1NDIA - Part II (concluded)

Countries like India, which were not prosperous enough for development to be funded in each corner of the country, felt the pinch of the neo-capitalist economy. In prosperous nations, in spite of centralization, economic prosperity was widespread. But here, lack of resources coupled with corruption, slowed down the developmental rush of the early independence years by 1970s; the 1980s was marked by confusion in economic policies.

Come the 1990s; with communism fallen, decentralization and liberalization on, a new wave of enthusiasm crept in the economy. But this all is probably happening too little and too late. The argument in favour of high-taxation for the rich is that this money would be utilized for the uplift of the poor. What has been observed on the ground however, is that it is the middle class (and not the rich) which feels the pinch of taxation, while the poor do not seem to be benefited at all. The reasons behind this phenomenon would be the topic for another write-up and I will not discuss it here.

In the early days of the mobile phone industry the argument against high tariffs was that mobile phones were a luxury and ought to be expensive. Not so long ago, one of our finance ministers had created a new tax for mobile phone owners. No one at that time understood or realised that mobile phones were considered a luxury because they were expensive to maintain and not the other way round. Slowly as competition intensified (and an attentive regulator TRAI desired), the prices fell, and the mobile phone crept into the hands of Babu from the Sahib. Another slash in prices and it went into the hands of Auto-rickshaw driver and your neighbourhood Pan waala. The current fall in prices has finally brought it into the hands of the labourer who digs roads around your house! (Sacchi !! I myself saw it!!)

Income Tax and its use for social welfare has been rooted in the genes of Indian economic system since independence. We have all been taught the principle, multiple times, from different perspectives, throughout our school education. But, are these principles still true?? Does the principle of high taxation for the rich really benefit the poor today? Or is it just something that our economists have blindly believed in? Aren't the needs of the rich and poor slowly converging in senses more than one - both need infrastructure, both need credit, both needs an atmosphere conducive for self-reliance!

A new (rather the age old) economic theory could be erected (resurrected) if one hypothesizes a 1NDIA plan for India's tax system also. Just like the rich and poor pay the same sales tax if they buy a given soap – they should pay the same tax for each rupee which they earn! This might seem to be a bold statement, but looking around it seems to be the only sensible thing to do. We are moving towards VAT, universal education, universal telecom reach, then why not universal taxation?
To begin with, we might just create a lower income level below which tax will not be applicable, and above which tax will be applicable. The bracket which pays tax pays it at a uniform rate – no surcharge, no slabs!

The world is moving towards the free market that it was, before we had Karl Marx and John Maynard Keynes, telling us about controlled economies. Let India lead the way . . . . .

PS: This is not to say that Marx and Keynes were wrong, but that their economics is better limited to their times.
PPS: Antithesis on this post can be found at HTOHL. Click here to reach there.