The Name’s Karat. Prakash “Robinhood” Karat.
Since the elections in May 2004, he’s been a familiar face on TV. News channels and magazines have faithfully attended every one of his press conferences, have hung on to his every word, and have fought among themselves for that “exclusive” interview. He is the mai-baap sarkar of the mai-baap sarkar. The Big Brother of Big Brother. The man with the nice smile and iron teeth. The man who can stall progress with but a single statement.
Ladies and Gentlemen, presenting Prakash Karat of the CPI (M), now in a new avatar as the Robinhood of Hindustan!!
While Manmohan Singh playing a supporting role as the perennial Sheriff of Nottingham, trying to cajole, appealing to see reason, exhorting rational thinking, Prakash Karat is our desi version of that mythical medieval superhero. The man who believes that taking more and more from the rich and handing them out as doles to the poor is the only way to lift the latter out of their miserable existence.
A couple of days ago, he and his merry CPI party mates summoned the press and fulminated against the low tax-to-GDP-ratio in India. “The value ought to be 11%!” they declared. “How dare the rich earn more and more, and the poor stay where they are!” they thundered. “If the rich earn more, they can stay the way they are; anything extra they earn ought to be given to the poor – we must, and we will raise taxes for them!” they concluded.
Middle class consumers stared at their TV screens, aghast, as channel after channel beamed news of this new idea of the Left. They wanted to “track and tax” “conspicuous consumption”. Gems include a cess on all purchases at shopping malls, adding a surcharge on diesel for family cars – but not public transport vehicles), higher VAT rate on everything from watches to cars and most things in between. The idea is to generate more revenue for the Government to be able to fund its Bharat Nirmaan, National Employment Guarantee Scheme, and Jawaharlal Nehru National Urban Renewal Mission, and any other schemes that will doubtless be thought up of in the remaining three-and-a-half years of the UPA Government’s existence.
Disgust hits home later. The first emotion is horror, then amazement at the sheer lunacy, ludicrousness and absurdity of such harebrained ideas. First, it is a return to precisely the same kind of attitude, the same kind of policies that strangled India for much of the first half-century of independent existence. We finally seemed to have woken up to our follies in 1991, when in the ensuing decade we improved our tax structure and weeded out useless and discriminatory taxes. However, we bungled up even that, and are today left with half-baked, half-implemented tax reforms. Now the Left wants to mess it up even further.
Most economists (except the hopelessly Leftist ones at JNU, for example) have cried themselves hoarse on the need to widen India’s tax net. I saw, a couple of weeks ago, a horrifying statistic on CNN-IBN – only 1.88 crore – or 18.8 million – tax returns were filed last year. Now how many individuals earn in India? Hundreds of millions at the very least? Out of a population of over a 1000 million? There are just too few people paying for too many people. What we have needed for a long time now is a flat tax rate. A fixed percentage. Simply put, “You earn? You pay.” Everyone pays the same rate, whether he/she earns Rs. 100 a day, or Rs. 10000.
The reason that we need this is that having arbitrarily fixed “slabs” and discriminatory tax rates mean that wealth creators are specifically targeted. The message that goes out is – “If you earn more, be sure that we’ll take more from you” – and that discourages those wealth creators. I am not talking about ultra-rich heads of large corporations and the like – I do not know if they even care about being discriminated against – but of those who earn, say, 5 lakh (Rs. 500000) a year. There are so many in the Rs. 1 lakh to 5 lakh bracket in urban India today. They work hard, and are rewarded commensurately by their jobs. For the first time in their lives, they earn enough to be able to live life they way they want, to be able to satisfy their material desires – because not only are they earning more than 10 years ago, the marketplace now offers them that range of products, across sectors. For the first time, they can aspire for a comfortable, worry-less life. Consumption is on the rise, therefore, like never before (this, incidentally, is often touted as the principal difference between China’s and India’s growth – domestic consumption-driver growth – and is the chief reason why our growth is said to be more sustainable). Now, if this bracket of consumers faces a sudden, sharp rise in expenditure – because they have to pay more for just about everything that they buy – it’s going to leave a very bitter taste in their mouths every time they make a purchase. The point is that this bracket is going to feel the real pinch of the Left’s policies. Such cesses and surcharges may not be large individually, but cumulatively they make a big figure. To use a saying, it is bleeding these consumers with a thousand cuts.
To be sure, this resentment wouldn’t exist if everyone were taxed equally. It is this same model that is followed so astoundingly successfully in Scandinavian nations. In one nation (I forget which, Finland I think), the tax rate goes up to 40% – and no one complains. Because the uniformity of tax application, coupled with strong accountable institutions that guarantee that the tax money will be used effectively, means that there is very little tax evasion, and no protests at the high rate of taxes.
But this section of society is not going to give up the pleasures of consumption once it’s tasted them. When the Government is out to track and tax “conspicuous consumption”, it is not going to be able to cut down on that consumption. No way. It will only turn it into “inconspicuous consumption”. People have money. You tax diesel in such discriminatory ways, ordinary, usually scrupulously honest individuals will become party to a racket that will send public transport vehicles to petrol pumps to fill fuel, and then siphon fuel from those (larger) tanks into their own. Again, it’s a win-win situation for everyone but the Government. The individual consumer gets his diesel at a price lower than what he/she’d have to pay at the filling station, and the truck/lorry/tanker owner would get a cut. But that’d throw up further problems. What’s to stop the truck owner from starting his own kerosene-diesel scam a la Manjunathgate? And will that lead to increasing siphoning-off of kerosene from the Public Distribution System? On a similar note, taxing high-end consumer items will mean going back to the same evil which plagued an entire generation in the 70s and 80s – rampant smuggling. Then it was smuggling foreign goods which would have cost the earth if imported legally, this time it’d be domestic smuggling, on the same principle. To check all of this, you’d need more Government inspectors, more checks at entry/exit points, and a whole bushelful of headaches – not to mention rampant corruption. One thing leads to another, and a single dumb idea launches a whole new series of illegal activities, which do more harm than good, and never end up benefiting the poor at all.
Why does the Left not see reason? The mosquito circling atop my head has been reading this article as I’ve been writing it, and is now buzzing its approval as I make my point and wind up. If a brain of that size can comprehend this concept, what’s keeping the Left from following suit? Are they that stupid?
Not at all; on the contrary, they’re very smart. Or rather, they’re just following the principles of votebank politics. Consider – the Left is a very small party in terms of National presence. In urban India, it does not figure at all. Its bastion is West Bengal and Kerala (and Tripura, mentioned for completeness), and that too the overwhelmingly large rural mass. The Left ignores the needs and demands of that miniscule mass called Urbania, and instead goes into the countryside, telling voters there, of their policies. These policies are sweet music to the rural populace. It is very difficult to convince them otherwise. From an economically poor villager’s point of view, the matter is brutally simple –what sounds better? “We’re going to collect more money from the rich city folks, and give it to you!!” or “We’re going to tax everyone – the rich city folks as well as you. We’re going to use the money to provide basic services – power, education and infrastructure, but not to give it to you directly, or to guarantee jobs to you, or make things artificially cheaper for you. By allowing the rich folks to get richer, we’ll ensure they’ll set up more factories, so that you guys all have a chance to compete for all those new jobs so created.”
In a nutshell, the urban votebank doesn’t matter to the Left. For any party with a true national base – the BJP+allies, or the Congress, urban India does make a big difference to its electoral fortunes. The Left, instead, has maneuvered itself into a unimaginably wonderful position – the epitome of Power without Responsibility. With 63MPs from mostly 3 states, it imagines itself as having the mandate of the entire nation; it has strangled the functioning of all 543 members of Parliament, the Government of India, and the Indian Economy. By not joining the Government, it is not accountable to anyone or anything that it does. And this situation has existed over the last year-and-a-half, simply because of the Congress Government’s sheer lust for power. I repeat my appeal to the Government – call for fresh elections and refuse support from the Communists – if you have any spine.
Update: This article on Rediff.com has this nugget of information – the Left parties had a vote share of 5.66% (yes, really!) in the 2004 elections.