The partition of the country has cut across its economic and cultural unity and the growth of centuries of common life to which all the communities have contributed. The long-term effects of the division of the country still remain to be assessed and we are too near the events to take a dispassionate view. When the ashes of controversy have died down, it will be for the future historian to judge the wisdom of the step and its consequences on the destiny of one fifth of the human race.

 

Economically India and Pakistan have each points of advantages and disadvantages. In general, it may be said that, while India is much the stronger at present in industrial production and mineral resources, Pakistan has some advantage in agricultural resources, especially foodstuffs. But the complementary character of their economies is even deeper than is indicated by this generalisation. The compelling forces of economic necessity must create a friendly and cooperative spirit between the two Dominions and I trust that, when the present passions subside and normal conditions of life return, our people will work together to secure that, notwithstanding the political division, the economic life of the common man is not injured.

 

Among the important issues on which it has not been possible to reach an agreement, I may mention the allocation of debt between the two Dominions, the method of discharging the pensionary liability, the valuation of the Railways, the division of the assets of the Reserve Bank and the division of the movable stores held by the Army. Some of these issues are likely to go before the Arbitral Tribunal and the House will not expect me to say anything further about them at this stage. It was also found impossible to reconstitute the Armed Forces between the two Dominions and allocate the military stores, equipment and installations between them before the 15th August 1947.

 

The long range fiscal, financial and economic relations between the two Dominions still remain to be considered, but for the rest of the current year the intention is to maintain, within the framework of the agreements arrived at, the status quo before the partition. For the present both the Dominions will continue the existing taxes and duties, there will be a free movement of trade between them without any internal barriers and the import and exchange controls of the two Dominions will be co-ordinated.

 

It has also been agreed that till the end of September 1948 the two Dominions will remain under a common currency system managed by the Reserve Bank, although from the 1st April next Pakistan will have its own overprinted notes and coin. So far as revenue is concerned, each Dominion will ordinarily retain what it collects but in respect of income tax on assessments for .1946-47 and earlier years and uncollected demands ion the date of the partition an arrangement for sharing the receipts arising in both the Dominions has been arrived at.

 

There has been a marked deterioration in the economic situation in the country since March last. The situation has been aggravated by the large scale disturbances which burst out suddenly, more especially in the Punjab and the NorthWest Frontier Province. Apart from the serious economic consequences arising out of these disturbances, the human misery that it has caused cannot be measured in terms of money. Thousands of innocent lives have been lost in the two Dominions and migration on a scale unprecedented in history has taken place. The total number of people involved in this mass migration of population has reached colossal figures on either side giving rise to problems of great magnitude affecting the economy of the country.

 

While Government have done and are doing everything possible to relieve the immediate distress and suffering of the refugees, the formulation of long-range plans for their rehabilitation raises formidable issues both in the financial and administrative fields. These problems have imposed a heavy burden on the Central exchequer, the magnitude of which it is not possible to assess at present. The budget of the Central Government for the next few years will be materially affected by this unexpected development in the country, Our whole programme of post-war development will have to be reviewed in the light of this context.

 

The food position has continued to cause grave anxiety both to the Provincial Governments and the Central Government. The country has just weathered a serious threat of a breakdown of its rationing system. The results of the “Grow More Food Campaign” have been on the whole disappointing. During the three years 1944- 45, 1945-46 and 1946-47 we had to import from abroad 43.80 lakhs of tons of foodgrains at a cost of over 127 crores of rupees.

 

The deterioration in the economic situation has been particularly noticed in respect of prices which have shown an unchecked upward tendency. Between the 5th April and the 9th August this year the Economic Adviser’s index number of wholesale prices rose by 7 points while the Bombay cost of living index advanced by 14 points.

 

If the economy of this country is to be placed on a sound footing and maintained in a healthy condition, it is of the utmost importance to increase internal production. The chances of increasing the supplies of commodities by imports are not very bright. Until recently we had a fair chance of sizable imports of consumer goods from the British Commonwealth countries from accumulated balances, but with the blocking of the major part of these and the growing adverse balance resulting from the large scale importation of foodgrains, the hope of procuring supplies from abroad is growing weak. We have therefore to fall back on our own resources.

 

I have budgeted for a revenue of Rs. 171.15 crores and a revenue expenditure of Rs. 197.39 crores. The net deficit on revenue account in the period covered by these estimates will be Rs. 26.24 crores. But the final figure may be higher because the actual amount likely to be required for meeting the expenditure in connection with the relief and rehabilitation of refugees is still very uncertain and some help may also have to be given to the new Provinces of West Bengal and East Punjab for which, in the absence of any reliable data, no provision has been included.

 

The strength of the Army at the time stood roughly at 410,000 troops. After the completion of the reconstitution of the Army, India will have roughly 260,000 troops. An organisation under a Supreme Commander, acting under the direction of the Joint Defence Council, was set up and made responsible for carrying out the reconstitution, and for general administrative control of the entire Armed Forces until the completion of reconstitution.

 

An agreement was reached with the United Kingdom Government that the withdrawal of the British Forces from India should commence immediately after the transfer of power and completed as early as possible. The first detachment of British troops actually left India on the 17th August 1947. It was hoped at one time that the withdrawals would be completed before the end of 1947 but due to shipping difficulties it now appears that this may take up to April 1948. The British troops remaining in the country have, however, no operational functions. Except two R.A.F. Transport Squadrons the rest are merely awaiting repatriation.

 

The budget for the current year provided for a borrowing of Rs. 150 crores but this target will not be reached. Owing to the communal disturbances In the country and the uncertainties of the political situation, the securities market was very unsettled in the opening months of the year and no loan was actually floated before the 15th August 1947.

 

The country has always displayed an interest in the arrangement commonly known as the Empire Dollar Pool. As has been explained before, the arrangement is that the countries of the sterling area hold all their foreign exchange reserve in sterling, selling currencies which they do not need to the Bank of England and buying from the Bank of England currencies of which they are in short supply. As a consequence, there is always in the custody of the Bank of England a pool of foreign exchange from which members of the sterling area can buy for sterling the currencies which they need.

 

The House will remember that In the budget for the current year provision of Rs. 100 crores was made for development expenditure, Including a provision of Rs. 45 crores for grants to Provinces. The partition of the country has naturally affected the scale of this expenditure as the Government of India are no longer concerned with the expenditure on development in the Provinces and areas now included in Pakistan.

 

I have decided to replace the existing export duty of three per cent on cotton cloth and yarn by a duty of four annas per square yard on cotton cloth and six annas a pound on cotton yarn. In a full year this will yield Rs. 8 crores but in the current year the net additional revenue will amount to only Rs. 165 lakhs leaving a final deficit of Rs. 24.59 crores.

 

If India, just risen from bondage, is to realise her destiny as the leader of Asia and take her place in the front rank of free nations, she would require all the disciplined effort her sons can put forth in the years immediately ahead. The willing help and co-operation of all sections of the community is required in maintaining peace and order, in increasing production and in avoiding internecine quarrels whether between communities or between capital and labour. I am sure my appeal for this help and co-operation will not go in vain

 

To read the budget presented in 1947, click here