Overview of Current Budget Practices
The author critiques the outdated and colonial-era practice of closed-door policymaking during budget discussions. This system benefits television and officers but lacks transparency and broader input.
Economic Slowdown in India
- The unexpected slowdown in India's GDP growth contrasts with the global economic expansion, even acknowledged by the IMF.
- Monetary policies, including high real policy rates, are highlighted as factors contributing to the slowdown, reminiscent of policy errors leading to a slowdown in 2018-19.
Criticism of Current Taxation Policies
High rates of personal and overall taxation are identified as major contributors to the economic slowdown.
- High tariffs on manufactured goods and restrictions on foreign direct investment (FDI) are criticized as "Deep-State-inspired" policies.
- The influence of major industrialists, senior IAS officers, and media influencers in shaping these policies is noted.
Excessive Focus on Fiscal Deficit Reduction
The author questions the obsession with reducing the fiscal deficit through increased taxation rather than promoting growth.
- Inflation driven by food prices is unlikely to be controlled by this approach.
- The notion that it could enhance growth is dismissed as unrealistic.
International Comparison of Taxation
- Data projections suggest India's personal income tax to GDP ratio (X-PIT) will reach 3.9% by FY2025, notably high compared to other non-advanced countries.
- For instance, Eastern Europe had the highest regional average at 3.4% in 2019.
- Overall tax to GDP ratio (X-TAX) for India is expected to exceed 19% by FY2025, comparable to advanced countries like Korea and the USA, despite their higher per capita incomes.
Impact of Excessive Taxation
High taxation leads to excessive government spending on non-productive initiatives and dissatisfaction among the middle class.
- This discontent may explain the decline in popularity of the ruling party and economic growth.
Role of International Institutions
- The influence of the IMF, World Bank, and other international experts on India's tax policies is questioned.
- Despite ongoing discussions about direct tax reform, little progress has been made over the past two decades.
Conclusion and Future Directions
Remedial action is urgently needed to address the imbalances in taxation and fiscal policies. The author promises to explore further issues related to job growth and policy impacts in future articles.
