As India broke from its clichd Hindu rate of growth post 1991, its tax-to-GDP ratio stayed constant, belying those who predicted a spike
The celebrated French economist Thomas Piketty’s recent visit to India caused much consternation for his remarks. He proclaimed that 1) inequality in India is widening, 2) India’s tax-to-gross domestic product (GDP) ratio is abysmally low and 3) the Indian state spends too little on health and education. This sounded like cacophony or harmony to India’s commenting class, depending on one’s ideological fancies. Regardless of one’s views on India’s inequality, it is irrefutable from empirical evidence that India has a “twin deficit" issue in its taxation policy. That is, India taxes its citizens much lower in proportion to its GDP vis-à-vis other comparator economies and a substantive portion of such taxes are collected through largely regressive and distorting indirect rather than direct means.