I usually do not mark Union Budget as an important event in my
calendar. My usual budget day activities include listening to the budget
speech, flipping through the budget documents, especially the finance bill,
forming a quick opinion about the socio-economic and investment portfolio
implications, reviewing my investment strategy and sharing my thoughts with the
friends on my mailing list. I would mostly finish the budget chores much before
my dinner time. All queries from friends and family members would be answered
before going to bed on budget day. The day following the budget would be a
normal day.
This year however has been unusual. Five days have elapsed since
presentation of budget on last Friday, and I am still busy with budget tasks.
The number of queries is much higher than usual. The character of inquisitions
is also quite different. I found most inquisitors dismayed and disappointed.
Some are delusional and yet some others have turned cynical. As of this
morning, not more than 10% are hopeful of a stronger economy and more
progressive society 5yr down the lane.
This is unfortunate.
Most common question I have faced in past five days is "Are
we again slipping into the socialism trap that held back India's economic
progress for long? Is stronger and clear political mandate forcing the ruling
party to work harder to protect their enlarged voter base by following
excessively socialist economic policies at the expense of tax payers?"
It is not only the proposal to impose higher surcharge on people
earning more than Rs20mn/yr that is driving these concerns. Taxation of LTCG;
additional reservation in education and jobs on economic consideration,
introduction of an elementary universal basic income covering all farmers,
small traders and retailers; frequent loan waivers for farmers; highest
budgetary allocation for rural programs and social security of poor (insurance
and pension etc) at the expense of middle class tax payers, are some of the
things that are bothering people.
My prima facie view is that we are a socialist country by
constitution. The Constitution of India mandates our government to follow
socialist economic policies. Our politicians may choose to say, promise and
claim whatever they like. But the government is bound by the Constitution,
which categorically mandates it to fallow socialist economic policies.
Investors, businessmen, entrepreneurs, employed and other tax
payers who get lured by the promises and claims of the politicians to provide a
laissez-faire and low tax regime are themselves to blame for their misplaced
expectations and strategies.
On second thought, I find a strong economic rationale in
following economic policies that are primarily aimed at empowering and enabling
a larger segment of population that shall contribute to the economic growth in
coming deacdes.
Till 1989, our governments remained firmly committed to the idea
of socialism, which essentially meant (i) control consumption rather than
increase production; (b) heavily tax the rich to pay for the subsidies to poor
rather than empower an enable the poor to move up the economic ladder; and
(iii) focus on import substitution rather than export promotion.
The primary reason for this, in my view, was disconnect between
the "Ruler" and the "Subjects". The feudal ruler would
decide what is good for the subjects and make policy accordingly. Mostly few
feudal friends & coterie of the "Ruler" were licensed to do
business and own resources & assets. This in turn ensured a secular low
growth period with pervasive poverty, backwardness and external vulnerability.
Things changed after 1989, when the economy reached the breaking
point and the majority poor, underprivileged and backward decided to take the
things in their own hands. They decided to oust the feudal lords from power.
One by one most states elected leaders coming from the bottom of the pyramid.
It took 25yrs to complete the process of elimination of feudal lords from the
top echelons of Indian politics.
This included the process of eliminating the poor and backward
who gained power in 1990s but soon degenerated into neo feudalism.
Now, in 2019 here we are, debating:
(a) Whether we should
go back all the way to pre 1989 days when pseudo socialism governed the
economy. Only a few got the opportunity to grow. The large majority just
survived, with extreme difficulty.
(b) Whether we go
back to the interim state of 1989-2014 when a mix of pseudo socialists and
degenerated socialists governed the economy. Now a large number of people had
the opportunity to grow but corruption was pervasive; the direction of growth
questionable and sustainability totally ignored.
(c) Allow the change
to progress further.
Those fearing higher taxes need to assimilate one thing very
clearly. With only 1% of the population able to earn, consume, save, and invest
is not sufficient to sustain even the present ~6-7% level of growth. We need at
least 35% people earning, consuming, saving, and investing to grow @8-9% that
could make us a middle income economy in next 12-15years.
Future of our businesses and markets totally depends on our
effort to enable more and more people in the economic mainstream by enabling
them socially, physically and economically.
I am certainly not saying what this government has doing is the
Right way of doing things. There would certainly be better ways to achieve the
goal of elevating one third of population to tax payer status. But going back is
certainly not an option; whether stock markets like it or not.
Like others I am also afraid that excessive taxation might be
highly de-motivating and potentially drive the rich, skilled and talented out
of the country; and dis-incentivize foreign investments. It may not be
desirable at this stage of economic growth in our country. I feel, we are
taxing on runway towards the take off point. At this time, we need maximum
energy to propel our economy into higher orbit. Dissipating energy at this
stage could be disastrous.
I think these concerns only have driven the government to find
equilibrium between Gandhi, Marx and Adam Smith (see
here). Marx is evident in the budget proposals. Gandhi and Adam Smith are
presented as ideas. Let's wait to see how these ideas are implemented. Remember
most past attempts at bringing this triumvirate together have failed miserably.
If this government can pull through this, the results would be miraculous.
Else, we lose few more years in our journey of socio-economic growth and
development.
I am certainly disappointed for not getting tax concessions and
subsidies. But that does not make me cynical or pessimist.
