Monday, July 19, 2010

The 10% Rule

India is a land of big disparities. India ranks among the select few in having the most number of billionaires but also tops in having the most number of poor and unprivileged. While six cities churn out 90% of the Indian IT products, 70% of Indians toil in the country sand and more than 50% barely make a living. These disparities keep on growing, if one looks at the nation state wise and get even worse with finer analysis of data, district wise. The regions lagging behind in the Shinning India story face the danger of further neglect as the government busies itself with the more visible India.
One of the common threads joining these impoverished, forgotten areas is the lack of any public amenities, be it water, electricity, roads or connectivity. I question the moral authority of the government in levying tax on people and activities in this area. Tax is a kind of a service charge paid to the government for providing services and amenities useful to all, like building and maintaining roads, taking care of people's health and education, and maintaining law and order. If the government fails of multiple counts in these areas, isn't it amoral for it to ask people to pay for the services it never provided?
I propose that the government should levy 0 taxes on any person living in or any economic activity occurring in 10% of the most impoverished districts( blocks would be even better) of India. As rare it may be, this moral grumbling also makes a lot of economic and political sense. The major part of government revenue comes from the affluent cities and urban centers of India. The 10% of the most impoverished districts would not contribute a great deal to the revenue or else they would not be that impoverished. Thus the government will not lose a lot of revenue, but create a great impulse for the industry to set up shop there. It would be attractive for professionals and trained personnel to settle in such areas for the lack of income tax. If the sales tax is also lifted from these areas, it shall lead to a better quality of life for the ordinary citizens in these areas as their purchasing power increases. With the increase in the purchasing power, there shall be a corresponding increase in the economic activity in the area and it may be able to join the Indian growth story.
It would be worth considering for the central and state governments to have a differential approach for levying taxes in various regions with the 10% of the most impoverished districts of India free of any central tax and 10% of the most impoverished blocks in every state free of any state tax and have a gradual slab based approach for other regions. Such incentives have been provided to Special Economic Zones (SEZ) in India and China and these areas have seen a boom in economic activity, so much so that exports from 111 operational SEZs in India contribute to around 58K crore rupees worth of exports and they have grown 112% in the last year and 67 % this year. This is a easy to implement tax rule with low chances of misuse and little loss to the government.
The Indian government is at crossroads on many policy decisions. I feel it would be a mistake to follow a uniform tax code with a uniform Goods and Services Tax (GST) for all regions in India. What we need instead is the approach taken while levying taxes on individuals. We need to divide the whole country into groups of districts with each group containing areas with similar economic standards and the membership of each group automatically updated annually. Uniform taxation should be followed within each group, with current taxation rates on the most affluent group and nill on the most impoverished one.

PS: Creative use of taxation can correct many ills in the direction and pace of Indian economic growth. Another such problem that could be ameliorated, though not solved, by smart taxation would be the lack of skilled persons and proper training in India and the low employability of many graduates, with the government exempting all trainees in industry, who were previously unemployed and just graduated, from income tax for a period 6 months in urban areas and an year in rural areas.

Thanks again to Anirudh for editing the post.

Friday, July 9, 2010

Need of Sanguine Red in the Tapestry of India

It looks like a quintessential Indian problem that there are too many motivated, intelligent and industrious leaders which want to change the direction of the march Indian subcontinent towards progress, albeit in different directions. How many times, has a prosperous India bled because of the intransigence of its great leaders. India did not have a dearth of able leaders when the British took over. But Sadly, whether is the great Tipu Sultan and the Maratha Peshwas, no one blinked to let the unity prevail.

Gandhi was unique in his ability to keep together the most diverse flock under his leadership. This was perhaps one of his greatest achievements which lead to a very vigorous national movement. Half a century after his death, we seem to be loosing that sense of accommodation. The leaders which take decisions after forming a consensus are called weak and Indira Gandhi Gandhi's dictatorial style is admired as the trait of a strong leader. The more we move towards the trend of strong and firm leaders in our polity, the more fragile it will become.

One's heart bleeds to see the government forces fighting the naxals and Maoists. Both the sides vow to bring justice to the downtrodden and make the development of India more equitable. Yet both fight each other, just because being accommodating is seen as being weak. I do agree that Maosits have extreme views in terms of replacing the democratic setup with a communist state, that too through a violent revolution. But so were the views of the numerous other groups leading insurgency in various parts of India. We were able to turn them around and use their genuine concern for their people to develop India.

It is worthy to note that the ultra red movement has been around since the Independence of the country. It may also be noted that leading Gandhians like Vinoba Bhave and Jayprakash Narayan termed this menace as a socio-economic and political problem. The ultra reds have been fighting for the landless and the tribals which find no space in the Indian political zoo or in Indian political rhetoric. While the farmer is worshiped by every political party and dalits have become a formidable force, the landless workers and tribals have yet not been empowered politically. This is probably the reason that the government has failed terribly in the area of land reforms and special ways and means to deal with tribals. The colonial bureaucracy adds fuel to the fire. The tribals who have been living on their lands much before any form of government existed, are asked to prove the ownership of their lands and evicted from their homes in a brutal fashion. The modern India is trampling them under its march to economic prosperity.

The Maoists present a unique opportunity to bring this marginalised section into the main stream. The Maoists have achieved what no other political party could. They have united this large constituency of India's people into one political force. The need is to urgently bring the Maoists into the political main stream. They are a political force with a mass base to recon with. The Government structure, needs to be decentralised further to empower the people of the villages and tribes to have the maximum say in deciding the the fate of their homes. The MOU's signed between the mining companies and central and state governments should be signed between the companies and the local communities. If the local bodies are empowered with a true sense of authority, many people would be willing to join the circus of Indian democracy. This way the Maoists shall be confident of bringing the revolution through ballet and not bullet (something that the comrades in other parties discovered long back ).

A large chunk of the Maoists cadre and followers is made of well educated leaders and civil society activists. They represent a very positive force, which can be harnessed to make the growth of India much more inclusive and democratic. When Yunuis Khan started the Grameen bank in Bangladesh to alleviate the situation of the poor and downtrodden, he found a great help from such groups in propagating his movement. Indian politics despite all its chaos has lost the exuberance to bring forth a change for all, to develop an Indian Utopia and have space for all. Cronies have formed around every traditional power structure and they resist any entry of a strong force disturbing the status-quo. The vast Indian tapestry desperately needs infusion of the sanguine red to breathe a new life into the lost Indian dream. I sincerely wish that talks initiated by Swami Agnivesh with the Maoists and the Government succeed.