Create an ecosystem where all can participate in economic growth

M Rajivlochan

Historian

THE ongoing Israel-Hamas war has prompted people to take note of the fact that in the latest World Happiness Report, Israel was placed at number 4, while the Palestinian Authority was ranked 99th. New Zealand, Canada, the USA, the UK and Germany were ranked several places below Israel. Iran was 101st, Pakistan 108th, Sri Lanka 112th and Jordan 123rd, while India was placed 126th, 12th from the bottom; Afghanistan brought up the rear. This report looked at a variety of factors, which included information that was discrete as also that which was based on perceptions. For ranking countries, it factored in tangible data about GDP per capita, availability of social support, health services and intangible data about perceptions of generosity and corruption in society.

In September, PM Narendra Modi’s rebuke of Canadian PM Justin Trudeau over the Khalistan issue was followed by a surge in the usual laments from the all-powerful Anglophonic countries about the rise in inequality in India and the emergence of a class of people who were accused of owning most of the nation’s wealth.

These laments resonate with the very widely held belief that equality is important for a stable society. What the lamenters often forget is that the equality which generates happiness and peace in a society is the equality of opportunity for everyone and fair play. An important underlying component of this happiness is the basic Buddhist principle that no one should harm or be allowed to harm the dignity of anyone else. So then, how should India work towards establishing a more equitable society? Where does the problem lie for Indians that they feel so sad and sorry for themselves?

To understand this, we need to first acknowledge that human beings left to themselves will inevitably end up being unequal in many ways. What India can do, therefore, is to work towards generating an ecosystem where everyone has an opportunity to participate in economic growth; to make a fair living, irrespective of birth or parochial distinctions of caste, class and religion; and have satisfactory access to health, housing and education.

In the past decade, the official claim has been that India has seen major social and economic transformation. It points out that incomes have increased manifold. A key indicator of the rise in incomes is that out of a working population of 520 million, about 63 million now earn enough to pay income tax. The tax base has doubled from 31 million taxpayers in 2012, while there has been an increase in incomes across the board, with incomes of the bottom layers going up faster than of those at the top.

So, who are these people who are paying tax? Are they mostly rich or poor?

The categories ‘rich’ and ‘poor’ are outdated. These categories belong to a time when being poor meant that you could not afford the basic needs of life, to put a roof over the heads of your family or to feed them adequately. That is not the case anymore. Only about 1 per cent of Indians are now so poor as to not have the basic necessities.

At the same time, only 12 per cent of working adults in India are paying taxes. That is because most of the rest do not even earn a minimum of Rs 25,000 per month which will enable them to pay taxes.

Of those who earn enough to be able to pay taxes, some 37.2 million, roughly 60 per cent of the total taxpayers, earn incomes ranging from Rs 37,500 to Rs 4,00,000 per month. They represent some 70 per cent of the total individual income in India. They include teachers, journalists, management professionals, retailers, businessmen, etc. Their expenses, we know, include expenditure on good clothes and the occasional outing, travel by air and watching movies.

In 2012-13, it was people earning less than Rs 37,500 per month who constituted three-fourths of all those who filed income tax returns. Today, those who earn more than Rs 37,500 per month constitute 60 per cent of all taxpayers. The greatest increase has happened in the earnings of those in the income bracket of Rs 45,000 to Rs 80,000 per month.

Those who earned in crores are so few that they do not matter much. In 2012, about 200 people reported earning more than Rs 2 crore per month. They constituted an insignificant 1.21 per cent of the total income reported for the entire country. In 2021, their number had gone up more than four times to 887 people with a share in income of 1.5 per cent. Only 0.2 per cent of their income came from interest and just 0.66 per cent from house property. This indicates that these are self-made people and the money they earn isn’t rental income or inherited wealth. They constitute an infinitesimal proportion of the income earners of India. Taxing them incessantly like we did in the days of our socialist past isn’t going to help accrue monies or make society more equitable, but it certainly will put the brakes on overall wealth creation because it is these high earners who facilitate the creation of many goods and services.

The important point in moving forward is to enable the entire working population to earn enough to be able to pay taxes and lead comfortable, dignified lives.

With a working population of approximately 520 million people, we have 13 times the number in say the UK, and five times that in Japan.

The difference is that in those countries, the majority of the working population earns enough to be able to pay tax to support the creation of services for everyone. A bus driver in the UK, for instance, earns roughly £24,500, which is double the UK income tax exemption limit. A bus driver in Japan earns anything upwards of ¥3 million, which is six times the personal tax exemption limit in that country. A bus driver in India earns about Rs 2,40,000 in a year, which is just below the income tax exemption limit. An Indian bus driver can easily afford a small house. There is also enough food, easily available, for the family. But, access to good schools and reliable medical care is very difficult; access to a satisfactory system of justice is almost impossible; and safety and security of life remains iffy. That makes for dissatisfaction within society, makes people amenable to doomsayers and prone to seeking justice in unjust ways.

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