The Indian economy, which is already in the doldrums, is headed for more trouble as revised tax rules will shackle much-needed spending
The economy is in shambles and expecting it to thrive is akin to expecting a miracle. A supposedly nationalist Government is keeping it in shackles by curbing spending, one of the foremost conditions for a thriving economy. The Gross Domestic Product (GDP) has come down to five per cent and if the ailing economy is not allowed to blossom now, growth can fall to critical levels.
Normally, the share market is not a reflection of the state of the economy. However, the continuous fall in indices is an indication of the dip in domestic as well as Foreign Portfolio Investments (FPI). For the record, FPIs have withdrawn `23,000 crore from the market in less than two months due to policy flip-flops as nobody understands why the Finance Minister is withdrawing Budget proposals. The real estate sector is gasping, the banking sector is unstable, the industry is in a tizzy, the auto sector is preparing for a continuous fall in demand and the Fast Moving Consumer Goods (FMCG) sector is forced to cut prices owing to vanishing buyers.
It’s a very telling sign when a member of the Prime Minister’s Economic Advisory Committee Rathin Roy admits that the country is in recession. Noted economist and NITI Aayog Chairman Rajiv Kumar has been even more candid in acknowledging that India is facing an economic downturn, a liquidity crisis wherein lenders have stopped funding businesses, resulting in them having to survive on cash. So do we have a solution? It is worse than the disease. The Union Budget 2019 has several tax-related amendments and new, draconian rules. Whether you are buying life insurance, property or making banking transactions, the new norms that came into effect from September 1 will have an impact on income and taxes. In short, it means every spender would have to be more meticulous about maintaining accounts of expenditure than engaging in earning or spending money.
The five new commandments of the Income Tax Department would put brakes on productive activities, affect savings and put spending on hold. These are as follows: Tax Deducted at Source (TDS) on life insurance policy; engaging a professional, even a mason, would need deduction of TDS; having to pay TDS at the time of purchasing immovable property; TDS on cash withdrawal and last but not the least banks would keep a continuous watch and report even the smallest transaction.
Yes, India is becoming an effective police State. One of the first kings to ensure a police State was Alauddin Khilji, who tightened the administration to keep every individual in check. The present Government needs to learn from Khilji as the economy collapsed under his administration. India took a hundred years to come out of that morass.
TDS shows that the system has no faith in the people, so even before an individual can earn, the Government extorts its share. Why tax a life insurance policy when the State needs to promote it to provide a sense of security to the people, increase savings and boost the economy? A tax on it not only sours the mood but hits insurance sale, savings and ultimately the Government itself stands to lose. An intelligent move would have been to allow free sale, raise savings for welfare programmes and earn taxes by boosting economic activity. The new rules would ensure the opposite.
Officials possibly believe that whether there is economic activity or not, tax realisation must improve. But the real impact would be diminution of activities. At least TDS on purchase of immovable property would ensure it. As it is, the real estate sector is in the doldrums. Putting more strings would depress it even more as most genuine buyers do not have enough money to invest in property. If a person puts money in a property now, s/he would have to pay TDS on club membership, car parking fee, electricity and water facility fees, maintenance fee, advance fee which are incidental to the transfer of a property. This raises the price of a property manifold in an already inflationary market. Also, the Government’s bid to curb cash transactions has led to imposition of 2 per cent TDS on payments above `1 crore. This means an immediate loss of ` 2 lakh and subsequent grilling by authorities.
This is preposterous. As a nation do we want to discourage spending by instilling fear in the citizens? The obvious repercussion would be further meltdown in the market and the economy. The sooner such “wise” steps are done away with, the better it is.
The last rule virtually chains the citizens. Already the rules demand statement of financial transactions that are above `50,000 a year. Now the banks have been ordained to report even the smallest transactions. Unless these rules are removed by the Bharatiya Janata Party (BJP) that propagated liberalisation since the 60s, the economy is headed for doom. Let the people spend freely and contribute to the economy and India’s growth. It will be a win-win situation for all.
(The writer is a senior journalist)