Tuesday, September 27, 2016

How do you separate the rich from the poor?

Prof Pranab Bardhan form Berkeley, in California, writes that subsidies for the rich should be replaced by a Universal Basic Income, or UBI of about Rs 10,000 per person per year. According to an Economic Survey the rich get subsidies worth Rs 1 trillion every year. According to this survey the bottom 30% of the population is poor and the rest 70% is rich. That is just so much rubbish that it is hard to believe that even professors of economics actually take it seriously. Another study, based on figures for 2011, shows that 19.8% of people in India earn less than $2 a day, the vast majority of 76.9% are in the low income group, earning $2-10 per day, 2.6% are in the middle income group of $10-20 per day, 0.6% earn $20-50 per day and the rich are only 0.1% at over $50 per day. So, a huge 96.7% of the population earn less than $10 per day which converts to Rs 21,000 a month. With current prices no family can survive on such a paltry sum. What are the subsidies being enjoyed by the rich? The rich apparently corner 98% of subsidy on diesel. The price of diesel is around Rs 51 per liter and the price of petrol in India is around Rs 63 per liter. The price of diesel in the US is $2.38 per US gallon, which is around Rs 43 per liter, and the price of petrol is $2.22, which is around Rs 40 per liter. Why are prices so high in India despite a fall in the price of crude? Because the government increased the excise duty on fuel. Even when crude prices were above $100 per barrel and we were being 'pampered' with subsidies the government was earning more from taxes and dividends than it was spending. Why not raise the price of diesel to the same level as petrol? That will stop people buying diesel cars. Because all of our fresh food moves on trucks and raising the price of diesel will increase retail inflation, which will prevent the Reserve Bank from lowering interest rate. Air tickets have a large number of extra charges which add 50% to the base fare. Taxes on aircraft fuel are levied by states and can go up to 30%. The government is keen to develop regional airports, to stimulate business. If first class passengers shift to flying what happens to Indian Railways? Will it be a 2 tier system where the rich travel by high speed trains at higher prices while the unwashed pay less for slower travel? It is the ordinary people who buy gold as a hedge against inflation, the rich invest in real estate. If interest rate is low the poor get less on their money while the rich buy land by borrowing cheaply. You cannot buy real estate for Rs 50,000 but you can buy 15 grams of gold, so increasing taxes on gold is a bonanza for smugglers. Politicians are handcuffed to subsidies to win elections and the rich benefit. Giving Rs 10,000 per year will not change the system.

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