Santosh Kumar Mohapatra
Apart from the ideological assault on the ethos of the public sector, the very purpose of divesting or privatising the public sector and various public services or leasing out national assets is mainly to generate resources to bridge the fiscal deficit and simultaneously transfer national assets to private individuals.
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But the root cause of such a decision can also be attributed to lemon socialism. Confusingly, lemon socialism may refer to government efforts to transition from capitalism to socialism but it is not an actual subcategory of socialism per se; rather, it points to the corruption of the free-market capitalist system.
In socialism, the government may nationalise a company in its entirety, while in lemon socialism, the company is allowed to keep its profits but its losses are shifted to taxpayers. This is akin to a policy of privatising profits while socialising or nationalising corporate losses. Lemon socialism assumes the shape of crony capitalism when corporates successfully intervene in government decisions and transactions to suit their interests.
The government resorting to a full or partial bail-out of crumbling private companies through various stimulus packages, as happened during the 2008 financial crisis and now in the aftermath of the pandemic can be dubbed as lemon socialism.
In India, lemon socialism is manifested in different forms such as tax evasion, corporates looting banks by not repaying loans and engineering banking frauds, rich transferring their ill-gotten wealth to tax havens. It is further manifested through reduction of interest rate at the cost of savers (i.e. financial repression) and not imposing legitimate taxes on the rich.
India had the highest income tax rate of 97.75 per cent with 11 tax slabs in 1974-75. Now, the highest tax rate has been reduced to 30 per cent and tax slabs to three. We don’t have inheritance taxes like many countries with wealth tax being discontinued since 1 April 2016.
This has benefited the rich while the revenue generation capacity of the economy has been dampened. The tax rate should be progressive. It means the tax rate should increase in tandem with the increase in income.
The same thing is found in the case of the corporate tax rate. During 1991, corporate tax rate was 45 per cent which was gradually reduced due to pressure from corporate honchos. On September 20, 2019, the government lowered the base corporate tax rate to 22 per cent from 30 per cent, and to 15 per cent from 25 per cent for new manufacturing companies. The precipitous reduction has achieved none of its stated objectives but has left the government poorer by Rs 1.45 lakh crore. In each year, the loss is mounting. In 2020-21, for the first time in 12 years, income tax collections have outstripped the corporate tax collection.
While reduction of corporate taxes addressed the supply side problem, it did not address the demand side problem. Had those amounts been spent on health infrastructure or education or job creation, it would have benefited a large number of people and spurred demand and growth.
As of November 30, 2019, there were around 5 lakh cases pending at various levels with disputed tax arrears amounting to approximately Rs 9 lakh crore. The government’s revenue foregone in the form of incentives and tax exemptions to corporates is now nearly Rs 1 lakh crore each year.
The gross NPAs which were Rs 2,14,549 crore in 2014-15 had in-creased to Rs 10,36,187 crore as of 31 March 2018. It is likely to cross Rs 11 lakh crore in 2021-22. The total bad loans written off between April 2014 and March 2021, a period of seven years, stands at a mindboggling Rs 10.63 lakh crore. It may be noted that banks are able to recover only 10 to 15% of loans written off. During the last seven years, banks have lost nearly Rs 5 lakh crore due to rising frauds.
By contrast, despite the havoc created by the COVID-19 pandemic, the combined net profit of the listed companies was up 57.6 per cent to Rs 5.311alch crore in 2020-21. As a result, the corporate profit share in India’s GDP hit a 10-year high of 2.63 per cent in the last financial year. India’s 100 top billionaires saw their fortunes increase by Rs 12,97,822 crore in 2020 since March when the pandemic hit the country and this amount is enough to give 13.8 crore poorest Indians a cheque for Rs 94,045 each. The Global Social Mobility Report (2020) reveals Indians born in low-income families will take seven generations to even approach the country’s mean income.
The mounting inequality is clearly manifested when debt grew faster than assets but the rich garnered major shares of assets. It is not that only household indebtedness is growing, public debt is growing too. When rich, corporates don’t pay legitimate taxes, the government resorts to heavy borrowing to sustain expenditure and growth. Despite excessive borrowing, GDP does not grow in tandem with the rise in borrowings. As the government has to repay loans and interest, the saddle of higher debt falls upon the masses through the reduction of welfare expenditure, privatisation of health and education, and escalation of indirect taxes like excise taxes on fuel which are regressive in nature and hurt the poor the most.
The lemon socialism is reflected through the compassion deficit in India’s business behemoths and affluent elite. Indian business behemoths, the rich, and celebrities are not fond of paying legitimate taxes on their own unless there is coercion.
In October 2017, the IMF had backed higher income tax rates including different types of wealth taxes on the rich to reduce inequality while demolishing the arguments that economic growth would suffer if the tax rate is increased. April 7, 2021, the 1MF pro-posed a temporary ‘solidarity’ tax on pandemic winners like billionaires, corporates. According to the IMF, high earners and companies that prospered during the pandemic should pay an additional tax to show solidarity with those who were hit the hardest by the crisis. Now, it is high time the Indian government imposes wealth taxes to generate revenue.
The writer is an Odisha-based economist and columnist.
