The Press THURSDAY, MAY 23, 1957. India’s Budget

Press, Volume XCV, Issue 28284, 23 May 1957, Page 12

The Press THURSDAY, MAY 23, 1957. India’s Budget

The Indian Finance Minister (Mr Krishnamachari) has served notice to the West, notably the United States and Britain, that he is taking stern measures to counter the inflation threatening the country’s development plans. The tax increases announced in his Budget are the heaviest yet imposed in India, credit is to be tightened further, small savings are to be encouraged, and import restrictions are to remain. Clearly, India hopes that these measures will show foreign capital markets that she is credit-worthy; and overseas credit is vital if India is to raise the living standards of its 360,000,000 people. The steps announced by Mr

Krishnamachari are familiar ones and they have familiar causes. India s first five-year plan, modest in scope though it was, increased purchasing power and there was a consequent expansion in the demand for imported goods. Production rose, but not enough to match the expansion in the supply of money and inflation began. In the second and current fiveyear plan, with its emphasis on industrialisation, there have been heavy imports of machinery and capital equipment and these, combined with poor harvests and a fall in the export prices of its own goods, pushed India into a deficit in its external payments. Last year India’s reserves, which are in sterling held in Britain, began to fall alarmingly. Imports of consumer goods were severely restricted to make more room for capital goods, but, in spite of the restrictions, the value of British exports to India increased sharply and it became the third largest market in the Commonwealth. Machinery and steel accounted for most of the increase and India’s

sterling reserves bore almost the full weight, creating difficulties for the sterling area at an awkward time. Fortunately, the International Monetary Fund agreed'early this year to lend India 200,000,000 dollars to help it through; and unexpected relief came from a decision by the United States to ship India large quantities of surplus farm produce under an arrangement that did not entail any immediate outlay of foreign exchange by India. But much more foreign aid is necessary if India is to achieve the goals set in the second five-year plan. If the present measures succeed in, stabilising the Indian economy, they will go a long way towards attracting foreign capital There are, however, other difficulties that make India a less attractive investment than it’ might be. One is the Government’s policy of favouring State enterprise over private enterprise, to which the president of the World Bank (Mr Black) drew attention last year. India has wisely paid attention and in his Budget, Mr Krishnamachari has gone part of the way by reducing the tax on foreign companies to the same level as that imposed on State co-operatives, in whose favour the law previously discriminated. There is a feeling, too, that India, by its political neutrality, is relying on the rivalry between East and West to pay some of its bills. Whether this is true or not, India has clearly overstrained its own

resources and stands in need of financial aid if its living standards are to rise. Even then, some goals of the five-year plan may have to be postponed; and, if capital is not made available, severe retrenchment will be necessary. The West can ill afford serious delays in the development of the world’s largest democracy.