NEED FOR CAPITAL

speed with which this source of revenue can be developed. There has been a steady drive to increase government revenue in all countries, and whilst it can never be asserted with certainty that the yield of taxation has reached the practicable maximum—and in some countries the maximum is nearer than in others —it is certainly true that in general the incidence of taxation is very high in relation to income levels, and may indeed act as a deterrent to desirable investment. 11. During the period there will be scope for some economy in government expenditure in all countries ; the very high levels of expenditure are largely due to specific costs of the post-war dislocation —defence, settlement of refugees and rehabilitation work of various kinds. It is noteworthy, however, that defence expenditure in India and Pakistan, although it appears large in relation to their central Budgets, is less so in relation to the total of central and provincial expenditures and is in fact no more than 2-3 per cent, of their national incomes. Defence there, as in all countries in the world, is a severe - obligation, but nevertheless it is not a decisive element in the general consideration of the shortage of capital, although it must be a matter of continuing concern and should be reduced as soon as international conditions permit. 12. The organisation and stimulation of savings have been carried further in some countries than in others. There are great practical problems in countries with a relatively small urban population. It is relatively easy in the towns to organise the apparatus of savings banks and similar agencies which are necessary to encourage thrift among the people; in the villages and rural areas the task of organisation is much more arduous. Great efforts have been made, particularly in India. Over a period, especially with incomes rising in the process of development, it will be possible to increase the flow of savings, but the process is not one which can be carried out rapidly. 13. The budgetary position of the Governments is shown in the following table: Table 26. —Revenue and Expenditure of Governments £ million India (a) Pakistan (b) Ceylon Malaya (1950-51) (1949-50) (1950-51) (1949) Revenue— Direct taxation 129 10 11 8 Other 405 120 38 50 Total 534 130 49 58 Expenditure (excluding expenditure on development)— Defence 126 55 1 Other 400 111 48 49 Total ... 526 166(c) 49 58 Expenditure on development— During year to which this table relates 169 23 10 Aid) Average rate during 1951-57 ... 230 47 17 18 Revenue as per cent, of gross national product 7 7 25 14 (a) Central, Provincial and most State Governments. (b) Central and Provincial Governments, excluding States. (c) Includes expenditure on capital account financed from loans, as follows: defence £lsm.; refugees £5 m.; state trading £6 m.; other £llm. (d) Includes some rehabilitation.

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