How More Taxpayers Are Less Revenue Yielding?

How much income is high income and how much low income? This question deserves some cool thinking. At a very conservative level an ordinary citizen needs the following monthly expenditure for a family of 4 (husband+wife+2 kids):

Food               150x4x30=18000

Milk                100×30=3000

Education     2×1000=2000

Health           100×4=400

Clothing          1000

Electricity        2000

Water               1000

Transport          2000 (school bus, commutation to place of work & market)

Entertainment   200

Rent                    15000 (EMI if own flat appx. 30000 on  loan)

Sundry Expenses 1500

Total:        46500

Note: Income Tax and contributions to Provident Fund & Insurance to be added = 15000 per month

So, for bare subsistence level the cost comes to around 61000 per month or 722000 per annum.

This class is called “middle class”. I say it is middle glass, depending on whether to call them poor or rich; low income or high income group. They are poor and shall die poor, unless they play with the law wantonly.

These are people who are in perpetual debt till death and pass on their liabilities to their heir. Their debts arise not from ostentatious consumption but from education loans, healthcare loans, marriage loans, funeral costs, farm loans, parent or sibling support costs and similar other inescapable expenses.

India is a country of shared poverty: we live in poverty, support each other in poverty and try to make the best out of a stressed socio-economic situation.

Unless they are allowed to break from this vicious circle of poverty, the country will continue to be called poor.

Unless the people up to this class are allowed higher disposable income, not much change at micro level is going to take place even if the stats throw up higher growth and income rates.

In comparison to this segment, the really rich in India do not comprise more than 10 to 15% people. The sheer addition to the consumption levels of these 85-90% people alone can catalyze the Indian economy to unimagined levels of growth.

It has the potential to enhance expenditure, savings and investment leading to higher and better quality products and services.

More than anything else, it is the only way to promote research and development.

We have failed to notice our own potential, distracted as we are by the ideas of the developed countries. We have always been great learners from wherever we could gain knowledge. At the same time we generated valuable knowledge in diverse fields of our own. Our model of prosperity is bound to be distinct from theirs: they have enriched themselves through colonialism; we have never colonized any other country for enriching ourselves at their cost. Historically, we had practiced international trade and derived the most out of commerce. We are a richly endowed country of enterprising and hard working people. We can reach the top even now, only if our budget philosophy changes according to these needs.

It is a sign of a weak economy if incomes keep chasing expenditures as illustrated above. People should be encouraged to produce more and consume more in the interest of contribution to the growth of the economy. People in the middle of the rich and poor should be encouraged to take to entrepreneurship, which is considered better than salaried jobs. They should be left with respectable surplus to think of investing and taking risk  for improved living standards rather than taking to unlawful means for accrual to incomes. The budget needs to take these aspects into account and raise substantially the personal income tax exemption limit to 15,00,000 rupees.

The cost of lower exemption compares poorly with the higher slab on revenue scale. The revenue accruing to the government on incomes above 15,00,000 will be more than the expenditure on maintaining a huge bureaucracy just to process the millions of tax returns from individuals paying nothing more than a few hundred rupees. The expenditure on their files, storage, handling, correspondence and workforce will be many times more than the total revenue earned. But if the middle glass turns genuinely middle class, their consumption as also enterprises will yield more revenues. We are too far away from self-reliance even though we have demographic, technical, knowledge, entrepreneurship, capital, land, water and natural resources advantage.

Food for thought!

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