Three goals and a super regulator

Three goals and a super regulator

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The failure of the pipeline to funnel tax-payer money to where it should go is the reason that most tax-payers remain hugely cynical about the budget. The average comment I heard before this Budget still hovered around the expectation of higher taxes. This is misplaced because income tax rates have been going down for the last few years and India has a fairly low average income tax rate at various tax slabs. This Budget is also a step in the same direction of lower income taxes, with the slabs widening so that the top income tax rate now applies at Rs8 lakh, up from Rs5 lakh in the current year. The deduction is up by Rs20,000 and now you can invest up to Rs1.2 lakh. This gets us to an average tax rate for a Rs5 lakh-a- year household at just 5%. A Rs10 lakh household pays an average rate of 12%, Rs20 lakh pays an average of 21%. Not high by global standards at all.

Also Read Monika Halan’s earlier columns

Rather than worry about the direct taxes, we need to remember that direct taxes account for just about 8% of the total expenditure of the Central government each year. Indirect taxes, which we all pay, account for a huge 48%. With the excise duty cuts getting rolled back, we need to look at paying out more across the board on the goods we buy. An even more silent worry is that 30% of government expenditure comes from the borrowing programme. It hurts us as entrepreneurs as we find funds priced out of our reach as the government sucks out the huge pools of money that the households put away each year. We suffer as consumers since the deficit causes prices to go up— inflation is said to be the cruellest tax in the world—it hurts the most vulnerable, the poor and the old. Which brings the discussion back to the pipeline. Unless it is fixed, not only will we fritter away the growth advantage, but will cause the resentment in the minds of the tax-payers to fester.

End Note.

I can’t end this column without applauding the setting up of a sort of a super regulator in the form of the Financial Stability and Development Council (FSDC). Its stated aim to “monitor macro prudential supervision of the economy" means in English that it will be the super regulator that has been in public debate for so long. It will monitor the functioning of large financial conglomerates. This means in English that another instance of a large universal bank coming near the brink will be sought to be avoided. Third, it will iron out wrinkles among various regulators. With the spat between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority coming out into the open, this comes at a good time to address contentious turf issues. And last, FSDC will also be responsible for a coordinated look at financial literacy and financial inclusion. The yet to be tabled Swarup committee report has recommendations in both these areas and maybe will see the light of the day.

Monika Halan is Consulting Edito rof Mint

monika.h@livemint.com

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