Friday, April 29

Who's Afraid of Welfare Wolf

I have been off the air a few weeks. Assorted reasons drove my idle state: I can safely say that paucity of time and not lack of noteworthy content would rank high in them. In fact, our national mood has stretched the arc of the pendulum in this hiatus. A cricket World Cup victory transported India to euphoric seventh heaven. The other extremity was equally tested by a sustained corruption soap opera on national news.

Amidst these topsy-turvy madness, a widely anticipated Union Budget went by without unduly worrying history. Two months on, I found it uncommonly difficult to recall its details last Tuesday (with more than relief in the fact that my conversation partner, usually a highly aware specimen of our species, struggled similarly!). The catalyst for our discussion was a BS blog that argued for a tax-stimulated Welfare State in India. To my mind, the post was most instructive: apart from obvious merit in its core logic (an established part of neoclassical economics), the vitriolic reactions (including some regrettably personal ones) it drew was quite telling.

It is not difficult to understand the clamour for lower taxes. Individuals always want to maximize take-home from gross income (economics = limited-means-unlimited-needs etc). India's historical stress on thrift imparts this global truth an additional flavour. This intensity is likely rooted in political subjugation or consequent economic travails of the last few centuries. It may even be related to facts yet older: the relentless onslaught on our land by variously hued invaders; hence subconscious downplay of 'worldly' pursuit and productivity focus instead. In any case, our sociocultural abhorrence of resource waste is singular (consider a humble beverage PET bottle's multi-stage recycling in an average Hindustani household to sample our resource consciousness). Parting with hard-earned income to an ill-performing State is, thus, a tough sell.

On the other hand, if the governance deficit (Government's 'trust factor' must be at all-time low currently, explaining the cynicism that greeted the post) be bridged, then taxes may well not be branded undesirable waste. Therefore the idea of taxes-for-welfare merits exploration beyond academic interest. In specific, State-run European healthcare framework (different from the private sector US model) is worthy of deeper analysis and potential emulation. Also, to one theme in the post's responses, it is over-simplistic to tom-tom tiny city-state successes against practical realities of India's size and complexity. Likewise, we put at risk lessons of GFC 2008 if we continue to pretend that free markets and private initiative are panacea to all the world's problems (in fact the anti-government intervention refrain too may be in reaction to the corruption-inflation-misrule that the current Raisina Hill dispensation has sadly come to symbolize).

Logically, the other question is if resources to pay for welfare can be mobilized without tax rate raises. An obvious opportunity is coverage: using the metric of filed returns, an abysmal 3% Indians pay taxes (vs US's 45%, say). Sadly, fixing this has not been easy historically. Technology (particularly UID and bolt-on's) however may provide a way out in the not-so-distant future. It is worthwhile to build stronger sponsorship for these efforts, including better appreciation of benefits and timelines. Saddling the taxpaying salaried minority with more levies ought to be the last resort in this sense. (You could say that my stance is partially inspired by a monthend routine of agonizing over the payslip!)

In summary, the post provoked some interesting (even if open-ended) chains of thought. At the very least, its advocacy of a Welfare State underscored a key policy shibboleth - inclusive growth. Question is whether those at the helm think economics beyond competitive populism (sample: commitments in the ongoing state elections); and how they win back that precious commodity called public confidence, key to driving larger participation in nation-building. Woh subah kabhi to aayegi...