Editorials/Opinions Analysis For UPSC 23 June 2022
- Towards a Single Low Tax Regime
- The role of caste in economic transformation
Towards a Single Low Tax Regime
The introduction of a uniform GST was a watershed moment in India since the country’s earlier regime of taxes and cesses. However, GST is still a complicated tax regime with different slabs.
GS II: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment, Fiscal Policy
Dimensions of the Article
- Why Unified Single Tax?
- GST Major Shortcoming: Multiple Rates
- Way Forward
Why Unified Single Tax?
Empirical data from across the world on the benefits of a unified single tax is incontroversial. This needs bold and clear reformist thinking at the political level.
- Imposing a high GST in some areas does not make sense.
- ‘Sin’ taxes are at cross purposes with the government’s policy of generating growth and creating jobs under ‘Make in India’.
- Create an economic ripple effect downstream, in a complex web of businesses that have symbiotic relationships.
- The effect finally reaches down to the bottom of the employment pyramid.
- Distrust between State and centre: There is distrust between the States and the Centre on revenue sharing.
- There is also anger at the Centre for riding roughshod over the States’ autonomy and disregarding the federal structure.
Advantages of Single rate tax structure
- To have a simple tax system,
- To prevent misclassifications and litigations arising therefrom,
- To avoidan inverted duty structureof taxes on inputs exceeding those on outputs requiring detailed scrutiny and refunds.
GST Major Shortcoming: Multiple Rates
One of the most important shortcomings in the structure of GST is multiple rates.Why multiple rates regime is proposed?
- The main reason for rate differentiation is equity.
- But it is argued that this isan inefficient way of targeting benefits for the poor.
- Although the exempted and low-rated items are consumed relatively more by the poor, in absolute terms,the consumption may be more by the rich.
Evolution of GST multiple rates in India can be understood as:
- The committee headed by the Chief Economic Adviser estimated the tax rate at 15-15.5 per cent.
- It further recommended that in keeping with growing international practice, India should strive towards a single rate in the medium-term to facilitate administrative simplicity and compliance, but in the immediate context, it should have a three-tier structure (excluding zero).
- The structure finally adopted was to have four rates of5, 12, 18, and 28 per centbesides zero, though almost 75 per cent of the revenues accrue from the 12 and 18 per cent slabs.
- Move people up the value chain: The plan must be to figure out how to rev up the economy by making the rich and upper middle class spend and move more people up the value chain instead of designing a tax system that keeps these products out of the new consumer class’s reach.
- The same lack of logic applies to taxes on wine, rum and beer, which generate large-scale employment and are the backbone of grape and sugarcane farming and the cocoa industry.
- In the automobile sector, the GST on electric cars, tractors, cycles, bikes, low-end and luxury cars ranges anywhere from 5% to 50%. The sale of automobiles is the barometer of an economy.
- Single tax slab: A directive to the bureaucracy is necessary to come up with just two categories: goods eligible for zero tax and goods that will fall under a single rate, say 10% or 12%.
- Then there are items that are exempt from GST.
- Bring fuels under GST: Petrol, diesel, aviation turbine fuel are not under the purview of GST, but come under Central excise and State taxes.
- A single low tax regime will ensure compliance, widen the tax net, improve ease of doing business, boost the economy, create jobs, increase tax collections and reduce corruption
The Finance Minister should take a cue from the Prime Minister, who hinted at major reforms in the aftermath of COVID-19, and do away with all the confusing tax slabs in one fell swoop.
Source – The Hindu
The Role of Caste in Economic Transformation
India has been in a phase of jobless growth for at least two decades now, coupled with rising poverty and discontent in rural areas. Bigger challenge ahead us is “How to generate a pattern of growth that produces jobs and inclusive development in the way most of the East Asian countries have done?”.
Panacea may lie in inclusion of all the castes in the economic growth.
GS I: Capitalism, Diversity of India, Poverty and Developmental Issues
GS II: Welfare Schemes, Issues Relating to Development, Human Resource, India and its Neighbourhood.
GS III: Planning, Employment, Inclusive Growth, Land Reforms.
Dimensions of the Article
- How Caste System Impedes Economic Growth & Development?
- Why India Lagged in Economic Transformation?
- What are Initiatives Taken to Eliminate Discrimination and Promote Transformation?
- Way Forward
How Caste System Impedes Economic Growth and Development?
There could be 4 probable answers to this.
1. Land Ownership & Productivity:
India has one of the highest land inequalities in the world today.This unequal distribution of land was perpetuated by British Colonial intervention, which legalised a traditional disparity.
During British Rule:
- The land revence settlement systems entirely changed the natural fbric of village society. They institutionalised caste system within the land revenue bureaucracy by creating artificial distinction between cultivators who belong to certain castes and labourers(lower caste subjects) who cultivated granted/ gifted lands.
- The British inscribed caste in land governance categories and procedures that still underpin postcolonial land ownership pattern in India.
- Land reform that took place after India’s independence largely excluded Dalits and lower castes.
It emboldened and empowered mainly intermediate castes at the expense of others in rural India.
The regional castes that benefitted from the Green Revolution tightened their social control over others in rural India.
2. Differential and non-inclusive education since British times emboldened “elite” classes, creating a social drift. Inequality in access to education got translated into inequality in other economic domains including wage differentials in India.
3. Barrier to entrepreneurship: Castes that were already in control of trading and industrial spaces resisted the entry of others.
Why India Lagged in Economic Transformation?
The divergent outcomes in structural transformation between countries in the global South, particularly India, China and SouthEast Asia, is due to their focus on “Land Equity”, “Access to Education” and “Access to Entrepreneurship”.
1. Focus on Education:
Chinese and other East Asian countries invested in basic education and gradually shifted towards higher education unlike India’s upsidal theme.
2. Focus on Low End Jobs:
South East Asia and China captured low end manufacturing jobs, India largely concentrated in high end technology jobs.
3. Focus on Human Capital:
In China, rural entrepreneurship was able to grow out of the traditional agricultural sector on a massive scale due to its investment in human capital. Their success in manufacturing is a direct outcome of the investment in human capital.
4. British Colonial Intervention:
The biggest challenge India as a nation faced was intervention by Britishers which amplified caste based and racial differences. Thus we couldn’t cope up with the pace of economic transformation like our neighbours.
What are Initiatives Taken to Eliminate Discrimination and Promote Transformation?
- Prohibition of Discrimination under Article 15
- Equality of Opportunity ensured under Article 16
- Compulsory Education guaranteed under Article 21A.
2. Land Reforms:
- Land Ceiling Act that prescribed upper limit on land ownership emboldens equality.
3. Human Development:
Various schemes have been undertaken to ensure economic & social inclusiveness. For instance:
- Pradhan Mantri Kaushal Vikas Yojana (PMKVY):
- SANKALP Scheme
- Stand Up India Scheme
- Pradhan Mantri Mudra Yojana:
1. Learning from Neighbours:
As success witnessed in China and other S.E Asian Countries, India should put more focus on areas of Human Development, Low End Jobs, Rural Development to support economic transformation.
2. Rationalisation of Reservation Policy:
It should be made sure that every community/caste under a reservation category should be provided with equal representation in the employment/educational opportunities. Saturation of a particular community/caste in reservation violates thewhole vision of equality and meritocracy.
3. Audit of Initiatives:
Social audits could be regularly conducted to evaluate the service delivery of developmental initiatives.
4. Going Rural:
Ground level survey of the Socio Economic needs of the backward classes at rural level would provide the real picture of their situation enabling the government enhance target-based & leakage proof services.
Source – The Hindu