Political Economy; need for Re-look at Tax-break Methodology & Formalization of Economy
By: Amit Bhushan Date: 26th Dec. 2018
There seems to be a new hue & cry over Economy as more News-wallahs suddenly realize that this is the new ‘political in-thing’. There is a growing realization about the linkage in politics and economy. And how lack of economy related performance can impact political fortunes; now it may sound churlish but this seems to be a miracle considering journalism standards in India. At the height of concerns for some of the commentators is the rural economy where almost three-fourth of population’s fortune is directly linked to agriculture which is neither in the pink of its health nor are there any ideas to get this kicking. Obviously, a large swath of people need to be moved from agri to non-agri jobs to relieve pressures on the sector. The informal economy or SMEs used to absorb much of these pressures earlier and were loath to compliance including any form of tax compliance. This created a tilted field in business, whereby the compliant business faced challenges from non-compliant businesses, however the political parties care much less and were happy to solve only specific issues based on political interests and off course all that that goes along with this. This practice under the garb of corruption had gradually percolated into multiple sectors and caused an all-round deterioration with its political consequences, which remain unstudied within either our political or our academic systems including by the political parties themselves. To develop industries, a method of tax breaks were ‘invented’ along with ‘government led infra creation’ which allowed some industries to flourish for brief stints till such subsidies remained and thereafter these were allowed to go kaput with public sector banks footing the bill. The political Netas would however continue with a binge promising subsidized ‘imported gadgets’ as electoral sops till the electoral upheaval was reached including as a results of efforts from these ‘Game’ articles in Management Paradise.
Then came implementation of GST which itself was a result of pressures on government to ‘grow tax revenues’ and curtail mis-use of the same. GST shifted onus of compliance by creating incentives for companies dealing with other tax complaint units. This is now putting huge pressures on non-compliant units and is forcing them to change practices and many are now under pressure to not only become compliant but also put pressure on others to become tax compliant as well. Together with mis-steps like Demonetization and late start/dilly-dally on Bank-defaulters and resultant subdued ability of banks to lend to growing segments of tax-compliant businesses, is resulting into political challenges which may include focus of the governing forces on extraneous factors as well. The government of course is still trying to grapple with all this, including trying to figure out actual growth numbers by redoing stats on GDP, finding out jobs numbers including people actively looking for jobs, finding out data on agri-distress and its susceptibilities to electoral announcements of different parties/Netas etc. Then of course there are efforts to invent winning political muddas other than economy as well, but with losing political appeal with only the Netas not realizing this and journos also betting upon Neta’s identity-wars and ability to move away from economy by raising/manufacturing heat on other muddas. The result is a political see-saw as the electorate tries to balance between parties and Netas but with the journos always pushing other muddas as winning bets and the economic-handling as losing bet. The coverage in tele-news media would exclude any talks/discussions on large bank-defaulters, on seamless flow of fresh loans to them for new projects but would rather focus of what key Netas are doing to progress their identity wars.
With all the political see-saw, what we have seen is that the old tax-breaks to ‘industry’ for ‘industrialization’ have gone down and tax compliance improving. While the more compliant businesses have benefitted, those on the other side are having different views. And of course lack of bank financing is having its toll too and making businesses vary about how things may actually pan out over the medium to long term. However for the government, it is feeling confidant and reducing ‘rates’ and feeling that it would perhaps do the trick. There is also this expectation is air that something may be done to revive the house construction sector which is reeling under land regulations and associated bureaucracy which remains as tough as earlier, besides other complications in the sector. What has not been done is to find ideas that would kick-in further deepening of this formalization and plugging leakages and a formal political approach to have a ‘balanced playing field’ across different sectors which is also keeps political kitchen-fires burning. This could have been for example, some formula to give some concessions in GST to those expanding jobs, or may be some income tax breaks to employees where employers directly pay to ‘full-time household staff at applicable minimum wages or higher’ provided it is linked with Aadhar and guided under suitable policies. Such actions would not only help wage conditions of a clutch of people but help to improve wages itself which again is likely to consumption expenditure mostly since beneficiaries would be small-time wage earners. This again helps people to move away from farm jobs which hasn’t been giving returns as per expectations for a long time now. In absence of such measures, there continues a political slug-fest with Netas taking political sides that suits their interest which is often around non-economic issues and want to pursue electorate basis the same and the news-wallahs also falling in line with the Netas. Let the ‘Game’ evolve…