You can have taxes or growth, not both.

The divergence in inflation figures continues to create confusion. The Wholesale Price Index fell by 3.8% in October, which is 12 straight months of decline, while the Consumer Price Index rose by 5%, up from 4.41% in September. Wholesale prices fell by 5.06% in August and 4.54% in September, so there has been a slight firming of prices. Why is there such gap between the 2 indices? Because they measure different baskets of consumption. The wholesale index measures commodity prices, which have been falling, especially oil, and factory prices of manufactured goods, which have been falling due to a combination of lower input costs and low demand. This has set up a howl for lower interest rates, which will supposedly increase demand by making borrowing cheaper. The main constituent of retail prices are food at 46%, housing at 10% and services, such as healthcare, education and recreation. Nobody pays for food, medicines, rent or children's education on borrowed money, so if most of the earnings of people is spent on basic necessities they will be unable to spend on durable goods, such as televisions and fridges. This applies especially to the poor who spend a far greater proportion on their earnings on food and need much more calories to make up for physical labor. This is clearly shown in the Index of Industrial Production which came in below expectation at 3.6% in September. What is important is that production of durable goods have gone up by 7.6% but non-durable goods, which are items of daily use, such as toothpaste and detergents, have fallen by 0.9%. Personal loans from banks at the end of September grew by 18%, compared to last year, loans for consumer durables grew by 12.7%, for vehicles by 16.3% and credit cards outstanding grew by 22.2%. This is because the RBI has reduced interest rate by 125 basis points since the beginning of this year, from 8 to 6.75%, making it easier for the well off to borrow, while the poor are being squeezed by rising prices. We have written repeatedly that low interest rates help the rich to accumulate assets while hurting those who depend on their savings. A large part of rising prices is due to taxes. Not content with levying value added tax and service tax the government adds surreptitious taxes in the form of surcharge, cess and special duties, which constitute 18.6% of tax revenues, up from 7.8% in 1998-99. There is a special levy on education in addition to the extra fees being paid by the middle class for the 25% of seats reserved for the poor under the Right to Education Act, passed by the Congress. Naturally, school fees in Delhi have tripled in just 7 years. Increasing taxes to pay for handouts is not going to increase demand. Subsidies must be targeted to not having children. That will increase disposable income, increase demand and increase tax collection, without the need for sly levies. Sadly, politicians do not like the truth.