with the growing demand for coal in industries like power, cement and steel. The Black Budget was presented by Y.B. Chavan, who was also the first Chief Minister of Maharashtra. It was so called because the deficit at the time was close to Rs 550 crore.
The 1978-79 budget was presented barely a month after a defining event in Indian economy, a decision that was repeated 30 years later. The event is question is demonetisation. The budget speech argued in favour of this controversial decision. On January 16, 1978, the Janata Party government decided to scrap Rs 1,000, Rs 5,000 and Rs 10,000 notes, a move aimed at controlling illegal transactions.
The 1980s and 1990s
The budget of February, 1986 is considered to have overseen the beginning of the dismantling of the license raj. It was presented by future PM V.P. Singh V.P. Singh's 1986 Budget introduced MODVAT, which allowed manufacturers to obtain instant and full reimbursement of excise duty paid on components and raw materials. Before the introduction of MODVAT, it was hard for the government to keep a tab on taxes at multiple stages, thereby burdening the final consumer, which was been solved after a series of new ideas and suggestions were implemented.
Zero Based Budgeting, also called ZBB, is the process of creating a budget from nothing, without using the prior year’s budget or spending numbers. The exercises in ZBB began in India in 1987-88, with Rajiv Gandhi presenting.
In the landmark 1991 budget, Dr. Manmohan Singh as Finance Minister heralded the economic reforms by saying: “No power on earth can stop an idea whose time has come.” He was quoting French writer Victor Hugo, noted for classic novels such as Les Miserables.
In Budget 1994-95, Dr. Manmohan Singh introduced Service Tax at the rate of 5 per cent as the sector was contributing 40 per cent of GDP. The tax was levied on telephones, non-life insurance and stockbrokers. The coverage of the levy has since been expanded year after year.
The 1997-98 Budget which changed India's tax landscape is sometimes called the 'Dream Budget'. Incidentally, it introduced the Voluntary Disclosure of Income Scheme, which targeted recovery of black money, long before last year's demonetisation.
The 1997 Dream Budget promised a new Tax bill and Companies Bill to meet the needs for dynamic business growth. Nani Phalkiwala said about this budget, "For the first time, the country looks less like a tortoise and more like a tiger."
Schemes like National Rural Health Mission, Gender Budget and NREGA were announced for the first time in the budget of 2005-06. NREGA was later renamed to MGNREGA, after Mahatma Gandhi.
In January 2017, the Cabinet approved the merger of the Railway and General Budgets starting 2017-18, ending a 92-year-old colonial tradition. The merger was based on the recommendations of the Committee headed by Shri Bibek Debroy, Member of NITI Aayog. This was announced in November 2016.In 2017, the government announced that it will now be presented on 1 February, departing from the colonial-era tradition of presenting the Union Budget on the last working day of February.