Budget 2024: When RK Shanmukham Chetty presented independent India’s first budget, the fledgling nation was grappling with multiple economic challenges, including shortage of foodgrains, elevated imports and spiralling prices of essential commodities.
Read our full Budget 2024 coverage here
The economic disruption following Partition was evident, with the then finance minister expressing concern about Pakistan’s edge over India on agricultural resources.
As Chetty presented an interim budget for seven and a half months, his main apprehension was about the high import of foodgrains. In just six months, from April to September 1947, India’s foodgrains import had surged so much that the bill was equivalent to the total income-tax receipts estimated in the budget.
His successors, CD Deshmukh and TT Krishnamachari, also touched upon economic hardships when they presented the next two interim budgets, in 1952 and 1957, respectively. The closure of Suez Canal due to the Israel-Arab conflict in 1956-57, for instance, was cited by Krishnamachari as a major external factor that added to the “strain of the economy”. Even in the ’60s, the precarious economic situation continued.
Also Read| Sitharaman hints at govt's four focus areas ahead of Feb 1
India was forced to accept regular “foodgifts” from countries like Canada, Australia and Soviet Russia. But the tide turned in subsequent decades. From recounting economic challenges in the ’50s and ’60s to narrating political milestones now, an interim budget speech has undergone a transformation.
The running theme of interim budget speeches in the last two decades was self-adulation. FMs embedded political features in their speeches, keeping in mind the election ahead.
“We hold that economic development is not about economics alone, it is always, simultaneously, a political statement too,” said Jaswant Singh in his interim budget speech in 2004, adding that “development devoid of compassion is a misnomer.” A decade later, P Chidambaram gave emphasis to political points, turning his 2014 interim budget speech into a virtual election address.
The trend is unlikely to be reversed as Finance Minister Nirmala Sitharaman is set to present the 2024 interim budget on February 1, ahead of the general elections.
In an interim budget, a finance minister seeks Parliament’s approval for a grant in advance to meet the essential expenditure till a new government takes charge. But there have been instances when interim budgets were presented immediately after an election. Two of Morarji Desai’s interim budgets, in 1962 and 1967, fall in that category.
Even though a new government was in place, it did not have enough time to prepare a full budget as on March 31. In 1947, amid political and economic turbulence, Chetty concluded his speech in an optimistic note, prescribing what the embryonic nation must do “to realise her destiny as the leader of Asia and take her place in the front rank of free nations”.
Seventy-seven years later, FM Sitharaman may reiterate India’s ambition to be a developed nation, a vishwaguru.
Also Read| Not just FAME, EV industry wants FM Sitharaman to do these changes in Budget
The First Budget
Independent India's first budget was an interim budget
PRESENTED BY: Finance Minister RK Shanmukham Chetty on November 26, 1947
BUDGET PERIOD: August 15, 1947 to March 31, 1948
REVENUE: Rs 172.8 crore
EXPENDITURE: Rs 197.3 crore
NET DEFICIT: Rs 24.5 crore
Budget Backdrop
PARTITION: The economic disruption from Partition was harsh. FM said the time was not ripe for taking a dispassionate view on its long-term effects.
FOODGRAINS SHORTAGE: India was forced to import 10.6 lakh tonnes of foodgrains worth `42 crore between April and September 1947, a big sum in those days, equivalent to the country’s total income-tax receipts estimated in that budget.
FOREIGN EXCHANGE: An uptick in imports of foodgrains resulted in a depletion of forex reserves. It forced the govt to impose restrictions on the import of other essential items.
SUPPLY-SIDE INFLATION: There was a general decline in agriculture and industrial production due to Partition, prompting a price rise. The production of steel and cement also nosedived.
FACTOID: FM provisioned Rs 89 lakh as revenue from opium.
TERMS NO LONGER IN USE: Bombay Cost of Living Index, comparable to today’s consumer price index. FM Chetty was worried about the steep price rise and said it was the result of declining farm and industrial production.
"While India is much stronger at present in industrial production and mineral resources, Pakistan has some advantage on agriculture resources, especially foodstuffs", RK Shanmukham Chetty, in his budget speech
INTERIM BUDGET: An Outline
- It is the finance minister seeking Parliament's approval for a grant in advance to meet the central government¡¦s essential expenditure till a new government presents a full budget
- An interim budget may contain estimates of both receipts and expenditure, but it avoids major changes on the tax front
- Parliament passes a vote-on-account, which deals only with the expenditure side of the budget. It requires no formal discussion
- There were instances when an interim budget was presented just after general elections, e.g., budgets presented by Morarji Desai on March 14, 1962, and March 20, 1967. That was because a new government had just been installed and did not have the requisite time to prepare a full budget before the end of financial year on March 31
- There were instances when an interim budget was prepared for an entire year and not just for three-four months. The interim budget by CD Deshmukh on February 29, 1952 is one example. It is later absorbed in a full budget
India's Previous Interim Budgets
1950s
PRESENTED BY: CD Deshmukh on February 29, 1952, and TT Krishnamachari on March 19, 1957
Budget Backdrop
- Deficit in foodgrains in 1952 due to "vagaries of the monsoon", as mentioned in the budget speech
- Balance of payment was under pressure
- In the mid-1950s the government negotiated with the World Bank to secure a loan for its foreign exchange needs
- A major decline in agriculture production in 1955-56
- Closure of Suez Canal due to Israel Arab conflict in 1956-57
"This (an unhealthy balance of payment situation) was due partly to a fall in the demand for the principal exports for this country… and partly to our having had to pay more for our imports owing to a rise in world prices and increase in freight rates", CD Deshmukh, in his budget speech of 1952
1960s
PRESENTED BY: Morarji Desai on March 14, 1962, and March 20, 1967
Budget Backdrop
- There was a healthy growth in agriculture production. The sector registered an y-o-y increase of 8.1% in 1960-61. Desai in his budget speech called it an "all-time record"
- Five years later, the interim budget of 1967 was prepared against the backdrop of very low farm produce in 1965-66
- Desai in his budget speech talked about how "the slackness in industrial growth was a widespread phenomenon"
- Exports dropped by 9% in April-December 1966 from a year ago
- India accepted "food-gifts" from countries such as Canada, Australia and Soviet Russia.
"The pace of the price rise is the most disturbing fact which the Government will have to keep in focus in formulating its financial and economic policies” Morarji Desai, in his budget speech of 1967
(You can now subscribe to our Economic Times WhatsApp channel)
