EDITORIAL

 Subsidising The Rich

 THIS Vajpayee government seems hell bent on imposing greater economic burdens on the people while granting further subsidies to the rich. The task force on direct taxes appointed by the union finance minister has suggested major changes. As regards the subsidies for the rich, the suggestion is to reduce the corporate tax from the present 36.75 per cent for domestic companies to 30 per cent. For the foreign companies the reduction is from 40 per cent to 35 per cent. In addition it has also suggested the abolition of the dividend tax as well as the minimum alternative tax for the corporates.

As a sop to the middle classes and also to effectively prevent an outrage against such massive concessions to the corporate sector, the task force has recommended an increase in income tax exemption limit from the present Rs 50,000 a year to Rs 1 lakh. It suggested a two-slab tax structure, a 20 per cent tax on those earning between Rs 1 lakh to 4 lakhs and 30 per cent for those earning above. This so-called relief to the middle classes also comes with the suggestion that all exemptions as of now should be eliminated. In effect, this suggestion, in real terms, would not mean much of a relief even to the middle classes.

These recommendations follow the erroneous logic that by making capital available more freely and easily, industrial recovery would happen. These recommendations are accompanied by the decision of the Reserve Bank of India to cut the interest rates. While the latter is aimed at making the people spend more so that the domestic demand may be boosted leading to some industrial recovery, it suffers from a serious malady. By giving incentives for dis-saving, the overall savings rate in the economy, which is already declining, will fall further. This will have long-term macro economic implications on the overall investment rate in the economy affecting future industrial activity and economic growth.

Though belatedly the government and the policy makers have accepted, what we have articulated in these columns for many years that the real bottleneck for India’s rapid economic growth is the virtual stagnation in the expansion of the domestic market. People who need what is being produced simply do not have the money to buy them. People who have the money simply do not need things that are produced as they already have them. This is India’s economic dilemma.

The only way to break out of this is through a massive programme of public investment that would at the same time provide employment and build the much needed economic and social infrastructure. This in turn would bolster domestic demand leading to the multiplier effect for a healthy economic recovery.

In order to do this however, resources are required. The government often pleads its inability to undertake such public investment programme because of the lack of resources. This is merely an excuse and a veneer to cover its actual designs. There is a whopping Rs 80,000 odd crores tied up as non-performing assets – NPA (bad loans) with the nationalised banks, much of these are loans taken by the corporate sector, which they simply do not return. The government admits to over a lakh of crores of rupees as tax dues. Much of this again comes from defaulting corporates. No measure is being contemplated to recover these huge amounts of money. Even a half of this could put in motion a massive public investment programme that can kick-start the economy and provide the much needed relief to the people by increasing employment. This is all the more necessary considering the fact that the drought this year has rendered crores of people jobless in the rural areas and in the urban areas, the government itself accepts that employment generation has been in the negative in the last two years.

The real intention of the government clearly is to provide a bonanza for the rich at the expense of imposing further burdens on the poor. While subsidies for the poor are being mercilessly cut, the rich are being provided subsidies through tax concessions and cuts. The government’s resort to earn revenue by reducing tax rate is as much of a subsidy as the expenditure it incurs in providing food for the poor at lower prices.

At least by now this Vajpayee government must realise that its economic policies are not only thoroughly flawed but it directly benefits Indian monopoly capital and foreign capital. It is only the ignorant who can argue that by making capital available easily and cheaply industrial activity would grow. Even if goods are produced, they are required to be sold. When there are no buyers, how is any economic growth possible? The priority should be directed at expanding the domestic market by economically empowering the vast majority of the Indian people. This government’s priority however is directed at providing greater super profits to the Indian corporate sector and the multinational corporations.