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In every political system, that is the percentage of wealth ownership. It could be a few percenntage points here and there. But neither democracy, nor communism or any other form of govt has been able to find solution to it. Things begin to hurt when there's no growth in wealth
India's current problem is decelerarion in growth. That happened because govt stopped wealth creation for the bottom 60% through farm product price control and demonetization. GST ate into the margins of informal sector aggravating the situation.
If Bottom 60% makes wealth, the top 10% becomes wealthier because it owns the means of production and financial institutions. The other 30% earns more money through distribution and services. This is the natural structure of societies since industrial revolution).
India's problem began when few economists sold the idea that bottom 60% are living off subsidies and other 30% aren't paying taxes. So, instead of investing in means of production, we began to squeez the 90% and created a false narrative of consumption based economy.
I understand the need to sell false narrative on Indian exonomy by stock brokers with short term goals but what surprises is the misselling by economists. Only ideological leaning and political patronage can explain such behaviour. And now, we are headed towards Mid-income trap
Now, the same economists who claimed thst GST will add upto 2% to India's growth rate are changing the goal post to save their tarnished image. Now they beat around the bush and say that India hasn't done structural reforms. Can anyone explain what structural reforms are?
Structural reforms mean disinvestment and C-Tax cut ( already done). But in an economy where companies don't have cash flows to service their debt, how can disinvestment targets be met?
If corporates had money to buy new assets, wouldn't they first go for distressed assets first?
If there were enough money in Indian markets, why would India struggle to auction 5G spectrum?
Corporates have no money even for assets/technology that will push growth, forget buying PSUs. That's why, even the C-tax cut is not going to help unless we address demand side problem.
A better structural reform would be implementation of the model APMC act that promots t participation of private sector in agriculture. The centre govt must implement it by telling all states to implement it in letter and spirit within a set deadline of not more than 6 months.
Since the party in power at centre holds power in most states, this should not be a problem. Chief ministers failint to comply should be punished by the party high command. This reform alone can be a game changer, but nobody talks abt it.
Other reforms include nudging companies to invest in R&D and work on increasing patents. C-Tax cuts should have been provided to only those who create value for economy by patenting new technologies in a competitive global market. Alas, incentive of C-Tax cut wasted in one go.
And last but not least, I would reiterate my claim that the biggest structural reform would be to roll-back GST as it's not suited for a diverse, large and semi-modern economy like India. It goes against federalism by killing competition within states by centralizing power to tax
#GST has added to cost of doing business for informal sector. This cost is the difference between profits and shutting down. SMEs are important for Indian economy for creating jobs. This is good enough reason to have them running even if they don't contribute much to tax kitty.
GST was projected as a tool that will modernise Indian economy. But modernisation requires transformation of the existing structures and not annihilation. GST has annihilated India's informal sector, leading to jobs' crisis, which has affected consumption story of India.
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