If there is one important lesson for India in the UK’s revolt against the tyranny of Brussels’s unelected and unaccountable elites, it is that this country must desist from becoming a bureaucracy-oriented democracy
India should be preparing for a futuristic change in the economic, trade and diplomatic policy with Brexit possibly marking the beginning of the fall of the European Union and the collapse of Euro. It may also be the re-processing, if not undoing, of globalisation.
Brexit has important lessons for India. For one, India should desist from becoming a bureaucracy-oriented democracy. Europe today is revolting against the Brussels bureaucracy, which is imposing rules and laws, on democratically elected Governments. Brexit is the first major onslaught on that process.
India needs to rethink the Goods and Services Tax (GST), which should have an uniform tax rate, empowering the central tax bureaucracy, weakening the States and is likely to create a convulsive situation. The centralised system is likely to create a situation, where tax oppression is bound to increase. Despite Prime Minister Narendra Modi and his Finance Minister Arun Jaitley repeatedly calling upon the tax bureaucracy to behave in a civil manner, it is sending tax notices to virtual non-earners (or very low earners). Resentment is building up.
With GST, the bureaucratic net widens. Many in State Governments are likely to lose jobs. The political leaders in those States would have to bear the brunt and that may lead to an implosive situation — almost similar to what is happening in Eurozone. The bureaucracy rarely listens to sane advice. It thrives on stringent impractical rules. It helps it in rent-seeking. India must be wary of allowing the central taxman to rule the States.
Europe is perfect for studying the failures of a stringent monolithic system, as opposed to diversity that signifies India. As nearly everyone now acknowledges, the euro has been a disaster. This economic catastrophe was imposed on the people of Europe in order to achieve the central objective of the EU — and to pander to the French establishment’s view of what was in France’s national interest.
A Pew research survey in February-March found that a plurality of voters in France, Itraly, Germany and Netherlands want the EU to return some of its powers to national Governments. Hungary is already planning a Brexit-like referendum.
The key question to arise from this episode is about what might happen in the future. The euro is not an isolated occurrence. It followed other crazy decisions, including the common agricultural policy and the Schengen travel zone. Given a free rein, who knows what monstrosities the Brussels elites will unleash upon the people of EuropeIJ They already want a common pension policy and tax harmonisation which is not to the liking of most.
Not only has this impoverished the countries of southern Europe, with huge numbers of people unemployed, but it has also allowed Germany to run an enormous current account surplus, now amounting to over eight per cent of the Gross Domestic Product, obliging other countries to run corresponding deficits.
The unemployment rate in Greece and Spain now hovers around 25 per cent, with youth unemployment over 50 per cent. All EU members have been subjected to heavy doses of austerity. They have witnessed a steep rise in the number of people living below the poverty line. The European Central Bank announcement of “quantitative easing” — a monetary sleight-of-hand to pump money into the Eurozone — is too little, too late.
Also, instead of Eastern and Central European nations catching up to the rest of the EU, pockets of Western Europe have begun to fall behind. Greece’s per capita GDP, for example, has slipped below that of Slovenia and, when measured in terms of purchasing power, even Slovakia.
“In many countries the perception is that national Governments are powerless and that there is nothing at the European level to address problems,” says Paul De Grauwe, a former Belgian Member of Parliament, now at the london School of Economics. “Both Europe and national Governments lose legitimacy.” It is a terse statement. India needs to listen.
The European project is teetering. Growth is anaemic at best and socio-economic inequality is on the rise. The countries of Eastern and Central Europe, even relatively successful Poland, have failed to bridge the income gap with the richer half of the continent. And the highly indebted periphery is in revolt.
Politically, the Centre may not hold. From the left, parties like Syriza in Greece are challenging the EU’s prescriptions of austerity. From the Right, Eurosceptic parties are taking aim at the entire quasi-federal model. Racism and xenophobia is growing even in previously placid regions like Scandinavia. Europe is a continent of severe disparity, and
India is on the threshold of building a new economy, it must learn its lessons well.