The budget 2018, presented by finance minister Arun Jaitley on February 1, effectively puts an end to all speculations by various people about whether the current regime truly believes in its motto of “Minimum government, maximum governance”. The answer is that they do not. I believe socialism is not dead. It’s here and it’s here to stay, no matter which political party is in power.
The idea that you can help the poor by soaking the rich and the middle class (redistribution of wealth) is sadly as popular now as it was 10 years ago. Chanakya knew this (as he hardly talked about redistribution of wealth in Arthashastra, he was rather more interested in ways of creating and accumulating wealth). But sadly, the government that embraces Kautilya didn’t quite get his message.
Personally, I’m a vociferous opponent of higher government spending and have become quite cynical of every government budget. For a very simple reason – every rupee increased in the government budget, decreases a rupee from the budget of a household, that undoubtedly spend their hard-earned money way more efficiently than the state. Now coming to the budget, here are few key takeaways that prove that the budget was highly populist in nature and would increase the dependency of individuals on the government:
The government raised customs duty on imports of mobile phones from 10% in July 2017, to 15% in December, and to 20% in this union budget. This comes as a shocker since PM Modi, on many occasions has defended free trade and globalization at a time when economic nationalism/protectionism is at an all-time high across the globe. Custom duties have been raised in at least 10 different sectors. Not only this, an additional 10% social welfare surcharge has been levied on various imported goods.
All this has been done on the pretext of promoting “Make In India”. So what would be the consequences of higher tariffs? Some groups will benefit at the expense of many others. Consumers will suffer the most since the price of the mobile phones is likely to increase after this decision.
On the other hand, with barriers to entry via tariffs will reduce competition. As a result, quality will be compromised. People will pay higher prices for same good which basically means that they’ll cut spending in other sectors, hampering the growth of that sector.
In short, the economy and the vast majority of the masses will suffer because of ‘the vision of the anointed’.
The union budget did not provide any changes in the slab rates. Since this was the last budget of PM Modi’s first tenure, the middle class was quite disappointed because prominent BJP leaders had promised abolition of income tax and were going to raise the slab rates to ₹5 lakh before the 2014 general elections. The latter promise was made by none other than the current finance minister, Arun Jaitley.
The government has also announced a 10% long-term capital gains (LTCG) tax on profits exceeding ₹1 lakh on equity shares and equity-oriented funds. However, this is not a retrospective tax. Also, there’s uncertainty on grandfathering clause as to whether it applies to foreign investors or not. Another thing to note here is that the security transaction tax (STT) hasn’t been removed either.
The outcome of this decision by the government was clearly visible on the stock market. On the very next day after the Union budget was presented, the Sensex fell by an astounding 839 points and the Nifty fell by 256 points. The market capitalization of listed companies fell around ₹4.7 trillion in a single day. It is believed that one of the key reason for such sharp fall in the stock market was the LTCG tax.
The entire general discourse revolving around taxation in India has been extremely disappointing and is based on many economic fallacies. And the ’eminent economists’ both in the left and right spectrum of economic philosophies are to be blamed for this.
For instance, every time there’s a call for tax cuts largely from the middle-class, a section of intellectuals is seen mocking such demands from the public, and labeling such people as greedy. Can you see how intellectually bankrupt such a line of argument is? It’s not the people that are greedy, for asking to keep more of their own hard-earned money, thereby enjoying the fruits of their labor. I think it’s the government that is greedy which takes more and more money from the public through coercion and spends it recklessly.
The total subsidies on food, petroleum, and fertilizers as per the Union budget is ₹2.64 lakh crores. Which is 15% more than the previous years’ revised estimates of around ₹2.30 lakh crores on subsidies. This is only the subsidy for the current year. There are unpaid subsidies and interests thereon which also needs to be paid as Vivek Kaul explained here.
The government also announced the world’s largest health insurance scheme namely, the “National Health Protection Scheme” (NHPS) or the Modicare. The target of Modicare is to provide healthcare to 10 crores families with an insurance if up to 5 lakh rupees per family. Although no funds have been allocated yet.
So how can someone object to such noble steps being taken by the government for welfare of the poor?
Such welfare schemes or subsidies are not new in India. They’re being carried on from the time of our first prime minister. But all the trillions of rupees spent on the welfare of the poor did not eradicate poverty. What eradicates poverty is jobs, not govt hand-outs. Free markets have freed millions or maybe billions of people from the shackles of poverty, not the welfare state. I think that if the government really wants to help the people, all it needs to do is to leave people and the economy alone.
The other problematic aspect of the welfare state is that I believe it has killed the concept of private charity. When people, who otherwise help the needy from their own pockets, are forced to pay the government, their capacity to help the poor in private is reduced.
It’s bad for those people who fund the welfare state as their incentive and productive capacity to work is drastically reduced. The welfare state also gives more power in the hands of politicians and bureaucrats to run other people’s lives. It opens a wide door for corruption and mismanagement. And the section to whom the welfare state targets to help suffers the most. As it reduces a sense of personal responsibility among them to run their own lives.
All in all, in my opinion, the state via the welfare state assumes the responsibility of a parent, and treats the general public as their children.
So the sum and substance are that the Union budget 2018 makes two things crystal clear – firstly, there is no economic right-wing party in India. And secondly, socialism is not dead. It has only changed its color from red to saffron, and it seems like the the old cliche, “good economics, is bad politics” is here to stay.