India’s Recent Budget Tells the Unspoken Truth

India’s Recent Budget Tells the Unspoken Truth

March 3, 2013

The national budget announced today, March 1, 2013, tells a lot about the nature of India’s prosperity being experienced in recent years. It is not so much the lower growth rate of 6% projected for next year that troubles ordinary people most, but the skewed nature of that growth. Let us start with some hard facts.


Only 3% of India’s population – 35 million – pays any income tax. All others do not have sufficient income – Rs. 200,000 ($3,650) per annum — to be “qualified” for paying taxes. Of these eligible taxpayers who are considered “above water,” 1.5 million earn over Rs. 1 crore ($182,000) in annual income. They are the 0.125% of the population considered rich enough to pay the newly instituted 10% surtax for incomes above that level. If these declared incomes are indeed true, where is the often trumpeted prosperity?


The government has introduced in the budget several new incentives for infrastructure, textile and broadcasting companies. Companies like Larsen & Toubro, Bombay Rayon and Reliance Broadcast stand to gain from these special favors, and the rest of us are expected to feel content with the trickle down impact from their increasing profits.


To offset any criticism for coming to the aid of large companies, the government has suggested new investments and tax plans in the social arena – a government supported bank for women only, financial assistance toward development of educational applications to run on the “World’s cheapest Tablet PC,” and marginal tax increases on the richest to “contribute” to the welfare of the poor. These questionable investments favoring one group or company over all others, and insignificant new taxes on the few super-rich, raise questions about the government’s desire and willingness to bridge the gap between the rich and the poor.


It is a historical fact that in 1991, India was forced to abandon its pre-occupation with socialism and embrace capitalism. But capitalism never promised fairness; instead it offered the ingredients for business success. Countries like India opened their doors to foreign companies that rushed in mainly to take advantage of low cost labor. Many Indian companies joined forces with them to exploit business opportunities in offering mostly services at very low costs for foreign consumption. The prosperity that was brought about to a few Indians employed in those industries spread to some more people, and now, there are at least 3% of the nation’s population fit enough to pay taxes.


Whether India’s aggregate growth rate improves from 6% to 10% as desired over the next decade or not, the real question to ask is whether current policies will bring about meaningful improvement in the lives of the remaining non-tax-paying segment of the population. Will there be measures to assure decent minimum wages and benefits, or will prosperity for the rich be harvested from the cheap labor of the poor? Will there be a commitment to improving the capacity of the poor, especially the young who will be tomorrow’s labor force.


A nation cannot continue its indifference toward the poor by satisfying the aspirations of the rich and the powerful. Foreign investors, especially those of Indian origin, must ask themselves how they plan to operate in a country where 97% of the people are not fit enough to pay taxes.