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India is currently in the midst of inflationary headwinds, something that the Economic Survey for 2023-2024, tabled by Union Finance Minister Nirmala Sitharaman on July 22, has admitted.
The document noted that core inflation remained sticky on account of services inflation and a strong labour market, especially in most Asian economies.
However, it added that retail inflation declined to 5.4 per cent in FY24, after averaging 6.7 per cent in FY23. It added that “inflationary pressures stoked by global troubles, supply chain disruptions, and vagaries of monsoons” had been deftly managed by administrative and monetary policy responses.
Interestingly, the country’s budget detailed a similar picture vis a vis inflation, albeit for different reasons altogether. In 1947, the British had just left South Asia, leaving behind a subcontinent partitioned into the new dominions of India and Pakistan (which included Bangladesh).
Two years before the Partition, the most destructive war known to humanity had just ended after six years, with conflagrations touching nearly every part of the globe. The last year of the war saw the horrific atomic bombing of the Japanese cities of Hiroshima and Nagasaki, with millions of lives lost.
RK Shanmukham Chetty, Independent India’s first finance minister, gives us a clear idea of what the fiscal situation of the Dominion of India was at the time.
“This is the eighth consecutive deficit budget and the House may well ask itself if our revenue position is sound. I have myself no hesitation in answering that question with an emphatic ‘yes’. The years covered by these budgets have been overshadowed by the greatest war in history and no country, whether neutral or belligerent, has been able to escape its economic effects or its aftermath. The deficits in the war years were wholly due to the high level of Defence expenditure and were met as far as possible by raising additional taxation,” Chetty noted in his speech introducing the budget for 1947-48.
He next alludes to the Partition and the accompanying bloodshed, especially in the Punjab, which included the present-day states of Punjab, Haryana, Himachal Pradesh, Chandigarh and Delhi.
“The return to peace time conditions has been slower than we anticipated and even this tardy progress has been retarded by the recent partition of the country and the unhappy developments in the Punjab. I have just mentioned the large burden thrown on this year’s budget by the unavoidable expenditure on refugees and the payment of subsidies for foodgrains,” observed Chetty.
Chetty expressed hope that the situation would improve, slowly but surely.
“I do not wish in any way to minimise our present difficulties or to underrate the effort required to surmount them but I have no doubt that once we reach fairly normal conditions and are able to reduce our Defence expenditure to peacetime proportions and curtail our reliance upon import of foodgrains we should be able to balance the budget. It will be too optimistic to expect normal conditions for the next year but I feel that with a determined all round effort we should be able to achieve this result in 1949-50.”
Chetty also expressed regret about the Partition and the loss of the Subcontinent’s potential due to it. But, with the Dominion of India still occupying a very big area, he was hopeful that the scope of improvement was huge.
“And what about the general financial position of the country? Here again while there is no room for complacency there is equally no reason to take a pessimistic view. There is no doubt that economically and strategically the partition of the country has weakened both the Dominions created by it and It to a truism that an undivided India would have been In every way a stronger State than either. But the Indian Dominion with its acceding States would still cover the larger part of the country, with immense resources in men, material and industrial potential.”
For Chetty, the only real answer to inflation was to increase India’s internal production and thereby close the gap between the available supplies and the purchasing power in the hands of the community which in present circumstances imports cannot bridge.
“Till this position is reached the community must conserve its purchasing power by lending it to Government,” he said.
But it is the last paragraph of his speech that holds real lessons for present-day India’s rulers. While India had secured freedom from foreign yoke, it was yet to consolidate into one unified whole the many discordant elements in its national life.
“This can be achieved only by the rigorous establishment of the rule of law which is the only durable foundation on which the fabric of any democratic State can be raised. Respect for law is essentially a matter of political training and tradition and transition from a dependent to an independent status always makes it difficult In the initial stages to secure that unflinching obedience to the rule of law which always acquires a new meaning in a new political context,” he stated.
If the fabric of the State was not built on durable foundations, it would be futile to try and fill it with the material and moral contents of a good life, said Chetty.
“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,” he concluded.
One hopes that present and future dispensations take note, so that the dreams of so many who fought for independence and died in the Partition of the Subcontinent, are one day fulfilled.