Indian Economy News & Discussion - Aug 26 2015

amit · Post by **amit** » 28 Aug 2015 06:25

Theo_Fidel wrote:GDP should always be looked as a time series. We won't know the import of today's GDP until several years in the future. So whats the point of discussing it now. Even the final word on UPA2 is probably too early to make final judgements on though obviously many projects were hanging in limbo and ran into trouble during UPA2.

That's true from a pure economic perspective. But investment decisions and pure raw sentiment that drives things like FDI inflows and stock market fluctuations put more weightage on current GDP data than on the time series. So in that respect GDP growth numbers year on year does have an intrinsic value.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 07:03

amit wrote:Apologies for using both color and bold. But this upping of the number from 12.9% to 17.3% is hugely important.

Even this number is incorrect as construction is still not included under manufacturing as the rest of the world does. Which would add 9%+- so closer to 26%...

amit wrote:But investment decisions and pure raw sentiment that drives things like FDI inflows and stock market fluctuations put more weightage on current GDP data than on the time series.

No. As Somnath said the investment folks look at all the data including the short series data. I don't think just one number matters to them as it should not. Did you read what the POSCO fellows had to say that I posted.

Why argue about this number when in a few more cycles we will have a clearer picture. Give it time to work out. Just now USA revised its first and second quarter GDP data dramatically and actually revised all the way back to 2011! So only now is a clear picture emerging of 2011!

amit · Post by **amit** » 28 Aug 2015 07:22

Theo_Fidel wrote:
amit wrote:Apologies for using both color and bold. But this upping of the number from 12.9% to 17.3% is hugely important.
Even this number is incorrect as construction is still not included under manufacturing as the rest of the world does. Which would add 9%+- so closer to 26%...

Hmm 26 per cent is a pretty healthy number. But the question is do the employment numbers match this? I don't think so as a vast majority of Indians work in the informal services sector. Which would mean manufacturing should have an upside in terms of employability. However, the flip side is the question as to whether a Foxconn type of unit with thousands and thousands of employees is even feasible in India, given labor laws as they are - designed to protect 4 per cent of the organised labor to the detriment of the 96 per cent of unorganized non unionzed labor?

gakakkad · Post by **gakakkad** » 28 Aug 2015 07:25

since economic activity is measured on a relative scale , every country revises data periodically ... You have Kelvin for temperature , metre for light , cd for brightness etc...but you have nothing absolute for the cost of an icecream... 100 m distance in 1990 was 100m in 2015...500 cd of brightness was 500 cd always...but a cost of icecream in 1990 was not the same in 2014 , in nominal terms...there were many measurement variables...inflation had to be adjusted ..so did currency fluctuations...which in itself are not an exact quantity...

so it is not surprising ...

doubting the economic data of the GOI is a politically motivated activity.. I d trust the government figures far more than some 2 bit road side analist , many of whom have not even studied , math or statistics ever in their life and write articles by merely playing words...

gakakkad · Post by **gakakkad** » 28 Aug 2015 07:31

Amit , as we already know , our employment data is obviously not reliable...most people work in the informal sector...

other problem is the huge number of people who are unemployed in a disguised manner..

there is something you guys (specially theo , suraj and you) can think of ...how about neo- urbanization as a surrogate marker for employment generation...it is well known that a lot of people in villages work non productively in villages...since they lead a meager life , most would migrate to urban industrial setups for better opportunities...could a correlation be draw between urbanization of that sort and job growth ?

NRao · Post by **NRao** » 28 Aug 2015 08:11

as we already know , our employment data is obviously not reliable...most people work in the informal sector...

I do not believe that statement to be true. India has always had reliable numbers, but, they have always been relatively old. As in 5 years old. So from a decision making piv they are meaningless.

somnath · Post by **somnath** » 28 Aug 2015 08:16

deleted by admin

gakakkad · Post by **gakakkad** » 28 Aug 2015 08:29

>>While growth rates of recent years have been dramatically jacked up, there has been no material change in the size of the economy. So we were 2 trillion last year at 4.5% old growth, we are 2 trillion at 7.4% as well!

caution while using words like "jaked up"...

and GOI measure nominal GDP in INR and not USD...

Even if you measure in USD , it was 1.85 T las year and 2.05 t this year...

In INR at 2005 base prices it was it was 26687 billion INR last year and 28742 billion inr jan this year....

so it has not remained static...

unless your theory is that jacking up data influences exchange rate..

Arjun · Post by **Arjun** » 28 Aug 2015 08:35

somnath wrote:By that logic the Hindu growth rate of 3.5 can well be 5.5!

Back to some of your old bad habits are we ? Your stay here will be short if this kind of willful trolling continues.

Arjun · Post by **Arjun** » 28 Aug 2015 08:45

somnath wrote:
Arjun wrote:If we go by the latest numbers, the growth rate over last 5 years is as follows: 10.3 6.6 5.1 6.9 7.4
These are actually outstanding numbers, if true. Across multiple global crises (European credit, Fed taper tantrum) to average close to 7% (and the lowest of 5.1% ) is very good going. There should be very little to complain about UPA!

But it didnt "feel" that good, did it? Neither corporates, nor individuals, for that matter investors - no one felt we are doing so well. Something gives?

Most of the growth seems to be on account of the subsistence population that is pouring into the cities from villages and in the unorganized sector. Which is why the 5% rate of two years back felt practically like a recession for the rest of the country.

In which case, even 7% is barely above recession level but the trend is upwards. The good news is that our actual potential when the country gets its act together is actually 10%+.

amit · Post by **amit** » 28 Aug 2015 08:55

somnath wrote:There is a reason why most analysts - many of them not "roadside" but with solid cress, view the data with scepticism. TCA Ananth himself points out one such reason.

"Otherwise, it is like comparing apple to oranges. It is entirely possible that 5% growth rate in the old series is qualitatively in the same ballpark as 6.5% or 7% in the new series. It is possible. I don't know," he said at the Data Users' Conference attended by several economists and experts. "...the new series of national accounts reflects or represents a series which is structurally very different from the past
For an economist statistician to say this is astounding! So 5 is the same as 7!!! By that logic the Hindu growth rate of 3.5 can well be 5.5! Therefore tomorrow if growth touches 10, we should consider it only as 8!
A friend of mine, classmate of TCA had described him as Totally Confused Ananth at a lighter vein,some truth to that!

Anyhow, this is not the first time macro data series are being rebased in India. We have done them many dozens of times. But as any analyst will say , all data should pass some essential smell tests - this one doesn't. The biggest of them is simply this. While growth rates of recent years have been dramatically jacked up, there has been no material change in the size of the economy. So we were 2 trillion last year at 4.5% old growth, we are 2 trillion at 7.4% as well!

Sorry Somnath,

I expected better from you. TC Ananth is not some roadside "analyst" if he is, then so is Ruchir Sharma. You seem to have forgotten the context of what he said and when he said it. This was in April when the confusion was at its height. He was trying to find a rational explanation when asked a direct question by journalists. Perhaps you dislike the fact that he de-jargonised his explanation to make it easy to understand. You also quite conveniently overlook the I do not know part in his quote!

Sen Babu has clarified the confusion that Ananth was talking about. I don't know why you hold on to the belief that the actual report will be at variance to what the National Statistical Commission Chairman is saying. Is he also some "roadside" analyst whose views shouldn't be taken too seriously?

The other interesting point that I have found in various reports put out by the usual sites like Economist, NYT, WaPo etc when they reported on the GDP numbers with their usual disbelief and scepticism couched in pucca Inglish dripping in mockery was that they talked about the change in base year but none of them talked about the change from factor to market prices in calculation. It's interesting that you are also ignoring the elephant in the room. Why? Do you think that it has a marginal to insignificant effect on GDP calculation? I would say the "smell test" doesn't work in this discrete case because as TC Ananth says we are comparing apples to oranges. The IIP data which showed up the low 2.6% number was based on factor prices and that was being compared with a GDP growth rate calculated on the basis of market prices!

somnath · Post by **somnath** » 28 Aug 2015 09:13

Amit

I wasn't referring to TCA as a roadside analyst, I was responding to someone else who described everyone questioning govt numbers as "roadside".

Anyways, as I said, I don't doubt that a good explanation would be given - we have very good people in statistics and econ. But the questions won't go away till the maths add up. And simplification of narrative doesn't Mean that we forget basic import of what technical statements mean!

As you can see, the last qtr core numbers are the weakest in 5 years! Does it add up to 7% growth?

Last, the change from factor to market prices is a big change - but the essential principle remains the same. Real growth in GDP is nominal growth minus inflation. Whether that equation is best served by using market prices rather than factor prices is a matter for TCA and his colleagues to judge. I defer to their judgement. But whatever the methodology, it should reflect in numbers downstream.

As for the difference explained by Google, well it was Google ! Just because GDP at factor cost doesn't include taxes doesn't mean that the impact of taxes isn't included in GDP! After all, govt doesn't hoard taxes, it spends it on various goods and services, which in turn would get included in the calculation, even at factor cost.

So while the new algo might be better, like all numbers they aren't a miracle generator.

Why is corporate top line growth so weak ? Unlike GDP, there are no estimates there. Why are capacity utilisation numbers so low? Again, no estimates there. Why is core sector growth so low?

gakakkad · Post by **gakakkad** » 28 Aug 2015 09:14

IIP is a relative term...and lower crude prices added an artifact in core industry...because crude oil and refined petrochemicals are a part of core industry...

you sold 1 l crude for 100$ ...now you sell 1.5 it for 75 dollars ...you are actually selling 50o ml more crude...but you are getting lower currency for it as crude it cheaper...

(needless to say prices of refined petrochemicals will also come down) ...

IIP will register lower numbers

so will core sector output,,,zimble onlee...

gakakkad · Post by **gakakkad** » 28 Aug 2015 09:22

hiyar is the core sector data...

http://www.eaindustry.nic.in/eight_core ... _infra.pdf

notice that crude oil and natural gas both have a negative growth rate...and that is because they have lower prices....

core sector index is a weighted mean...weights need to be revised too...AFAIK , it is being done ...

somnath · Post by **somnath** » 28 Aug 2015 09:30

gakakkad wrote:IIP is a relative term...and lower crude prices added an artifact in core industry...because crude oil and refined petrochemicals are a part of core industry...

you sold 1 l crude for 100$ ...now you sell 1.5 it for 75 dollars ...you are actually selling 50o ml more crude...but you are getting lower currency for it as crude it cheaper...

(needless to say prices of refined petrochemicals will also come down) ...

IIP will register lower numbers

so will core sector output,,,zimble onlee...

Arre year, all growth numbers in macro data are inflation adjusted!

Seriously, before you start making comments like "roadside" for people whose day job is to parse through such data, why don't you go through econ 101?

To start with, get to understand the difference between IIP and core sector.

Singha · Post by **Singha** » 28 Aug 2015 09:36

I will personally put a 12 month ban on anyone using paki/western psyops plays like 'hindu' growth rate here.

just a reminder

gakakkad · Post by **gakakkad** » 28 Aug 2015 09:37

not adjusted for price changes in individual commodities ...but only CPI..(or was it WPI ? )

IIP was brought down by core sector being down....

somnath · Post by **somnath** » 28 Aug 2015 09:51

Arjun wrote: Most of the growth seems to be on account of the subsistence population that is pouring into the cities from villages and in the unorganized sector. Which is why the 5% rate of two years back felt practically like a recession for the rest of the country.

In which case, even 7% is barely above recession level but the trend is upwards. The good news is that our actual potential when the country gets its act together is actually 10%+.

[/quote]
By that logic, the unorganised sector lives in a cocoon of its own, growing merrily at 8-9% while the organised sector grows at 3-4%!

There are 3 components to GDP - C, I and G, and Net exports. I and G numbers are well captured, both have been anaemic in the last 2-3 years. C, if there was such great growth of unorganised sector translating into C, why aren't auto, 2 wheeler, consumer discretionaries, FMCG beating the hell out in terms of top line growth? Or is the new hypothesis that the unorganised sector doesn't buy its scooters from Honda, motorcycles from Hero, cars from Maruti, but buy garage jugaad stuff?!

somnath · Post by **somnath** » 28 Aug 2015 09:57

gakakkad wrote:not adjusted for price changes in individual commodities ...but only CPI..(or was it WPI ? )

.

For someone with such high "respect" for govt figures (and everyone else is "roadside"), you don't give much credit to the former for common sense, do you?

All components of IIP have specific deflators used - they run intensive regression models to arrive at these numbers, it's not a cpi or wpi number plucked out from thin air.

http://mospi.nic.in/Mospi_New/upload/Re ... stency.pdf

Do yourself a favour - if you are really interested in this area, first rule is keep an open mind and be sceptical. Second, start reading the serious sources of analysis rather than social media only.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 10:10

amit wrote:
Theo_Fidel wrote:Hmm 26 per cent is a pretty healthy number. But the question is do the employment numbers match this?... ...given labor laws as they are - designed to protect 4 per cent of the organised labor to the detriment of the 96 per cent of unorganized non unionzed labor?

Last time I looked India was 45 million or so in manufacturing vs China @ 120 million in manufacturing. Of course ours did not include construction again...
India only 10 million were in organized, meaning union, manufacturing... ..I think China has similar unorganized sector...
Indias total employed was 400 million to 500 million as well... So yes tracks fairly close... ..minus construction...
China has ~ 800 million employed. Right there is the GDP difference between India & China if anyone is interested. Their dependency ratio is extremely low....

Foxconn was doing just fine in India. The question is the quality of employees and the nature of the social contract. Chennai is one of a handful of areas that is willing to supply relatively high skilled folks and willing to deal with the uncertainty of manufacturing employment. Foxconn,etc laid off 25,000 folks without more that a handful of protests, most were union, a few non-union, most people moved on to other jobs. Can you imagine laying of 25,000 people in say mughalsarai.... ..people in these areas are union with no-skills, so they can not find another job if they loose the current one. Unions are not an excuse for poor worker skills and poor social/work attitudes....

A few pages back in the old thread G saar had post the list of projects stalled in India. I don't know what is in 'other' category but not a single project explicitly listed labor issues as the source of conflict. The days of Dutta Samant types are long over thankfully.

chaanakya · Post by **chaanakya** » 28 Aug 2015 11:32

Arjun wrote:
somnath wrote:By that logic the Hindu growth rate of 3.5 can well be 5.5!
Back to some of your old bad habits are we ? Your stay here will be short if this kind of willful trolling continues.

Did you seriously think he is here to anal-yse Indian economy and its numbers?

amit · Post by **amit** » 28 Aug 2015 13:04

Ok this is the latest position of the RBI Guv

Market mayhem a temporary phenomenon, macroeconomic fundamentals better now: Raghuram Rajan

Given the slump in commodity prices, this would be a great opportunity to win the battle on prices, he suggested. That may be read as a signal on interest rates.

"There is no better time to bring it down — you have got everything working towards lower inflation," Rajan said. "If people's expectations get settled at this level, we will have won a victory for a long time." RBI's next monetary policy announcement is scheduled for Sept 29, although there have been calls for a rate cut before .

What Rajan is saying is that he's looking at a rate cut to take advantage of the low commodity prices which has opened a window of opportunity to tackle inflation and not because he does not have confidence in the growth numbers. Let's see what happens on Sept29.

Yagnasri · Post by **Yagnasri** » 28 Aug 2015 13:22

But Datta Samanth is replaced by Pappu and Khejri type fellows. They are fully supported by 24x7 Tv pals of theirs. Only option is to create Industry long way from Delhi so that Pappus can not travels with their Tv cameras.

Altair · Post by **Altair** » 28 Aug 2015 13:26

amit wrote:Let's see what happens on Sept29.

Why that date?

amit · Post by **amit** » 28 Aug 2015 14:06

^^^^

The RBI policy meeting is on tomorrow. They are expected to cut rates.

More of the same

There is a better than even chance that the Reserve Bank of India (RBI) will cut interest rates at its policy meeting on Sept. 29 thanks to inflation striking a record low, according to a Reuters poll, marking a shift in expectations from earlier. The median from survey of 21 economists showed a 60 percent chance that the central bank would cut its policy repo rate from 7.25 percent at the next meeting, whereas a previous poll in July had shown a move was more likely in the final three months of the year.
Since then, India has released consumer price data for July that showed retail inflation at a record low of 3.78 percent, giving the RBI more room to ease policy. Keen to inject more momentum in the economy and encourage investment, the government and business community have urged the central bank to lower interest rates, though RBI Governor Raghuram Rajan has stressed that he wants to see low inflation on a sustained basis.

Arjun · Post by **Arjun** » 28 Aug 2015 14:25

somnath wrote:By that logic, the unorganised sector lives in a cocoon of its own, growing merrily at 8-9% while the organised sector grows at 3-4%!

There are 3 components to GDP - C, I and G, and Net exports. I and G numbers are well captured, both have been anaemic in the last 2-3 years. C, if there was such great growth of unorganised sector translating into C, why aren't auto, 2 wheeler, consumer discretionaries, FMCG beating the hell out in terms of top line growth? Or is the new hypothesis that the unorganised sector doesn't buy its scooters from Honda, motorcycles from Hero, cars from Maruti, but buy garage jugaad stuff?!

News from the corporate world isn't all that bad. As a matter of fact, Corporate Earnings are expected to grow at least 15% in FY '16, ie 2x of GDP growth figures.

The shift is already visible: Nomura sees distinct recovery in top-line growth

At a press interaction on Thursday, its officials noted net sales growth in the June quarter over the previous one was stronger than in any period over the past three years.

JE Menon · Post by **JE Menon** » 28 Aug 2015 14:55

A Paki newspaper analysis of its own weakness has put this datapoint forward:

3% of Indians pay direct tax (income tax I presume), which is about 32 million people. Is this an accurate figure? And if yes, how large a component of government expenditure is income tax?

somnath · Post by **somnath** » 28 Aug 2015 15:21

Arjun wrote: News from the corporate world isn't all that bad. As a matter of fact, Corporate Earnings are expected to grow at least 15% in FY '16, ie 2x of GDP growth figures.

Some more social media gems:
Earnings, or profits (and operating margins) are up, primarily on account of falling oil and global intermediates prices. There is no visibility on aggregate topline growth, simply because investments are yet to pick up.

Arjun wrote:The shift is already visible: Nomura sees distinct recovery in top-line growth

Hmm, I havent seen this report, but will need to see on what basis they are arriving at a "topline growth" headline.

Fact is that Q1 was very disappointing on topline for the market, with a YoY degrowth.
http://www.livemint.com/Companies/vqO2v ... ys-te.html

Sales growth declined for the third straight quarter amid weak demand and subdued industrial activity in Asia’s third largest economy.

JE Menon wrote:A Paki newspaper analysis of its own weakness has put this datapoint forward:

~3% of Indians pay direct tax (income tax I presume), which is about 32 million people. Is this an accurate figure? And if yes, how large a component of government expenditure is income tax?

Nothing "Paki" about it, the numbers are correct. Only 3% of the population pays income tax. Though whether it is a "low" number for a country @ our level of Per capita income is an open question.

Income tax contributes ~3.2 lac crores out of total revenue (and capital) receipts of 12 lac crores in the budget - ~25%.

A_Gupta · Post by **A_Gupta** » 28 Aug 2015 16:33

RBI annual report 2014-15
https://www.rbi.org.in/scripts/AnnualRe ... px?Id=1147

.4 On the production side, the weather-induced slowdown in agriculture impacted rural demand and also necessitated policy interventions to manage food price pressures. In the industrial sector, a turnaround in manufacturing in the latter half of the year was essentially driven by upbeat business sentiment, some unclogging of stalled projects and a robust improvement in electricity generation and coal production in the closing months. A durable upturn in new capex, capacity utilisation and new orders – both domestic and foreign – holds the key to a sustained revival of industrial activity. In the services sector, only a few sub-sectors, such as finance, real estate and construction, grew at a higher pace.

In the first four months of 2015-16, indicators of real activity have broadly tracked the Reserve Bank’s baseline projection of output growth (at basic prices) at 7.6 per cent for the year as a whole, up from 7.2 per cent in 2014-15.

What are these "indicators of real activity" that the RBI is referring to that are invisible or discounted by some people here?

NRao · Post by **NRao** » 28 Aug 2015 16:40

~3% of population.

3% of which population? The entire or tax paying population?

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 17:59

somnath wrote:Nothing "Paki" about it, the numbers are correct. Only 3% of the population pays income tax. Though whether it is a "low" number for a country @ our level of Per capita income is an open question.

India is different because agricultural income/expenditure is completely untaxed. We are historically unique due to this. But everyone in India pays tax because we have heavy VAT & CST. About 40 million pay income tax. Considering 55% of the population is in agriculture and our high dependency ratio at present this is not as bad a number as it seems at first glance. It was a choice that was made many moons ago to tax consumption rather than income. I think at this stage in our development it is still the right choice though things may change as we get wealthier.

One thing that could be done is to reduce the sales tax for construction and infrastructure investment.

The real number to focus on is the tax to GDP ratio. India pays about 17% in total taxes which is low but not a horrible number. There are countries out there 5% type ratios! If we raised income tax we would have to let consumption tax subside so at some point that deal with the devil decision should be re-considered. Otherwise it is part of the DDM campaign to make Indians look bad at paying taxes if you ask me. As nation we pay plenty of taxes, we are not tax avoiders, though there are groups of folks who abuse the system. No one likes paying taxes and Indians avoid it as much or as little as the rest of world.

vera_k · Post by **vera_k** » 28 Aug 2015 18:36

In 1991, less than 1% of the population paid income tax. So 3% is a big improvement.

Unfortunately, the agricultural income exemption is a convenient way to hide income and launder black money within the country.

Given the low income tax collection and new focus on consumption taxes, income tax can be abolished if wealth tax and the new GST rates are raised to compensate. It will get rid of a lot of bureaucracy and red tape.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 19:24

Vera,

Do you know how the wealth tax is supposed to work. Is it progressive?

gakakkad · Post by **gakakkad** » 28 Aug 2015 19:29

theo the chart u showed must be direct+indirect tax right ? does anyone have break up of indirect v/s direct tax for OECD/US/EU/other BRICS ?

vera_k · Post by **vera_k** » 28 Aug 2015 19:49

Wealth tax is not progressive. And there is a lot of non-compliance if the numbers are to be believed. Pretty much anyone who owns a second home would be liable to wealth tax these days given the run up in property prices.

Do you have to pay wealth tax?

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 20:11

Thank you. So only on idle properties, really it is speculation tax, not a wealth tax, confusing name. Easy to dodge for the very rich.
------------------------------

BTW WRT Agriculture tax I can’t decide if it is even worth going after it. Yes I know the diversion/misstatement issue but with agriculture 12% of GDP and declining, even a 10% type tax would only mop up paltry sums, probably 0.2% of GDP type number. Not worth the effort as the vast vast majority of farmers won’t be liable at all. Not worth the effort or hassle if you ask me, for the government and society.

somnath · Post by **somnath** » 28 Aug 2015 20:12

Theo_Fidel wrote:India is different because agricultural income/expenditure is completely untaxed.

That would be one reason, but I suspect wont be a big one. Simply because there is so little of national income in agri (~14%), and bulk of the farmers would not qualify under any tax bracket.

I think the general axiom that India's tax-to-GDP is low is intellectually lazy. Tax-to-GDP is a function of per capita income, adn we are still a mdoest 1600 dollar PCI country. However, it is also a fact that a lot of money and income in India is concentrated (our Gini has gone up in the last few years), and hence a lot of income can be taxed. Unfortunately, not too much robust intellectual frameworks have been analysed around this question.

Surjit Bhalla has been an exception - he has consistently argued that India's ratio isnt bad at all.
http://www.business-standard.com/articl ... 031_1.html

Here is a good comparison chart
https://infogr.am/Tax-base-across-G20-c ... -ratio-in-

India, @ 15-16% of GDP is somehwere in the bottom half, but in relatively good company (Japan, Mexico).

But the critical piece of data is elsehwere-proportion of Direct taxes in the total tax kitty. Again, India @ ~38% isnt the worst, but this is where the anglo saxon world really scores - a very high proportion of Direct taxes.

All countries have variants of VAT/GST. But direct taxes, being the most progressive is what needs to be ideally taken up.

but the bigger issue around tax collection is that good policies make for high tax compliance, not coercion. We have learnt that with perfect control group experiements - Indira's 97% tax rate with the threat of raids/jail yielded no tax. Chidambaram's radical IT reform in 1997 set the base of an inprecedented growth in income tax-to-GDP ratios.

The new found love for "tough laws" to dig out black money is taking us back. Black money is best brought in by intelligent policy, not by threatening people.

chola · Post by **chola** » 28 Aug 2015 20:54

Taxes in India is well within proper range for a developing nation. Even the US does not tax people making $10,000 (or $20,000 as a couple, more if you include children) and the average Indian makes around $1500 US a year.

Especially for a (mostly) free market democracy like India, taxes are a drag on spending which what powers the economy. Taxes send spending power to the coffers of the state where it is invariably wasted.

Now the question is how do we get capital to grow our economy faster if the spending power is low and the tax base is small? The key is attract outside and that is where FDI (and to a much lesser extent FII) comes in. The only developing nations -- the Asian Tigers -- that had transitioned successfully to developed economies had used this formula.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2015 20:55

somnath wrote:
Theo_Fidel wrote:India is different because agricultural income/expenditure is completely untaxed.
That would be one reason, but I suspect wont be a big one. Simply because there is so little of national income in agri (~14%), and bulk of the farmers would not qualify under any tax bracket.
………………..
I think the general axiom that India's tax-to-GDP is low is intellectually lazy. Tax-to-GDP is a function of per capita income, adn we are still a mdoest 1600 dollar PCI country. However, it is also a fact that a lot of money and income in India is concentrated (our Gini has gone up in the last few years), and hence a lot of income can be taxed. Unfortunately, not too much robust intellectual frameworks have been analysed around this question.
…………………
The new found love for "tough laws" to dig out black money is taking us back. Black money is best brought in by intelligent policy, not by threatening people.

The comment at that point was more respect to the sheer number of income tax payers. I just pointed out that 50% of Indians are exempt from being counted at all.

I don’t disagree with the rest of your post on agriculture. One should remember that due to the legacy of the EIC, agriculture tax would set the whole nation on fire. Not worth the hassle, as GOI has repeatedly decided. There was a time when agriculture was 60% of GDP and GOI was sorely tempted to go after it.

At our income level India is quite a fairly taxed nation. Though I would also say, if you owe taxes, cough it up. Nation definitely needs it to pay bills. We need to remember that back in 1930 when USA was at our development level, total federal tax was 3%-6% of income and total tax was less than 10%.

Also agree on getting carried away with a war on the rich. The rich have always avoided taxes because they have the resources to do so. They have a tendency to comply if you can demonstrate to them we are in this together.

At the same time no society can tolerate a highly skewed income distribution. Take one item, the allocation of resources. The rich have a tendency to spend their gains on $100 million dollar homes, $50 million yachts, gulfstream jets, etc. The majority of this sort of spending is wealth destruction. Sure the rich invest, etc but the majority of the wealth is guaranteed to be squandered. You can see it from the fact that no rich family cash hoard survives 2 generations. Take a look at Rs 1 Billion on antilla, this is wealth destruction you are seeing folks. The middle class spend on education, water, security, roads, etc, this tends to be nation building. You can see what income skewing does to a society in America. Because 50% of income goes to the 1%, the discretionary spending on education, roads, consumption, falls on the remainder of folks who only make 50% of income. Obviously this is not sustainable long term, but try telling that to the Mitt Romney’s who pay 0% tax while building car elevators. Wealth destruction of the worst sort. The rich need to be bankrupted frequently. In the past WW1 & WW2 did the job for us, going forward…

gakakkad · Post by **gakakkad** » 29 Aug 2015 07:27

somnath wrote: For someone with such high "respect" for govt figures (and everyone else is "roadside"), you don't give much credit to the former for common sense, do you?

All components of IIP have specific deflators used - they run intensive regression models to arrive at these numbers, it's not a cpi or wpi number plucked out from thin air.

http://mospi.nic.in/Mospi_New/upload/Re ... stency.pdf

Do yourself a favour - if you are really interested in this area, first rule is keep an open mind and be sceptical. Second, start reading the serious sources of analysis rather than social media only.

do you have more info on IIP methodology ? the exact statistical tools I mean...

based on what I gathered here , commodity prices could still influence the final number that appears in news headline ...to know the exact effect of the changes , I need to run a simulation in matlab or stata .. if u know the details of how they calculate , I might try .. I ll post all details here once I am done...
I still have 10 days of free time...