Threshold subsidy.

"India is moving towards becoming an $8 trillion economy by 2035," but there are "four major hurdles: rising income disparity, low levels of formalization, limited market access and low productivity," reported Nandan Nilekani. "India's productivity is only about $7 per hour, roughly one-tenth of the United States." TOI. Nilekani wants more formalization but investor Shankar Sharma lauds the parallel economy. "I love it. It's fantastic," he said. "It keeps us afloat. It's how India weathers most global economic crises better than others - because the parallel economy does not fall as much as the real economy." BT. A GDP of $8 trillion will take us to third position behind the US and China, higher than Japan, which was $4.20 trillion at current prices in 2023, as well as Germany which was $4.525 trillion in 2023 (World Bank). If our economy is growing gangbusters, why is our government distributing free food grains to 813.5 million people for five years, starting on 1 January 2024 (pib.gov.in)? There are two types of errors in distributing handouts, wrote Swaminathan Aiyar. "Type A errors, represent the leakage of subsidies to the non-poor." while "Type B errors, represent state failure to reach every poor person." Politicians try to reach all the poor, because they constitute the 'vote bank' (wikipedia), but do not mind leakage of subsidies to the non-poor because, "democracy provides a perverse political incentive to maximize the leakage, thus reaching the maximum possible beneficiaries and getting their votes." The new income tax rates for FY 2025-26, promises no tax up to Rs 400,000, rising by 5% for every Rs 400,000 to a maximum of 30% on income above Rs 2.4 million. However, a rebate of Rs 60,000 means that those earning up to Rs 1.2 million do not have to pay any tax. cleartax.in. While "the number of tax returns has more than doubled, from 33.5 million in 2013-14 to 75.4 million in 2023-24," "The number filing zero-income tax returns has more than doubled, from 16.9 million to 47.3 million during the same period," wrote Amitabh Tiwari. This is because the tax threshold at Rs 1.2 million is too high in a country where, the per capita income was Rs 2,12,000 in 2023-24, which amounted to just $2,500, according to the Economic Survey of 2023-24. DD News. So the tax threshold is too high at nearly five times the per capita income. In February, the Supreme Court said that the practice of handouts is creating a "class of parasites". Reuters. Why are taxpayers unconcerned about the misuse of their taxes? Because the high threshold means that most people filing tax returns do not have to pay any income tax, so they do not care. Hence, the high threshold creates a 'zero-tax' vote bank. That's politics. India style.