Inclusive budget option for Modi Government
As the Narendra Modi-led BJP Government is getting set to present its
maiden budget next month, expectations are, understandably, running
high. On the one hand, every constituency will be hoping the Modi
Government to shower some concessions or the other on it.
On the other, every economist will be wishing the BJP Government to plug
the gaping hole in its cash box. The task is, however, easier said than
done.
There a quite a number of challenges staring at the new government right
now. How to put the economy on to an acceleration mode? How to do it
without inviting price spiral?
An influential section has been pleading for putting more money into the
pockets of common men. Some have countered this saying that this will
further fuel inflation, which has already seen a huge hole in their
pockets.
Not surprisingly, the reported move to raise the income tax limit to
Rs.5 lakh from the current Rs.2 lakh has elicited extreme reactions.
Casting aside the merits and demerits of such a move, it can be safely
argued that inflation has indeed hurt every Indian who earns the money
hard way. Inflation-caused erosion in their income needs to be
compensated.
It is indeed a fair argument. But how could the government compensate the revenue loss if it lowers income tax rates?
Complex politics
Given the complexity of the Indian politics, many segments are still
functioning outside the organised economic system for assorted reasons.
Perhaps, this is the reason why certain well-meaning policy actions of
the Reserve Bank of India aren’t exactly been able to see the desired,
rather intended, effect on the economy.
Often times, top officials of the RBI have suggested the need to move
away from cash and into cashless system. The reason is not lost on
discerning students of economics.
As the fiscal and monetary managers are battling to bring everybody into
the organised stream, the best course open in the interim is to use
indirect means to bring them on board. Precisely this in view, many have
suggested lowering the tax and widening the base.
Best option
The exclusion of certain segments from the organised stream due to
extreme politicisation of caste, creed and community in the Indian
context has to be dealt with innovatively by the economy managers. The
best tool available for the fiscal managers is to use the indirect tax
as an ingenious way to bring even those who skirt the system on board.
Indirect tax by definition is regressive. How to remove this tag from
it, and make indirect tax a secular one? It calls for a “least
taxation’’ system.
Will the Modi Government take the bull by its horns? That is the moot question, though.
