The taxes we pay.

The Reserve Bank of India wants the government to balance its books by cutting expenditure instead of by raising taxes, as it has done. TOI, 2 November. The Governor of the RBI, D Subbarao said," All of us - not just RBI, but all stakeholders in the macroeconomic management - are concerned about quantum of fiscal adjustment and also the quality of fiscal adjustment. International experience shows that fiscal adjustment that comes from expenditure compression is more sustainable than one that comes from tax increases. In our own country, we achieved consolidation in pre-crisis period largely due to tax increases. It will be worth our while to focus on expenditure compression to manage credible and sustainable fiscal consolidation on our way forward." What the Governor is saying is that tax increases are bad for the economy. Last year exports were just above $300 billion and imports were $485 billion with a trade deficit of $185 billion. Thus our economy is not dependent on exports to other countries but on internal consumption and extortionate taxes hurt the economy by reducing consumption. A European or an American earning the same amount of money as an Indian appears to be much richer and is able to spend much more. The reason is that they are assured of government services for the taxes they pay. There is social security, state pension on retirement and assisted healthcare for all, but in India the politicians have segmented the population into various groups based on religion, caste, urban or rural address and perceived poverty depending on profession. Thus a Hindu of higher caste earning a salary of Rs 25000 a month will receive no aid even if he is in real hardship having to look after aged parents and a sick brother. Indians are reluctant to spend, electing to save over 30% of income for emergencies and retirement. The stock market is highly manipulated so most Indians tend to shun that. Property prices are doubling every 3 years and rent is an absolute waste of money. Indians put their money in fixed deposits in banks but since the rate of inflation is higher than the rate of interest on deposits most Indians are getting poorer everyday. The freeloading press gloats over the high savings rate because this gives banks cheap funds to lend but, with a poor industrial base, banks have few avenues for useful lending. A few years back banks were enthusiastic lenders to infrastructure companies. No more. All such companies are running huge losses as Indians are unable to pay for expensive power and high tolls on roads. That is why banks have been lending to property construction companies but property prices are so high only those with enormous black money can afford to buy properties. The RBI is asking the politicians to stop wasting taxpayer money and reduce taxes to stimulate spending which will stimulate industry and genuine growth. Politicians want to throw money to win elections which will give them the power to loot. Why else are they in politics?