Down the memory lane: A glimpse into independent India’s first-ever union budget

According to the State Bank of India’s Economic Research Department’s report, India is likely to become the third-largest economy in the world by FY 2028. With this, India will cross the mark of becoming a $5 trillion economy which equates to 415 lakh crore rupees as per current exchange rates. 

However, when we as a nation are moving toward becoming one of the most prominent economies, knowing where we come from can make these figures astounding to look at.

India’s first union budget 1947

Presented a mere three months after India gained independence from the British Empire, the inaugural Union Budget was unveiled on November 26, 1947. The responsibility fell upon RK Shanmukham Chetty, then Finance Minister. 

While starting his speech for delivering the first union budget of Independent India, RK Shanmukham Chetty, Minister of Finance (1947-1948) pronounced the occasion as historic and his chance to deliver the budget as a ‘rare privilege.’

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Shanmukham said, “This occasion may well be considered an historic one and I count it a rare privilege that it has fallen to me to be the Finance Minister to present this Budget.”

Encompassing a span of roughly seven-and-a-half months, from August 1947 to March 1948, the budget depicted income and expenses of only Rs 171.15 crore and Rs 197.29 crore, respectively. 

Notably, the fiscal deficit stood at Rs 26.24 crore. A significant allocation of approximately Rs 92.74 crore was earmarked for defence services, accounting for approximately 54 per cent of the total budget.

To give you an idea of these figures, our last union budget was more than 22,800 times the first budget of Independent India and our total defence budget allocation was not more than 13.2 per cent. 

Challenges in front of independent India

Even though the first union budget did not cover a complete financial year and was only limited to the 7.5  months from the 15th August 1947 to the 31st March 1948, it was inadequate to meet the grave challenges of that movement.

The first budget talked about the deteriorating condition of the economic and industrial activities due to the post-division widespread communal violence in the country.

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“The chief factor which has contributed to this development is the general decline in agricultural and industrial production In the country due partly to the wide prevalence of communal disorders and generally to the increasing Industrial unrest,” Shanmukham said. 

India was also facing a severe grain crisis and importing large amounts of wheat from other countries. 

“The food position has continued to cause grave anxiety both to the Provincial Governments and the Central Government...During the three years 1944- 45, 1945-46 and 1946-47 we had to import wheat from abroad 43.80 lakhs of tons of foodgrains at a cost of over 127 crores of rupees.”

Attention to the partition

In the first budget of the country, not all important points were included due to an absence of an agreement between India and Pakistan. And an Arbitral Tribunal was set up to deal with those subjects. 

These points included 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. 

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The first budget ensured that a clear distinction was made between the liabilities of both dominions with a focus on the unfortunate impacts of the partition. The partition of the country was referred to 24 times in the entire budget, along with a dedicated segment for the event named ‘Partition Arrangements.’

In the budget, Chetty also mentioned that till the end of September 1948, both India and Pakistan will remain under a common currency system managed by RBI, although from 1st April, Pakistan will have its own overprinted notes and coins. 

The budget also included Rs 22 crores for refugee evacuation and relief and Rs 22.5 crores for food grain subsidies. 

Breakdown of the first budget revenue and expenditure

The budget's projected revenue was close to Rs 171.15 crores which comprises Rs 50.5 crores from customs receipts and an estimated income tax yield of Rs 29.5 crores. Apart from that, Rs 88.5 crores were supposed to come from ordinary collections. 

Apart from that, revenue from the Posts and Telegraphs Department of India was expected to bring 13.9 crores, leaving a net surplus of Rs 2 crores. Railway contributions were not included in the first budget of Independent India. 

The total expenditure for the first year of independence of the country stood at Rs 197.39 crores. Among this, Rs 92.74 crores were allocated for defence services while the remaining portion was allocated to civil expenditure.

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“Following the customary procedure, I shall first deal with the Defence

Estimates which remain, as in the past, the largest single item of expenditure,” said Shanmukham. 

Shanmukham also reported India’s sterling balances which stood at Rs 1,612 crore at the time when the budget was announced.

Ending his budget speech, RK Shanmukham Chetty reminded the nation of the Government’s responsibility ‘to render an account of its stewardship’ but also the right to ask for the cooperation of the entire community.

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Shanmukham said, “If the fabric of the State is not built on durable foundations, it will be futile to try and fill it with the material and moral contents of a good life.”

“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,” he concluded.