Amid slow growth of economy and huge youth potential, recently, the Indian Labour Ministry published the unemployment rate at just 6.1% in the period between 2017-2018, just after demonetisation. And now, according to the Centre for Monitoring Indian Economy (CMIE), unemployment in the month of August 2019 was over 8%, and news of GDP growth being at just 5% of the first quarter for FY 2019, added more fire to the discussion.
Now, the need of the hour is a fiscal stabilisation policy and one of the best examples of this is the Kennedy tax cut of 1964. There had been a serious recession in 1958, during which the unemployment rate rose to 6.8%. The Kennedy administration came back into office in 1961 with a program to get the economy moving again with a program called new economics – which meant the application of Keynesian theory to a macroeconomics policy.
Kennedy proposed a large cut in both personal and business taxes (20% for persons and 10% for business). With this, employment grew rapidly with unemployment falling to 4.8% in first half of 1965 and to 3.8% in 1966.
So this is where the Modi administration is lacking. Despite a full rebate to income tax payers (upto 5 lakh) in budget and recent tax cut for corporates, still, the Indian economy is crawling. Is there need for a higher income tax rate cut or something else entirely, like skill development or improved investment?
This is the time of Diwali, so let us wait and see how the economy moves in these 4-5 days.