This is a very difficult question - it will be like putting an elephant in a small container. When we see an economy from a larger perspective, it depends on what angle we see. I am not sure I will be able to do justice to your question simply because the spectrum is very wide. Let me borrow from one of my recent answers on Indian economics. I personally feel that the current finance ministry and the economic think tank have completely failed to see the larger picture or they are fully incompetent. I do not see any cohesive policy. In fact, I have not seen anything that could mean that they have a policy or system in place to take the economy ahead. I find them absolutely clueless. What they are doing is some hop & jump action which is in no way connected to a larger goal.
Now how do you measure the performance of the economy? It could be the growth of GDP, growth of tax revenue (without increasing tax rate or expanding tax net to newer areas), growth of employment opportunities or reduction of unemployment, growth of export, reduction in imports or to say favorable trade balance, reduction of fiscal deficit, reduction of debt to GDP ratio as well as reduction of debt in absolute volume, a favorable balance of payment or no CAD, appreciation of the rupee, reduction in debt servicing cost, increase in per capita income in absolute term as well as in relative term, reduction of NPA, improvement in ranking in Global Hunger Index. etc.
However, if we see the performance of the current dispensation over the last eight and half years we do not see any improvement in any of these parameters other than the claims by the government that our GDP has grown tremendously. Quite often we hear that India has become 5th largest economy and 4th largest economy. I do not buy such claims - where is the manifestation? Is it commensurate with other parameters? When we say that our economy is growing, then other things should also grow. But are we growing on other parameters of the economy? You take up any parameter from the above list and tell me if we are growing. Forget about growing, we are de-growing or hugely negative in each of the parameters.
We are selling our public assets, and we have cut down public sector employment from what it was in 2013. What is shocking is that our private sector employment size has gone down not only in terms of percentage but also in absolute volume. India is going through the worst-ever unemployment crisis, and this was so even before Corona. What I am most concerned about is the overall directionless. People may say that tax revenue collection has grown tremendously. Let us check the facts. Following is the picture of the revenue collection of GOI in 2021–22 FY.
India government’s indirect tax revenue collection was Rs. 4.41 lakh crore for the FY 2013–14 which has been taken to 12.90 lakh crores, a 300% increase, 192% increase from the base. In 2014 India’s per capita earnings were US $1574 which reached US $2277 in 2021, a meager increase of 44%. The direct tax collection for 2013-14 has been Rs 6.33 lakh crore, which was 14.10 lakh crore in 2021, a 122% increase. This signifies two things. First - the citizens have been squeezed more to increase tax revenue because the increase in tax revenue doesn’t commensurate with the growth in per capita income. Secondly - the common people have been squeezed more since the growth percentage in indirect tax is much higher that the growth percentage of direct tax collection 192% against 122%. Additionally, point to be noted that the government has brought indirect tax collection almost to the point of direct tax collection.
So we can not say that the growth in tax revenue has been propelled by the growth of the economy or the growth in per capita income. Tax collection has been increased from 10.74 lakh crores to 27 lakh crores which is a mammoth 151% increase as against a 44% increase in per capita income. This high taxation together with the high price rise has crippled the economy. Our purchasing power has been eaten up. Our savings have been eaten up as well as brought down which has a huge negative impact on capital formation. When you suck out so much money every year where is the purchasing power left?
This lack of purchasing power is pulling down the demand generation, which in turn pulling down industrial/manufacturing output and employment. In such a situation, the government will be forced to increase the tax rate and expand the tax net to newer areas - like taxes on insurance, GST on the hospital bed, ICU charges, bank Cheque book, etc. are some examples. Here I have only spoken about the increase in the tax revenue collection by the government. The public is being looted with the extraction of other kinds of taxes as well - toll tax, hefty fines for not maintaining minimum balance in the bank accounts, and multiple withdrawals from ATMs. Earlier withdrawal through Cheque or withdrawal slip was not taxable. Further, the interest rate on deposits has gone down.
I am not against the increase in tax revenue. But it should not destroy the purchasing of the economy. Then it becomes counterproductive. The economy can not grow in the true sense if the purchasing power and saving creation are systematically killed/destroyed. I would have been happy if the tax collection would have increased at par with the increase in per capita income. However unfortunately that is not the case and we are becoming a pauper under the tax burden. Poor are becoming poorer. You can not play with the market forces and expect the economy to boom. I have already said that taxation is a leakage in the circular flow of income. With the increase in taxation, we are having lesser & lesser money for consumption and saving. This will definitely result in a fall in demand for goods and services, which in turn will pull down manufacturing, and industrial output and reduce employment. Now you know why more and more industrial houses are facing bankruptcy and why NPA increasing. The total bad loans written off in the last eight years stand at Rs 10.83 lakh crore. Only in the last five years, banks have written off bad loans worth 10 lakh crores. But despite that NPA is hovering around 8 lakh crores. These are all connected economic indicators - not happening in isolation.
I have indicated economic parameters like - “growth of employment opportunities or reduction of unemployment, growth of export, reduction in imports or to say favorable trade balance, reduction of fiscal deficit, reduction of debt to GDP ratio as well as reduction of debt in absolute volume, a favorable balance of payment or no CAD, appreciation of the rupee, reduction in debt servicing cost, increase in per capita income in an absolute term as well as in relative term, reduction of NPA, improvement in ranking in Global Hunger Index. etc.” These are the parameters that any nation would look for. Let me highlight the quantum of tax Indians have to pay…
Do you know how much tax an individual is required to pay in India - 1. Income tax highest slab - 30%. 2. Taxes applicable on fuel is more than 200% of the base price (details shared below). 3. GST applicable on health care and insurance is 18%. 4. GST applicable on most day-to-day consumed commodities - 18%. 5. GST applicable on upper-end cars is 28% + 22% Cess + GST on insurance 18%+ Road Tax 18% ( Total 86% tax from your tax paid earnings, the bank loan interest is additional). 6. GST on luxury hotel accommodation is 28%. 7. Entertainment Tax -30 % tax is levied on movie tickets, depending on the state. 8. Capital gain tax 30%. 9. GST & Stamp duty on property - 5% GST + 6% Stamp duty. 10. 18% GST on rental earnings. 11. Taxes applicable on Liquor - high Excise duty & VAT.
Delhi government imposed a 70% special Corona fee on Liquor sales, which now stands withdrawn however VAT increased to 25%. Custom duty applicable on imported liquor is as high as 150%. At present, over and above the customs duty of 100% on wines and 150% on spirits, India applies an additional duty ranging from 20% to 75% on wines and 25% to 150% on spirits. The total tax component (Centre and state in Delhi) is ₹49.42 on petrol and ₹48.09 on diesel. The middle class has to pay everything from private schooling, and hospital expenditures to toll tax for traveling by road, and ATM withdrawal charges. Now we have to pay GST on the hospital bed and ICU charge, Cheque book. There is no free facility for the middle class, even though they are made to pay the highest tax. Does anybody feel that the rate of taxation is low in India? The middle class is being looted and the purchasing power of the middle class is being thoroughly and systematically destroyed. Whereas the middle class is the backbone of any economy so far as demand generation is concerned.
Somebody pointed out that “Better tax compliance can also be a reason for better tax” collection. Now let me ask how many of us are ready to believe that 300% growth in indirect tax collection is possible through better tax compliance. Is the imposition of GST on hospital beds, ICU charges, Cheque book, health insurance, etc. examples of better tax compliance? Is increasing GST rate, and imposition of GST on Agricultural products examples of better tax compliance? I believe only a fool can give such arguments.
Central excise duties on petroleum products accounted for nearly a fifth of India’s Rs 20 lakh crore gross tax revenue in FY21. In FY20, this number had stood at 11%; in FY15 it had been 8%.
In 2013-14 FY Manmohan Singh government collected excise duty of only 47 thousand crores as against 3.9 lakh crores collected by the Modi government in 2020-21. The ED collection of the Modi government is more than 800% higher. What would you say it - tax compliance or extortion?
Someone argued that the 151% increase in tax collection also includes inflation which I have conveniently omitted. Now you tell me whether inflation could be a major reason for such a high increase in tax collection, where Tax collection has been increased from 10.74 lakh crores to 27 lakh crores. Are we all fools to accept such arguments? While all these years BJP government has claimed that it has brought down the inflation rate drastically. But here we are getting the opposite claim that tax collection has increased because of inflation. People forget that inflation happens in per capita income as well. So the effect of inflation is neutralized.
Somebody has pointed out that NPA has reduced, Yes it has reduced, but how? Only by writing off, not otherwise. Please check the total amount of total write-offs during the UPA regime. During 10 years of the UPA regime, bad debt amounting to 2.20 lakh crores was written off. Modi government has written off five times that amount. Only in the last five years, banks have written off bad loans worth 10 lakh crores but even then NPA is hovering around 8 lakh crores What is peculiar is that the Modi government has written off the debt of the economic fugitive. Under the Modi government's advice RBI has written off Rs.62000 Cr loans of the top 100 willful defaulters. BJP has taken hefty donations of 20 Cr from real estate farms that declared bankruptcy -DHFL.
Somebody commented that the NPA is the creation of the UPA government. This is an utter lie and false notion. Had it been the creation of the UPA government, The Modi government should have published a White Paper disclosing all the datils. However, Modi government has never published an authoritative written statement on it. All the allegations are verbal outside the parliament, mostly during election rallies. If it had to true why every year new NPA is being created? Mudra NPAs - Bad loans in FY21 jumped 30% in value; nearly doubled from FY19. Mudra loan has been started by Modi Ji in 2015. The value of gross non-performing assets (NPAs) or bad loans under the Pradhan Mantri Mudra Yojana (PMMY) had increased to Rs 34,090.34 crore during the financial year 2020-21, up 30.7 per cent from Rs 26,078.43 crore in FY20, and nearly doubled from Rs 17,712.63 crore in FY19. Importantly, the Mudra NPA ratio in the outstanding loans was 11.98 per cent as of March 31, 2021,
The same story waits for education loans as well. NPAs for education loans stood at 7.61% in FY20, 8.29% in FY19, and 8.11% in the year ended 31 March 2018, according to to finance ministry data. Nearly 9.55% of education loans extended by public sector banks were categorized as non-performing assets (NPA) as of 31 December, the Union government informed Parliament. I am speaking about the retail loan NPA just to highlight that it is so because of reduced paying capacity.
The liquidity in the market has gone down drastically. Retail loan NPA is the proof. The below picture shows that sector-wise NPA share is fairly distributed. It is not that NPA is only in the industry sector which could have been influenced by the government in power. It is possible that there was political influence in sanctioning industrial loans. But that is happening even today. Adani, despite being Asia’s 2nd worst debtor has been able to get loans worth 34000 crores from SBI in 2022. If you see the NPA of the Mudra loan and the Education loan, together they are hovering around 11% which was exactly the percentage of the total NPA before the write-off. So there is no truth that the entire NPA was created by the UPA government. Ask them why fresh NPA happening still today.
As per a report, fresh NPA worth 2.6 lakhs crores was generated in a single year FY 2021. And in 2020 FY NPA worth 3.7 lakh crores were generated. While the BJP government inherited a total NPA worth 2.24 lakh crores in 2014. Now it is creating a much higher NPA in a single year.
Then somebody commented that poverty has declined in India. How many of us believe that statement? The repeated drop in India’s ranking in the Global hunger Index speaks a different story altogether. Following is a cut out from the government’s own report speaking the unpleasant report. It’s a little old, but there is no reason for the improvement in the picture particularly in light of the Covid pandemic where the economy saw a massive contraction.
People could have argued that the government is spending the tax revenue for the betterment of the nation only. But nobody raised that point. I was expecting that point to come.
Following is a comparison of the top 11 Billionaires in 2020 & 2014. The asset value of the top 11 billionaires has gone up only by $5.00 Billion, in spite of Mukesh Ambani growing by 283% whereas the economy has grown by around $1.00 Trillion or by around 50% in the last five years as claimed by Modi Government. If we consider the latest position, the picture will be much more skewed because Adani has made maximum gain over the last two years. Adani is now worth around Rs 10.94 lakh crore while Ambani's fortune is estimated at Rs 7.95 lakh crore. As a result, Adani is now richer by Rs 3 lakh crore as compared to his closest rival
Instead of growing, you can see, most Billionaires lost their asset value over the last six years. Azim Premji has lost almost 2/3 of his asset, Lakshmi Mittal has lost half of his wealth, and Dilip Shanghvi has lost 2/3 of his wealth. Amidst most billionaires losing their money, it’s eye-catching to note Mukesh Ambani’s spectacular growth.
No, I am not concerned about Adani & Ambani’s growth. What I wanted to point out is the inequality in the distribution of wealth even among billionaires. If Adani and Ambani becoming ultra-super-rich would have solved any of India’s economic problems, I wouldn’t have raised their name. But it is not so. The entire wealth is getting accumulated in only a handful few and the economy withering that is where my problem. In a nation whose ranking in the per capita income in the world is 142, there someone becomes the 2nd-3rd richest person in the world. That too when the size of the economy is one-tenth of the world’s biggest economy. That is the biggest proof of inequality of income.
Look at Adani and Ambani’s contribution to the economy. Apple's annual revenue for 2021 was $365.817 B, Sixty percent of Apple's revenue comes from international business. This means roughly around $ 222 B came from international business. Roughly around 50% of Microsoft's revenue comes from international business. Reliance’s international revenue is around $27 B contributing only 8% of India’s merchandise export. While Reliance imported about 1.4 million barrels of oil per day in May. Even if we consider that the entire import is from Russia (which is not) at $78 per barrel, its annual oil import bill would be around $ 40 B. So it is a net negative foreign exchange earner. Adani is a net foreign exchange consumer. In comparison, TCS earned a revenue of $25.7 billion in FY 2021-22 only from the US market. And this is mostly net foreign exchange earnings. Plus TCS contributes hugely to remittance earnings for India. In the fiscal year 2021, the global revenue of Infosys Limited amounted to about 13.56 billion U.S. dollars. TCS ranks the biggest private-sector employees in India and 4th in the overall ranking with 5.9lakh employees. Reliance comes at No.10 with 2.36 lakh employees. Adani doesn’t even come in the top twenty list. But he is the richest man in India. Now the question comes - does Adani being the richest man help India or do we need more like Tata (even in a very capitalist sense)?
I have written this answer purely on the economics platform. Let me highlight only one indicator of the economy - the debt servicing cost. Interest payments are budgeted to consume over 45% of the Centre's revenue receipts in FY22, against 36.4% in FY12. For the current FY, the interest payment expenditure is estimated at Rs 9,40,651 crore. This was 3.7 lakh crores for 2013–14. In fact, the amount of 9.4 lakh crores interest payment actually would have been much higher around 15 lakh crores, if the interest rate had been as high as it was in 2012. By 2024, the interest payment would possibly consume 50% of our revenue receipt looking into the steep rate of high borrowing. This will leave very little money for developmental activities. And if the borrowing trend continues like this by 2030, debt servicing costs will possibly consume 75% of our revenue receipt. Which will be catastrophic.
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