Swamy Economics Deserves A Serious Thought: Pros & Cons Of Abolishing Income Tax

Al Arafat Sherfuddeen

June 23rd, 2016 / 4:43 PM

Image Source: sakalmoney

Subramanian Swamy, the man who minces no words with his opinions and views has been in the news of late for his tirade against Raghuram Rajan and the Chief Economic Advisor Mr. Arvind Submaniam. For now, our interest is not on his tirades against them but on his opinion on income tax and why he wants it to be removed. Subramanian Swamy wrote on The Hindu on an “imminent crash” of the Indian economy and also suggested a way out for the Indian economy. He has suggested the abolition of income tax to boost the economic growth of India. Where is he spot on? Where are the grey areas? Let’s have a look.

Before we go into this, let us quickly look into some important indicators of the economy that as Mr. Swamy suggests is heading towards a tailspin despite a reported 7% growth.
1. Exports and imports of the majority of the commodities have declined steadily.
2. Household savings as a percentage of GDP has come down from 35% in 2005 to 28% in 2015.
3. Investments lined up for infrastructure is lower than the 2005 level.
4. Manufacturing is growing dismally at 2-5 %.
5. NPA’s have risen dramatically and credit growth has slowed.
Adding to this, very slow or nil employment generation all point to one direction, the economy is indeed in a tailspin, will Swamynomics work?

If as suggested by Mr. Swamy, income tax could be abolished, it would have the following cascading effects:

1. The salaried employees who are the main tax payers of India will be able to boost their expenditures and as a consequence, it will boost other businesses besides the salaried employees can retain enough for investments.
2. China leads India in a lot of economic parameters, but lags in one thing, a crucial thing, consumption as a percentage of GDP, India is way ahead of China. China is an export driven economy, India is a consumption driven economy and it is for that reason, the abolition of income tax makes perfect sense to boost consumption.
3. This would also unearth the black money stashed by the ultra rich to avoid tax and gets injected into the economy. The ultra rich and the poor both are out of the tax bracket. The brunt is borne by the middle class who are the engine of India’s economy.

So if income tax is abolished, how will the government earn the money?

Income tax contributes about 2 lakh crores for the government, abolishing that is no straight forward task unless there is a concrete plan to earn from other means. Swamy suggests it could be earned by the auctioning of resources. Auctioning of resources is already happening, auctioning and taxation is a double burden on the consuming Indian who is the prime mover of the economy. The government taxes the citizen and auctions the resources, the money spent by telecom companies in auctions are recuperated from the consumer in the form of high voice or data prices. Both of these reduces the consumption power of the ordinary citizen.

Two ways Indian economy can improve

1. The global economy should improve sooner than later and thereby kick-starting the sluggish exports and imports
2. Boost consumption of Indians by reduction or abolition of income tax. India’s strength has always been its consumption power, the demographic dividend will aid consumption, we need to harness this strength of ours.

Questions remain

1. Could auctioning of resources be sustainable over the long run?
2. Could it affect short, medium or long-term government investments and expenditures?
and few more.

Contributors

Edited by :

Share your thoughts..

Related Stories

India GDP

India Becomes World’s Sixth-Largest Economy In Terms Of GDP: Know What It Means

Indian Economy Needs To Grow By 8% For 30 Yrs For India To Become A Middle-Income Country

Cabinet Approves Extra Compensation To Central Govt Employees, Raise On Gratuity Cap

Economic Survey 2016-2017

These Are The Highlights Of The Government’s Annual Economic Survey Which Was Released Today

India Has Reportedly Passed The United Kingdom In Terms Of Economy For The First Time In Over 100 Years

India Is Willing To Spend 1.02 Lakh Crores On 7th Pay Commission But Only Nearly A Third On MGNREGA

Latest on The Logical Indian

Get Inspired

Chennai Group Rescues Hundreds Of Stranded Animals In Kerala, Risking Own Lives

News

Finance Department Reveals Railways Operating At Loss; Spent Rs 111 To Earn Rs 100

News

Bengaluru: Over 1000 People Rendered Homeless After BBMP Demolishes Settlement

My Social Responsibility

Employing Thousands Of Landless Farmers, This Man Has Revolutionized Inland Fishery

Health

40% Eateries Listed On Food Delivery Apps Don’t Have Licences, FSSAI Asks To Delist Them

News

Bihar: Woman Kicked, Slapped & Paraded Naked By Angry Mob Over Suspicion Of Being A Murderer

x

Stories that deserve attention, delivered to your inbox!

Handpicked, newsworthy stories which deserve the attention of a rational generation.