Swarajya, June 23, 1962
Raising the level of savings in the hands of the people of the country ought to be the policy of far-seeing statesmen. It is savings that will start investment and produce prosperity, at thousands of points managed by individuals and groups of individuals.
If Government takes less, and leaves savings with the people, capital formation is augmented, national production goes up and unemployment is reduced. In under-developed countries the policy of the State should be minimum taxation. A policy of minimum taxation would therefore, says Prof. Shenoy, serve the Indian economy better and help achievement of egalitarian goals vastly better than the policy of piling up taxation to the ceiling. Our old statecraft sages were right in deprecating heavy and harsh taxation. They set before kings the way of the bee which takes its tribute of honey from the flowers without hurting them in the least.
If we desire accelerated economic growth and social justice, Prof. Shenoy says, fiscal policy should aim at minimum taxation, giving priority to the reduction of indirect taxes which hit the poorer sections of the community most severely. If the rulers of the country have no faith in the people but resolve to do business themselves through what is called the public sector, then they must follow a frank and brutal communist policy. The consumption expenditure of the State must be frozen at a low level, revenue surpluses being utilized for capital formation, and waste and dishonesty in public management must be made a capital offence. But we cannot hope, in India, to attain frugal management in the public sector. “To pile up taxation, thinking that it aids economic development and social justice is a delusion and a snare.” Thus Prof. Shenoy winds up his article. The reserve power in the people gets sapped and people will fare as trees in the rubber plantations in Malaya during the war. The State must tax, but not slaughter.
Getting in as much money as possible for the national exchequer is not wise policy. Raising the level of savings in the hands of the people of the country ought to be the policy of far-seeing statesmen. It is savings that will start investment and produce prosperity, at thousands of points managed by individuals and groups of individuals. The importance of savings (of all savings, whether in the private or the public sector), as pointed out by Prof. B. R. Shenoy in a recent article in the Economic Times, was stressed by the Finance Minister in his Budget speech. But as the professor has said, “there is a wide gap between pronouncement and fact”. Tax policies, Prof. Shenoy deplores, instead of augmenting savings have eaten into savings, decelerating capital formation economic development.
When the net incomes of the people are excessively eaten into by taxation, the national exchequer may temporarily gain but national potential goes down. When incomes decline, consumption must go down. Savings go down even more than consumption which generally resists being reduced, particularly in under-developed countries where the living standards are low, leaving no room for cuts. All reduction in incomes goes, therefore, to reduce savings. Potential national savings thus get lost in public expenditure through the exchequer. Progress is retarded as a consequence of scarcity of capital. This is not made up for by the public sector, as some may theoretically argue. Too much of what goes to the exchequer is burnt up by unproductive consumption.
If Government takes less, and leaves savings with the people, capital formation is augmented, national production goes up and unemployment is reduced. In under-developed countries the policy of the State should be minimum taxation. A policy of minimum taxation would therefore, says Prof. Shenoy, serve the Indian economy better and help achievement of egalitarian goals vastly better than the policy of piling up taxation to the ceiling. Our old statecraft sages were right in deprecating heavy and harsh taxation. They set before kings the way of the bee which takes its tribute of honey from the flowers without hurting them in the least.
From Rs. 406 crores in 1950-51, the revenue collections of the Central Government have gone up to Rs. 972 crores in 1960-61. The current year’s Central Budget makes the position still worse. The potential savings are lost in government expenditure as distinguished from investment. Statist expenditure always errs on the prodigal side.
If we take the States along with the Centre, the position is still worse. The increase of revenue collection in the decade between 1950-51 and 1960-61 above the 1950-51 level comes to as much as Rs. 3,729 crores. The bulk of this additional revenue collection represents potential savings of the people burnt up in government consumption. It was only a small fraction of the amount, Rs. 652 crores, just about 17 per cent, that went towards capital formation in the public sector. The rest was spent off. This is what always happens when Government follows the wrong policy of over taxation, in the wrong assumption that money in the hands of the State will be better utilized than when left in the hands of the people who have earned it.
Reckless revenue expenditure has corroded savings, investment and capital formation. Again, futile attempts to invest non-existent resources produce budget deficits and inflationary expansion of money, which again help to retard capital formation by “misdirecting savings into unproductive and unessential channels of investment such as urban building property, gold hoards and capital exports— all which represent efforts of the people to protect the value of their savings from the depredation of rising prices” (Prof. Shenoy). Such is inflation and the fall in the value of the rupee that the present tax exemption limit on personal monthly income in real terms comes, in pre-war money, to Rs. 53.
If we desire accelerated economic growth and social justice, Prof. Shenoy says, fiscal policy should aim at minimum taxation, giving priority to the reduction of indirect taxes which hit the poorer sections of the community most severely. If the rulers of the country have no faith in the people but resolve to do business themselves through what is called the public sector, then they must follow a frank and brutal communist policy. The consumption expenditure of the State must be frozen at a low level, revenue surpluses being utilized for capital formation, and waste and dishonesty in public management must be made a capital offence. But we cannot hope, in India, to attain frugal management in the public sector. “To pile up taxation, thinking that it aids economic development and social justice is a delusion and a snare.” Thus Prof. Shenoy winds up his article. The reserve power in the people gets sapped and people will fare as trees in the rubber plantations in Malaya during the war. The State must tax, but not slaughter.
