1970: Indira Gandhi’s socialism push

“We approach problems of growth with Social justice and stability”, voiced India’s first female Finance Minister Indira Gandhi, in her maiden budget presentation. Aspiring to mobilise ₹170 crore from taxation alone, Ms. Gandhi – as some critics held, was pursuing her “first instalment of socialism”. The paradigm encompassed personal incomes as well as consumer items with some marginal concessions at lower level – a seemingly symbolic gesture to the common, The Hindu’s reportage held.  

Other than the aspects about economic policies and political opposition, the budget initiated a first by regularising the introduction of the Finance Bill within four hours, meeting at 10 p.m. the same night.

Prevailing economic conditions

In 1969-70, India had overcome the problems of food, inflation and external viability. It began focusing on long term-growth with the initiation of the fourth five-year plan. Clocking a growth of 5% (+0.5%), the ratio of tax revenue to national income stood at 13% as the Central and state governments augmented its resources with additional taxation measures and large borrowings from the market. Wholesale prices remained continued its upward trajectory in January 1970 - rising by 6.8%. Imports declined 8% and foreign exchange reserves rose by ₹50-75 crore. The latter was scaled after a net repayment of ₹125.2 crore to the International Monetary Fund.  

Whilst the Prime Minister exuded satisfaction about the overall economic situation, she made a case for expanding newer technology in agriculture to cover wheat, rice, coarse grains, pulses and commercial crops to ensure social justice, avoid social tensions and maintain a sustained increase in production. Cautioning about visible shortages in steel, staple fibre, aluminium and consumer goods, she contended about increasing capacity in the near future. Export promotion, mobilisation of resources, improved productivity, a healthy climate for investment and involvement of larger section of people in development were all residing in the Prime Minister’s aspiration list.  

Focus areas of Budget 1970-71

Direct Tax

With respect to direct taxes, a uniform exemption limit was fixed for incomes up to ₹5000 per annum. Rates of income-tax on personal incomes over ₹40,000 were to be stepped up on a progressive basis, going up to 85 per cent on the highest income slab of over ₹ 2 lakhs. Additionally, with a surcharge of 10% of the basic income, the maximum resulting rate was to be 93.5% for the highest slab.  

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Wealth tax on individuals and Hindu undivided families were hiked gradually by 0.9 to 5% on land and buildings priced up to ₹5 lakhs. The properties in excess of the threshold were to be taxed at 5%. Finally, value of land exceeding ₹10 lakh was to be taxed at 7%.  

The upper limit of the gift tax was revised from 50% to 75%. The lower limit of 5% remain unchanged. Additionally, the exemption limit was reduced from ₹10,000 to ₹5000.   

Among the other notable measures, entertainment expenditure within the country as well as money spent on maintenance of guest houses were disallowed in calculation of profits and losses for an entity starting February 28, 1970. These changes to were estimated to add ₹20 crore to the Centre’s revenue kitty via income tax and ₹16 crore via wealth tax.  

Indirect taxes

With respect to indirect taxes, import duties on machinery was hiked to 35%, doubled for certain plastic materials, electrical resistance wires and nichrome. Motor vehicle parts, pharmaceutical chemicals and non-electrical instruments and appliances were to be taxed at 10%.  

Duty on wines, whisky was also hiked. Export duty on tea was abolished while duty on jute canvas, webbings, tarpaulin cloth and manufactures were reduced from ₹500 per tonne to ₹200 per tonne. This was to cost the Centre ₹9.75 crore in revenue.   

Excise duties were levied on a fresh slew of commodities - typewriters, metal containers, stainless steel blades, slotted angles, iron safes and safe deposit vaults. A 10% duty was levied on soda ash, caustic soda, aerated water, 25% on sanitaryware, glazed tiles, porcelain and 53% on room air conditioners and large refrigerators. Only cold storage plants, hospitals run by the governments, factories and charitable trusts were exempt from this. Baby foods and ‘Desi ghee’ were exempt from duties.  

Television sets which were exempt from duties were slapped with a 20% duty, while duties on polyester fibres, artificial silk, motor spirit, kerosene, furnace oil, tea were also hiked minimally. 

Agriculture, Social services and Defence

The developmental outlay for the year was stepped up by 15% to ₹1441 crore. 

Agricultural outlay increased by ₹39 crore, power by ₹31 crore, transport and communication ₹84 crore and social services (also encompassing including Family planning) ₹28 crore. Notably, the Centre had just kicked off its family planning programme which took a controversial turn in 1975 when thousands of men were forcibly sterilised. Allocation to States was also stepped up from ₹615 crore to ₹735 crore. This was in addition to ₹ 275 crore ear-marked for programmes included in the five-year Plan. 

The Prime Minister also announced schemes for small farmers, urban housing and land development, drinking water supply, nutrition for tribals and a family pension/life insurance scheme for industrial workers. Focusing on savings, she also introduced a model scheme of debentures to be issued by State sponsored institutions.  

However, notwithstanding the Parliament’s plan to abolish privy purses, the Budget had allocated ₹4.79 crore for the same.

Defence budget

Shoring up India’s Defence spending, Ms. Gandhi increased the allocation from ₹979.32 to ₹1,017.84 crore. Capital expenditure too increased to ₹133.67 crore. The Army received the highest disbursement of ₹719.61 crore, followed by the Air Force at ₹197.17 crore whilst the Navy got ₹56.75 crore.

Opposition terms Budget ‘pseudo-radical’

Unlike her predecessors, Indira Gandhi was the first Prime Minister had to face a vast Opposition bench comprising members of Swatantra Party, Bhartiya Jana Sangh, Samyukta Socialist Party (SSP), Praja Socialist Party (PSP) and Congress (O). Accusing Ms. Gandhi of ‘pseudo radicalism’, the Opposition felt the suggested relief to the common man was marginal and illusory, while the burden imposed by the budget was substantial.  

Mr. Rabi Ray of the SSP said that the budget had proved that Ms. Gandhi’s concept of socialism was ‘the biggest hoax of the century’. SSP leader George Fernandes termed it as an ‘anti-national’ budget and sought expulsion of the treasury. However, the most notable criticism came Ms. Gandhi’s own party colleague R.T. Parthasarathy. He held it to be “a cavalier like people’s budget in appearance but would result in economic ills as production would be crippled’.  

The Hindu’s reportage reflecting on the mixed and nuanced reaction, held, “Considering the terrifying noises made by sections of the ruling party in the recent past and the spate of market prophesies based on them. Mrs. Indira Gandhi’s first Budget as Finance Minister with a socialist commitment would seem to be a more balanced approach to the difficult job of resource-raising than expected”. However, it noted that the duties levied on motor cars and kerosene were detrimental to its role in promoting industrial employment and usage as kitchen fuel respectively. “In levying tax on that product, the Finance Minister cannot separate the bonafide users in the homes from the malafide ones on the roads,” an editorial critiqued. However, it concluded, stating, “Though she is new to the mysteries of finance portfolio, she had proved herself a skilful Chancellor of the Exchequer”. 

The Hindu itself had mixed and nuanced reaction, opining, “Considering the terrifying noises made by sections of the ruling party in the recent past and the spate of market prophesies based on them. Mrs. Indira Gandhi’s first Budget as Finance Minister with a socialist commitment would seem to be a more balanced approach to the difficult job of resource-raising than expected”. 

However, it noted that the duties levied on motor cars and kerosene were detrimental to its role in promoting industrial employment and usage as kitchen fuel respectively. “In levying tax on that product, the Finance Minister cannot separate the bonafide users in the homes from the malafide ones on the roads,” critiqued The Hindu. Lauding Ms. Gandhi, it concluded, “Though she is new to the mysteries of finance portfolio, she had proved herself a skillful Chancellor of the Exchequer”.