Proposal. By Arthakranti Pratishthan. ( Arthakranti. Developed India NOW via Re-Design of the economic system

Transcription

1 Proposal By Arthakranti Pratishthan ( Arthakranti Developed India NOW via Re-Design of the economic system Current reality Certain sectors of the economy are booming. India is the preferred destination for investment. Overall growth numbers look encouraging but there is a dark cloud under this silver lining. The urban haves are certainly getting richer in the liberalized, global economy! However, there is a

2 sharp economic disparity, where all this isolated growth leaves the masses in cities and in rural areas even worse off than before.. These citizens, for the sake of survival are forced into illegal activities. The desperation serves as ideal fuel for the fires of terrorism, naxalism, and all kinds of socially divisive activities. This in turn leads to an increasingly difficult law and order situation. There is the thriving parallel economy fuelled by black money. There is the related issue of rampant corruption. There is a fiscal deficit at the centre and all states. No matter how many new taxes are added the governments at all levels are always short of revenue As a consequence there are little or no funds to run any real development programs or address the subsistence needs of the have-nots. The political system, due to lack of government funding, is at the mercy of the parallel economy and black money. This inevitably leads to increased criminalisation of the politics Government seems to be locked into a single point program to generate capital Attract Foreign Direct Investment. Thus the policies tend to favour these investments and end up making the local industry even more non-competitive In the Indian economy, cash transactions far outnumber transactions through the banking system as much of 80% of the economy is cash based. Alarmingly enough with every passing year this percentage is growing rather than shrinking! Due to the minimal use of the banking system, there is inadequate capital supply and formation. The have-nots remain outside the banking system and never establish their credibility. This keeps them at the mercy of the cash / parallel economy. The banking system is caught in the double bind of inadequate usage and tight credit / fiscal policy and is rendered non-competitive on the global level The industry tries to compete globally while being constrained by inadequate capital, complex taxation and rampant corruption These are the effects of some systemic flaws in the financial system of the country and not due to some character flaw in the Indian Psyche! There is a need to improve the use of the banking system, a need to reduce the ease of high valued cash transactions and a need to simplify, radically simplify the taxation system. Proposal Compress the high denomination currency maximum denomination of currency in circulation should be Rs. 50/- The table below displays the disparity between India and Top World economies as regards ratio of Per Capita Income to Highest Denomination. Country Per Capita Income (approx.) (A) Denomination (B) A B USA $30000 $ UK pounds 50 pounds 360 Japan 40,00,000 yen 10,000 yen 400

3 India Rs Rs Setting the appropriate limit on amount of legal cash transaction say Rs. 2000/- (Today it is at Rs. 20,000/-) No tax on cash transactions Withdrawal of existing Taxation System completely (except Customs and Import duties) Every Transaction routed through a bank will attract certain deduction (say 2%) in appropriate percentage as Transaction Tax i.e. Single point tax deducted at source. This deduction is to be effected on receiving/credit accounts only 1. This deducted amount will be credited to different Government levels like Central (say 0.7%), State (say 0.6%) and Local (say 0.35%) 2. Transacting Bank will also have its share (say 0.35%) in this amount as the bank has a key role to perform

4 Effects We would need to pay very small amount of tax of, may be 2% only! There would be more than enough money with government to spend on developmental activities 1. With this tax as 2 %, part of it, as 0.35 % to be given to the local government body in one of the studies, it is found that revenue for Mumbai municipal corporation, which was Rs.4200 crores, with implementation of this proposal may at least grow to Rs.11,700 crores. As Per Existing Tax System (Ref: Corporation Budget ) Probable Tax Collection Under T.T. System (Conservative number current transaction volume) (@ 0.35 % Share of the Local Body) All figures are In Crores 4, *33,43,000 = 11,700 Cheques worth Rs. ~33,43,000 Crores cleared in Mumbai in the year (Source: Adequate funds for execution of projects of national, global importance will be available. Schemes for social security like Social Security Allowance can be successfully implemented. There will be funds for government funding of the political system at all levels. This will, over a period of time lead to reduction in criminilasitation of politics as well as effective participation of qualified and committed talented individuals. Motives and tools of parallel economy will be removed a simplified taxation system addresses the motivation aspect and removing of high denomination notes takes care of the principal tool! Boosting the Indian banking system, with the increase in banking practices, as well as due to the revenue generated by providing the tax collection service. Enhancing the capital formation process. Capital will be available at cheaper rates. The prices of goods will be freed of the distortions due to the current taxation system. As a result the effective purchasing power of the individual will increase. Product Manufacturing cost Taxes Sales Price Cost of Chinese Product Cement (Per Bag) 80 ~ Transportation & Commissions ~ Motorbike (100 %) Petrol 22.52/lit 27.48/lit 50.0/lit Diesel 21.00/lit 19.00/lit 40.0/lit

5 All figures in Rupees The local industry will be enabled with increase in access to capital and increased purchasing power of people Individuals and organizations will be freed from the national occupational hazard of manipulating the taxation system. We believe that this will shift the focus from manipulation to creation Virtual scarcity of resources will get eliminated due to registration of most of the resources in national economy Creation of positive environment and systems, where merits of following honest and transparent processes will be far greater than accessing the then dwindling parallel economy Environment of abundance, cooperation and sharing instead of the current environment of scarcity, competition, and control. Globalisation is here to stay, MNCs and FIIs with deep pockets dominate the market play. All business, yes everyone, big or small, Must compete to stay afloat in the global mall. No more the option to level the field with government subsidies, (Thank god) It is the end of (second-rate) domestic monopolies. For you and me no more the safety of high interest bank deposits, No social security, rapidly vanishing retirement benefits. And yet, there is an ever expanding tax net, Income, sales, excise, service, direct and indirect. The tragedy is that government coffers are forever empty, Instead there is ever spreading cancer of black money. How can then the common man feel good at all? You and I, search for a miracle, a breakthrough in this breakdown Is there a glimmer of hope in the weary eye? Is there a new dawn rising in the dark sky? Is the future really going to be bright? Much has been talked and tried, There have been many a broken promises, election-time and otherwise, But wait --- A design for an economic miracle is in sight The miracle cure for the ailing country is here From rags to riches --India shall have her rightful place in the Global village. You and I can live an honest, principled, prosperous and peaceful life. There will be a new revolution from a Global market to a home called Earth A true Vasudhaiva Kutumbakam