As we inch towards this year’s Union Budget that is to be held on the 1st of February we are here to present the budget in a digestible and simple way. Last week we decoded the structure of the budget and what it entails and this week we aim to demystify and dive deep into how the budget of India of India has grown with the country and what have been the various processes around it. This will also help you understand what trends are considered while making the budget and help you gauge what Budget 2022 should and could contain.
The first budget of Independent India was presented on the 26th of November 1947, just a few months after we gained independence. This was historic in many ways, as the practice to have a Union Budget was set into place. The priority of the Budget was to handle the disruption and instability caused due to the partition of the country. The highest spending was towards food grain production, strengthening the defense forces followed by civil expenditure. This made sense as there was a lot of refugee relief and rehabilitation that needed to be done.
There were still post partition factors plaguing the country and with floods in Bihar, cyclones in Mumbai and famines on the western coast, the Government of India introduced a budget which sought more control on food grains and imports while operations in Kashmir meant that there was also an increased spending on defense.
The first budget after India turned into a republic included the famous planning commission which had 5 year plans and targets for the country. Agriculture also was given priority along with defense expenditure in the budget. The maximum income tax chargeable was also reduced from 30 percent to 25 percent with incomes above 1,21,000 attracting a super-tax of 8.5 aanaas per rupee.
These years saw increased demand of indigenous goods made of jute and cotton. Import regulations were also relaxed to cater to the increased demands of consumer goods and medicines.
Focus on the agricultural sector as the government receives record revenue to spend from Income Tax, Customs, Excise duties and money made by the post and telegraph department of over Rs. 400 crores.
The main focus was Industrial development as the government wanted to cater to the growing consumer demand domestically. Along with industrial development, a major share of the budget went to education and scholarships. As always defense expenditure featured in the top 3.
The government imposed severe restrictions on imports with excise duties as high as 400% to protect and promote Indian goods. With the budget, a differentiation was made between active incomes which included salaries and business income and passive income which included income from rent and interest.
As industrial production continued to grow and imports decreased and exports blossomed. This was a time when the budget catered to agriculture and materials production like iron, steel and aluminum to aid a rapidly developing country.
The early 60s saw the nation grow and the government wanted to improve the life of the common man and hence improved the savings rate. But due to unfavorable climate conditions, the agriculture sector took a hit and a shortage arose in the availability of food grains. But railways and industry saw a lot of foreign investment.
Food supply chain was given priority as industrial production grew. The government of India pushed for more people to join industries. Budgets also had provisions for aid to countries like Nepal and Bhutan. While self-assessment tax was introduced for all manufacturers.
The budget aimed to increase employment by financing industries while focusing on urban development. General insurance companies, coal mines, copper companies were nationalized for greater government control. While the effects of the green revolution also started to kick in as the budget had provisions for fertilizers, better seeds and water table care.
The next 10 years the budgets focused on raising the socio-economic condition of the population that was below the poverty line with special focus towards North East and electrification. With reforms being brought in the banking industry and India entering a new millennium, license raj was abolished by the budget.
It was the decade when economic liberalization kicked in. The import-export policy was refurbished and customs duty fell as service tax was introduced. The budget also introduced VDIS (voluntary disclosure of income scheme) and eventually the income tax collected by the government increased to about 19,000 crore rupees.
As India became one of the software hubs of the world, a lot of support was provided to the IT industry and services sector. As the economy grew by record numbers, increasing prices of food and other commodities became a cause of concern as inflation increased and there were fingers pointed towards the inefficiency and inadequacy of the budget in controlling them.
A lot of focus was given on controlling the economy after the financial crisis of last decade. Rural development was given a big share of the budget as India looked to bounce back.
The last 5 years have been a rollercoaster ride for the budget as it had to deal with a worsening GDP, the covid pandemic and increased tensions on both the north west and north east borders. As the government revenues increase exponentially, expenditure on infrastructure and defense has continuously grown. Medical framework of the country was also supported with MSMEs in the post pandemic budgets.
The budget that is to come, join us as we decode and demystify what the budget will include this year. Budgets can almost tell the story of India, what will the story be this year?