India Budget: Original economic models can help reduce tax burden with fiscal prudence

The public opinion is diverted to the cause of rising prices in deficit finance.

(Sanghnomics is a weekly column that tracks down and demystifies the economic world view of Rashtriya Swayamsevak Sangh (RSS) and organisations inspired by its ideology.)

The most repetitive question that comes up in the run up to every budget is; will there be some relief for the taxpayers paying both direct and indirect taxes, especially when it comes to the matter of income tax? The second most talked about issue is ‘fiscal discipline’ which is directly related to the ‘deficit finance’ in the budget. At the popular as well as policy level, these two are the key parameters to evaluate how good a budget is and how has the government performed on the economic front?

Reducing Taxes

Traditional wisdom based on Western economic models makes it imperative to raise the taxes whereas Hindu economics advocates for minimum taxes. In fact, MG Bokare in his seminal work ‘Hindu Economics’ has gone as far as to say that a tax-less budget is also possible.

The basic premise of Bokare is that Hindu economics, if implemented, would lead to a historically irreversible trend of falling prices. This would be due to competition among producers and restrained consumption by consumers. Vedic knowledge and ancient traditions that advocate the principle of ‘aparigraha’ which form the core of Hindu economics.

Aparigraha can be often translated as “non-greed,” “non-possessiveness,” and “non-attachment.” If followed, this also would not let people hoard money in gold, silver, real estate and other valuables further leading to downfall in prices of these high valued ‘assets’.

Bokare elaborates (Hindu Economics; second edition, 2009; pp193), “Hindu economics has the property of an irreversible historical trend of downward movement of prices. Thus, the budget interconnected with price level can be judged. The purchasing power of money with the state continues to increase in successive periods in future. Therefore, the same outlay of personnel and programmes will require less money in the successive years in the future. This is how we can gradually liberate the budget from the burdens of taxes.”

Another significant aspect that needs to be taken into account is the social costs of taxes that can be reduced as we reduce the burden of taxes in the budget. Milton and Rose Friedman had kicked off a debate on this issue as they published their seminal work ‘Tyranny and Status Quo’ in 1984. They have highlighted the time, energy and amount of money spent on passing legislations and implementing them through departments set up for taxation. That creates a huge social cost. The social costs also include the resources spent by the judiciary or the administrative machinery on adjudicating the tax disputes.

Follow Budget 2024 Expectations LIVE

According to Mahatma Vidura in Shanti Parva of Mahabharata, taxes should become like bees collecting honey from flowers. And this can be accomplished, according to Hindu Economics, through an irreversible historical trend of downward moving prices. Though we have a history of almost 4000 years of rising prices as a historical trend, this trend can be reversed through competition among producers and restrained consumption. This has been repeatedly emphasised in various ancient Bharatiya texts.

Is Deficit Finance Always Inflationary?

Ancient texts like Arthashastra tell us in detail that Hindu economics has always been governed by the principle of competition.  Economist Dudley Dillard also talks about this principle (The Economics of John Maynard Keynes;1963; pp114) as he concluded that deficit finance is not inflationary till full-employment is accomplished. According to Bokare, Dillard’s concept of full employment is in relation to wage employment. If self-employment were considered in this reference to context, the growth of population and its work force would continue to grow. Hundred percent workforce engaged in self-employment will be an economic activity in the continuum. Deficit finance, therefore, cannot stoke inflation, if the money used under this measure is used in productive activities for the increasing number of people in the work force in the competitive Hindu economic system.

Paul A. Samuelson (Collected Scientific Papers of Paul A. Samuelson, Vol. III; Ed. Robert C. Merton; MIT Press, 1972) and Abba Lerner (Economics of Employment; McGraw Hill Book Co, London; 1951) have raised an interesting query about the common notion of deficit finance being inflationary in nature.  According to them, if deficit finance raised the price level, why do the capitalists speak against it? They should welcome these rising prices as this brings them more profit.

According to Bokare, capitalists in monopoly capitalism know that they regulate prices. They raise prices without any inhibition. This is ‘Sellers-Prices’ as disclosed by Lerner.

This is known to capitalist themselves. Public wrath may be directed against them. They know this too. The general impression is created by economists that deficit finance is inflationary. This academic opinion suits the capitalists. The public opinion is diverted to the cause of rising prices in deficit finance. Hence the capitalist class also joins the generally created opinion on deficit finance; that it is inflationary. But the fact of the matter is that if deficit finance is used for productive activities in a competitive economy, then it is not inflationary.

Conclusion

The civil servants and policy makers in India are too well versed with only the western model of economics and hence successive governments have followed similar templates when it comes to addressing the two most crucial aspects of our budgetary exercise- taxation and deficit financing. An innovative and bold approach based on Hindu economics could help us to do better on both these fronts and benefitting both the government as well as the common people.

Earlier Sanghnomics columns can be read here.