In one stroke of his pen, Arvind Subramanian – Chief Economic Adviser to the Government of India, has
made me and most of you become
the new Indian economic elite. We have been kicked hard - Upstairs - and have vaulted from our cosy conception of being part of the Indian "middle class" to the Piketty reviled elites forming the 1 %. (ET ran this article on 27th Feb 2016)
Be warned, for the Occupy Dalal Street movement that you were probably contemplating of leading or joining, is now a protest against you- the economic elite of India.
NO, the economic adviser did not promise any Bounties to make us all well-off, he did the math and said that anybody earning more than 2 lakh rupees in India is Well Off (thats you and me, and anybody you know). And the meager tax breaks that he/she gets, are the bounties that needs to be clawed back by the Government of India.
His simplistic argument can be simplified further.
Anybody in the top 2 % of the population is a part of the economic elite, top 5-6% are definitely Well-Off and not a part of the vaunted middle class of India.
Based on the Income Tax data, any person in India having an income of more 2 lakh is in the top 6 % of the population, earning more than 5 lakh puts her in the top 1. 5% and more than 10 lakh places her in the envious top 0.5 % of the population.
A key assumption that is made here, which only the very naive would accept, is that this actually represents the true income distribution in India. The number of tax payers has remained near stagnant at around 3 crores for at least a decade now; and not because the number of people with taxable income has not increased.
A key assumption that is made here, which only the very naive would accept, is that this actually represents the true income distribution in India. The number of tax payers has remained near stagnant at around 3 crores for at least a decade now; and not because the number of people with taxable income has not increased.
And this cake shaped graphic takes the cake:
The cake above conceals more than it reveals. Lets try to understand it better.
The graphic is drawn to show the percentiles. (the axis on the left). But the markings on the right, which shows the income slabs are not drawn to scale.
The gap between 5 and 10 lakh appears to be less than a third of the gap between 2 and 5 lakh. And the upper slab of taxable income, which spans Rs 10 lakh to Rs 160 Crore (Yes, 1600 times more than the entry income of 10 lakh) is shown as a narrow sliver. Had this been drawn to the scale of income, the "cake" visualisation would have looked more like burj Khalifa, probably taller.
In this narrow looking band of 0.5 % of the population is where the real income variation is seen, and the true "Rich" and "Well-Off" reside.
To say that the meagre investment made by people in PPF or GPF Accounts, where the maximum investment (with tax saving incentive) is capped at Rs 1.5 lakh per annum, leads to a subsidy for the "well-off" adds insult to injury. This is no "bounty" to the well-off - for most, this is the only investment that they make from their sub-10 lakh salary.
The rich, who inhabit the broad earning range from 10 lakh to 160 Crores, are not investing their surplus in PPF accounts. Their investments lie in financial assets where capital gains are taxed far more favourably.
Instead of targeting the small savings (Yes EA, these are small savings) made by people with income between 4 lakh and 10 lakh, the Economic Advisor could have raised tougher questions - like why capital gains should not be taxed at a higher rate, and why the peak income tax slab starts at Rs 10 lakh and stops at 30 %, when we have people in India with income a thousand times greater than this? Even the US, whose free market ideology we seem to be aping, has higher income tax rates of 33%, 35% and 39.6 % for the top income slabs.
Hope the government did not take the Economic Adviser's advice seriously, and ignored chapter 6 of the Economic Survey (Bounties for the Well-Off) while finalising the Budget proposal.
The gap between 5 and 10 lakh appears to be less than a third of the gap between 2 and 5 lakh. And the upper slab of taxable income, which spans Rs 10 lakh to Rs 160 Crore (Yes, 1600 times more than the entry income of 10 lakh) is shown as a narrow sliver. Had this been drawn to the scale of income, the "cake" visualisation would have looked more like burj Khalifa, probably taller.
In this narrow looking band of 0.5 % of the population is where the real income variation is seen, and the true "Rich" and "Well-Off" reside.
To say that the meagre investment made by people in PPF or GPF Accounts, where the maximum investment (with tax saving incentive) is capped at Rs 1.5 lakh per annum, leads to a subsidy for the "well-off" adds insult to injury. This is no "bounty" to the well-off - for most, this is the only investment that they make from their sub-10 lakh salary.
The rich, who inhabit the broad earning range from 10 lakh to 160 Crores, are not investing their surplus in PPF accounts. Their investments lie in financial assets where capital gains are taxed far more favourably.
Instead of targeting the small savings (Yes EA, these are small savings) made by people with income between 4 lakh and 10 lakh, the Economic Advisor could have raised tougher questions - like why capital gains should not be taxed at a higher rate, and why the peak income tax slab starts at Rs 10 lakh and stops at 30 %, when we have people in India with income a thousand times greater than this? Even the US, whose free market ideology we seem to be aping, has higher income tax rates of 33%, 35% and 39.6 % for the top income slabs.
Hope the government did not take the Economic Adviser's advice seriously, and ignored chapter 6 of the Economic Survey (Bounties for the Well-Off) while finalising the Budget proposal.
Well its easier to get pennies from the working poor than the Mallya's of the world. There is a mad fealty towards the so called "Makers" who are give all the sops, low corporate taxes, preferred taxation and hoping for trickle down economics that never works. Its sad that instead of how Nordic countries are managing their economies, India is wildly following the failed and debunked republican economic ideology.
ReplyDeleteI think they could not fine time to read your blog..unfortunately!
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