The income disparity is only deepening, and expenditure tax may help India in reducing poverty quickly
Seventy five years have gone by since Independence and various plans were made by the Planning Commission to deal with poverty in the country. Smaller Nations in South East Asia-Taiwan, Malaysia, and Indonesia-have ended poverty.
The Communist China has come close to the world's richest economy, the United States. Japan is also closing the gap with the world's largest economy.
China was far behind India in 1978. India's per capita income in 1978 was $205.7 against China's $166.4. China jumped in 2021 to $12,256 against India's bare $1,933. It shows their determination to act strongly after taking a decision.
We have been talking about prosperity percolating at lower levels. Planners like Montek Singh Ahluwalia have been talking about percolation, but it does not work. Rich continues to get richer. They have seen the Congress regime in India, an absolutely financially clean Manmohan Singh brought no relief to the poor. The Modi regime is the strongest and most effective since independence. But the poor have not been benefited as yet.
One sees children, ladies, maimed male still begging at every car stop. Prime Minister V.P. Singh was close to me. He pledged for a ceiling on income at the level of ten to fifteen times of India's gross national individual income. I argued with him and told him that the private sector, though oblivious of the conditions of his poor Indian brethren, is at least more efficient than the public sector. If his expenditure could be controlled and inequality in expenditure is brought down to one vis-Ã -vis 20 against the present level of one to one thousand or so, possibly it may work.
The third generation of the rich, who have inherited wealth without undergoing the hard work done by their ancestors, have grown lazy, inefficient, and luxurious. Prime Minister V.P. Singh used to welcome all at his house in the morning to hear grievances. My son, who had taken charge of business, was telling me that his graphite electrodes exports suffer due to delays in bureaucracy. I took him to V.P. Singh, and stood in a queue.
V.P. Singh asked me and my son to meet him at 3 pm in his office. We met him in the office, and he called his concerned bureaucrat to see that my problem was solved immediately. Next day morning, I got a telephone call from my factory at Bhopal that the Excise Deputy Commissioner had come himself and cleared all the goods.
I went to V P Singh to thank him and he called me again at his house. I told him that most of a businessman's time is spent in finding ways to evade taxes and finding ways to plough back tax evaded wealth in business. The businessman should be allowed to amass wealth for expansion of his business and industry but there should be a strong expenditure tax administered strongly, not like the income tax which is more known for evasion.
Eighty per cent of the business houses with some exceptions like Tata and Infosys evade taxes. Businessmen by and large do not mind a simple life provided nobody is allowed to evade taxes and use the evaded wealth in his personal consumption.
V P Singh called me in the office and invited his Secretary Shree Jalan - a Marwari known for his integrity and honesty. He told him about my suggestion. Jalan told him that he was taking me into his office and discussing the issue in detail. He told me about the financial losses caused by withdrawal of income tax. I clarified that I was not suggesting withdrawal of income tax by substituting expenditure tax. I am suggesting it in addition to income tax. He told me that evasion of taxes has become rampant.
Rich people like you have corrupted the bureaucracy. Even expenditure tax would be evaded. I agreed that expenditure of the rich is mostly done on luxurious houses - fleet of cars, private planes, an army of servants, holidays in luxurious hotels abroad. They are not easy to hide.
V.P. Singh's ministry was toppled. Nothing happened, the poverty level is slightly lower than V.P. Singh's time but it continues to be pathetic. If we can't remove poverty at least we could make efforts to reduce the disparity between the rich and the poor.
Pt. Nehru was worried about the income disparity in India. He invited a famous economist, Kaldor, who suggested an expenditure tax. It was never tried by Nehru. P Chidambaram was practical and reduced income tax. The result was no loss for the exchequer.
The idea is to make the rich aware about the amount of money spent on themselves. In the Modi regime, the rich have become richer. If the Indian masses rise from 'Tamas' to even lower levels of 'Rajas', the situation may become explosive.
(The author is Emeritus Chairman, LNJ Bhilwara Group)