Swarajya, October 17, 1964
As far as emphatic advice against deficit financing goes, the International Monetary Fund’s chief, Mr. Schweitzer, has done us good service. To seek to thrive on transfusion of one’s own blood is nothing but a suicide-plan. To think of thriving on our printed money is an equally suicidal plan.
Taxation, taking the direct form of taxation first, has reached its limits consistent with good sense in respect of the needed private investment for production. A very large area of production is still and must always continue to be private responsibility. It is not realistic to overlook the fact of no more squeezability. Between 1960 and 1964 the aggregate taxation in the country has increased by as much as 77 per cent, whereas the rise in the official national income figures lags far, far behind. But what is most important to remember is the pattern of distribution of this aggregate national income which prevails in our country. The proportion of persons with taxable surpluses, above a mere subsistence level, is only a small fraction of the population... The burden on the taxable population in our country is far too heavy already.
Turning to indirect taxation next, namely, levies on commodities, excise and sales taxes, etc., in order to get at the pockets of classes not within reach of direct taxation, it is incontestable that these levies have certainly aggravated the price situation.... Everyone knows that the new drive for heavier collection of sales tax has led to unbearable harassment of the peasants and other agricultural classes and the retail shopkeepers. Necessarily corruption finds its fertile soil at that level, while evasion is resorted to in order to make urban life bearable at higher levels. All ideas of further direct or unrevealed taxation should be ruled out. The limit of squeezability has been reached.
What is called for in our rulers is humility and realism. We cannot hang on to the old Plans and policies if we wish to keep our head above water.
As far as emphatic advice against deficit financing goes, the International Monetary Fund’s chief, Mr.Schweitzer, has done us good service. It is hoped his warning will carry weight where the Swatantra Party’s voice could not, because it was anti-Nehru and therefore ‘reactionary’. The Rupee is slipping down a steep incline; to steepen the angle still further would be fatal. To seek to thrive on transfusion of one’s own blood is nothing but a suicide-plan. To think of thriving on our printed money is an equally suicidal plan. The multiplying of ‘moderate’ doses of inflation in close sequence is the same as a fatal dose of inflation.
The implication of Mr. Schweitzer’s advice is to find money by more taxation. When a goal is taken as unalterable, the ruling out of one way involves taking the other way. Taxation, taking the direct form of taxation first, has reached its limits consistent with good sense in respect of the needed private investment for production. A very large area of production is still and must always continue to be private responsibility. It is not realistic to overlook the fact of no more squeezability. Between 1960 and 1964 the aggregate taxation in the country has increased by as much as 77 per cent, whereas the rise in the official national income figures lags far, far behind. But what is most important to remember is the pattern of distribution of this aggregate national income which prevails in our country. I have pointed this out more than once in these columns. The total is misleading; the distribution picture is important. The greater part of the aggregate national income is calculated out of what is supposed to be earned by crores of people just managing to keep body and soul together. The proportion of persons with taxable surpluses, above a mere subsistence level, is only a small fraction of the population, and not what it is in other countries with whose national income and taxation it is often sought to compare India’s taxation percentage to make out a case for increase. The burden on the taxable population in our country is far too heavy already. As a leading daily has pointed out, “on the contrary, there is a strong case for relief at various levels”. The present taxation has led to diminishing returns and has induced evasion. Let us remember that civilized man does not live only to produce for the market and to pay taxes. We cannot defeat human nature. We shall be defeated by it—if we persist in a battle against it.
Turning to indirect taxation next, namely, levies on commodities, excise and sales taxes, etc., in order to get at the pockets of classes not within reach of direct taxation, it is incontestable that these levies have certainly aggravated the price situation, which was too bad already in consequence of inflation. Everyone knows that the new drive for heavier collection of sales tax has led to unbearable harassment of the peasants and other agricultural classes and the retail shopkeepers. Necessarily corruption finds its fertile soil at that level, while evasion is resorted to in order to make urban life bearable at higher levels. All ideas of further direct or unrevealed taxation should be ruled out. The limit of squeezability has been reached. What is called for in our rulers is humility and realism. We cannot hang on to the old Plans and policies if we wish to keep our head above water.
