[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he Narendra Modi government seems to have developed a penchant for bad ideas. After demonetization, it is obsessed with universal basic income (UBI) and the expansion of tax base. UBI and expand-tax-base pathology will also have deleterious consequences, just like the sudden ban on high-value currency has had.
The most prominent among the votaries of expand-tax-base gang is Niti Aayog chief Arvind Panagariya.
The government has already accepted adverse effects of demonetization. Economic Survey, prepared under the guidance of Chief Economic Adviser Arvind Subramanian, said, “Recorded GDP will understate the impact [of de-recognition of Rs.500 and Rs.1,000 notes] on the informal sector because informal manufacturing is estimated using formal sector indicators.” Officials are less candid but, taking together what they say and what they don’t say, the picture one gets is that demonetization has been a flop, if not a disaster.
To begin with, neither the government nor the Reserve Bank of India has given the quantum of de-recognized currency returned, how much of it was counterfeit, the impact of the exercise on terror funding, the black money recovered, etc. “There are no statistics on the impact of demonetization. What people are talking about are impressions and presumptions,” Economic Affairs Secretary Shaktikanta Das told BusinessLine in an interview (February 2).
Did you say “no statistics,” Mr. Das? What does it say about the efficiency of the government?
As if the demonetization faux pas were not enough, the Modi regime has obsessed itself with the idea of expanding the tax base. In his Budget speech, Finance Minister Arun Jaitley said that the government is committed to expanding the tax base in the country. So, instead of increasing the exemption limit, which would have brought relief to lower middle class people and excluding many of them from the tax net, he proposed “to reduce the existing rate of taxation for individual assesses between income of Rs 2.5 lakh to Rs 5 lakh to 5 per cent from the present rate of 10 per cent.”
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he most prominent among the votaries of expand-tax-base gang is Niti Aayog chief Arvind Panagariya. The Aayog, which replaced the Planning Commission, is headed by the Prime Minister.
And we are not even discussing the moral aspects of income tax. The great American thinker, Frank Chodorov, even called it “root of all evil.”
Well, Mr. Panagariya, the best way to augment the tax base is to remove the entire exemption limit! This will bring the entire population, including the indigent, into the income tax net!
The perversity was not limited to expanding income tax base; it extended to tormenting the honest rich. Jaitley said, “Of the 76 lakh individual assesses who declare income above Rs.5 lakh, 56 lakh are in the salaried class. The number of people showing income more than Rs.50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015.”
One would have expected that he would go after the rich folks who don’t pay income tax or pay much smaller amounts than they should be paying as per the law. Instead he went on squeeze more from those who are already paying. He levied a surcharge of 10 per cent on individuals with income between Rs.50 lakh to Rs.1 crore, expecting to earn additional revenue worth Rs.2,700 crore from it (those above Rs.1 crore are already paying this surcharge).
And we are not even discussing the moral aspects of income tax. The great American thinker, Frank Chodorov, even called it “root of all evil.” The measure to squeeze more those in the Rs.50 lakh-Rs.1 crore bracket is not only immoral but also flies in the face of commonsense.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]E[/dropcap]ven more immoral is UBI, which pertains to the transfer of Rs.10,000-Rs.15,000 a year to every citizen. This is in tune with Modi’s recent tryst with socialism—the last resort of every clueless politician. Egging him on is Chief Economic Advisor Arvind Subramanian. Instead of coming up with sensible ideas, the CEA has become the chief proponent of the morally obnoxious and fiscally ruinous idea.
Revenue maximization can and should be the objective of the CEO of a corporation, but not of the economic advisers of a country in transition.
But, depressing as these developments are, they are not unsurprising. In an interview with this author in April 2015, senior Bharatiya Janata Party leader Subramanian Swamy had castigated, among others, Panagariya and Arvind Subramanian as people who “don’t have any ideology. There are some things you don’t do if you are ideologically inclined. If you are not, you feel anything that maximizes revenue is okay…” (Revenue maximization is bad economic policy: Subramanian Swamy)
Revenue maximization can and should be the objective of the CEO of a corporation, but not of the economic advisers of a country in transition. This was the reason that Swamy didn’t see them as a set of technocrats; he termed the troika as a bunch of technicians who cannot inspire a soul and galvanize economy. “They can plug a hole, but can’t make a building.”
The tragedy is that the Modi government that came to power with a massive mandate and with the promise of occasioning real change is increasingly looking like a rudderless ship, whose course is directed not by any idealism or ideology but by the drift of fashionable, often stupid, ideas. Like UBI, expanding tax base, and bothering honest taxpayers. Economic Survey and Budget are the recent testimonies to the drift.
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.