Wednesday, May 15, 2024

Video: Markets reaction to uncertainty [in Hindi]

 Markets reaction to uncertainty
https://www.youtube.com/live/bAHK-Ewp4A4?si=N3LWTpr9sccubz6J

Video: A discuccion on Employment / Unemployment [in Hindi]

Unemployment issue deconstructed 
https://youtu.be/YGt-Qky0HBk?si=eg9uavfTAzqHt1jm


Direct tax collections reflect disparities | Arun Kumar (in Business Line May 9, 2024)

Business Line May 09, 2024  
 

The taxpaying citizens largely belong to the organised sector. Their incomes have risen substantially and they pay more tax

BY ARUN KUMAR
 
Direct tax collection by the Central government comes from incomes, wealth and transactions. | Photo Credit: Prakash Bharti 

The Central Board of Direct Taxes has announced that net direct tax collection has exceeded its target for 2023-24. It has increased 17.7 per cent over last year and much faster than the income increase of about 9 per cent. Analysis of this data is also important since the Prime Minister has set in motion the issue of redistribution in the economy. 

Net Direct Tax collections of the Centre at Rs.19.58 lakh crore are higher than the budget estimate of Rs.18.23 lakh crore for 2023-24. This was revised to Rs.19.45 lakh crore in the Union Budget 2024-25 and the actual has turned out to be even higher by 0.67%. The net figure is arrived at by subtracting the refunds to tax payers. The refunds have also increased substantially by 22.74% over the last year’s figure of Rs.3.09 lakh crore to reach Rs.3.79 lakh crore. What does it tell us about Indian economy’s performance in 2023-24? 

Rising Share of PIT

Direct tax collection by the Central government comes from incomes, wealth and transactions. Tax on wealth – wealth tax, estate duty and gift tax – has been negligible since it is largely eliminated. Income tax is collected both as Personal Income Tax (PIT) and Corporation tax.
PIT has sharply increased by 24.26%. Corporation tax has increased by 10.26% and is 46.53% of the total direct tax collection, considerably less than its share of 49.64% in 2022-23.
In 2018-19, revenue from Corporation tax exceeded PIT by 40.3%. In 2019-20 this excess declined to 13.05% due to the sharp reduction in the Corporation tax rate. In 2020-21, the excess turned into a deficit of 6.4% but in 2021-22 Corporation tax collection again exceeded that from PIT but after that PIT has been higher. Why these swings?
The increase in tax collection can occur for two reasons. First, an increase in the base of tax collection. That is more entities come under the tax net. With inflation, nominal incomes rise and those who were not under the tax net also come under it. The number of people in the direct tax net has risen from 7,42,49,558 in FY 2016-17 to 9,37,76,869 in FY 2021-22. Further, those already in the tax net have a higher income. Second, if the government raises the rate of tax, collections increase. Both these factors are at play currently.  
Income tax rate has been raised through a surcharge on tax payable while keeping the base rate unchanged at 30% and education and health cess at 4%. In 2014-15 a surcharge on income tax of 10% was introduced for an income above Rs. 1 crore. In 2016-17, it was raised to 12% and in 2017-18 to 15%. In 2018-19, a surcharge of 10% for income between Rs.50 lakh and Rs. 1 crore was introduced while 15% on incomes above Rs.1 crore remained unchanged. In 2021-22, a levy of 25% on incomes between Rs.2 crore and Rs.5 crore and 37% on income above Rs.5 crore was introduced. There was no change in surcharge for income below Rs.2 crore.
 
In brief, while the Corporation tax rate was reduced, the tax on incomes has been raised. Naturally, tax collection under PIT has increased faster than from Corporation tax. Further, the big increase in income tax collection is no indication of a rapidly growing economy. It could be claimed that the increase is a result of better tax compliance due to control of black economy but that does not appear to be the case.  

Narrow base of PIT  

To resolve the issue whether or not compliance has improved, there is need for more granular data on which entities are paying more of income tax. Detailed data is available for 2020-21 and some data for 2021-22. What does it reveal ?
First and foremost, the base of tax payment in India is very narrow. Only those in the top rung of the income ladder in the country are in the income tax net. In 2020-21, 6.6% of the population filed a tax return. But most of them did not pay any income tax since their income was below the taxable limit. Effectively, only 0.68% of the population had high enough income to pay a significant amount of income tax, these are called the effective tax payers. Further, 0.016% declared an income above Rs.1 crore with a share of 38.6% of the declared taxable income.
It is this 0.68% and 0.016% which has had to pay a surcharge and a higher tax rate. Even if their income did not rise, they had to pay a higher tax rate.  For income between Rs.2 crore and Rs.5 crore, there was an increase of 3% in the tax rate and for an income above Rs. 5 crore the increase was 6.6%. This rate increase explains a part of the increase in PIT.  
The other part is due to a rise in inequality in the economy. The tax paying citizens’ largely belong to the organized sector. Their incomes have risen substantially and they pay more tax. The unorganized sector incomes are mostly below the taxable limit.  
Further, Data on Q3 of GDP for 2023-24  shows a decline in the share of consumption. This indicates a shift in incomes’ share from the poor to the well-off, since higher the income, smaller is the per cent of it consumed. So, as the income share of the well-off increases PIT would increase without compliance improving.  

Conclusion 

In brief, the rapid increase in PIT indicates increasing income disparity between the organized sector which falls in the tax net and the unorganized sector that lies largely outside the tax net. No wonder there is talk of redistribution. 


Author of `Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead’ 2020.
Unemployment issue deconstructed
https://youtu.be/YGt-Qky0HBk?si=eg9uavfTAzqHt1jm
Markets reaction to uncertainty
https://www.youtube.com/live/bAHK-Ewp4A4?si=N3LWTpr9sccubz6J

Tuesday, April 16, 2024

West Asia Crisis Ratcheting Up Could Spin Out of Control | Arun Kumar

 
https://theleaflet.in/west-asian-moves-and-countermoves-challenges-of-them-spinning-out-of-control/

 

West Asian moves and countermoves: Challenges of them spinning out of control

What will the complex calculus of the new Middle East crisis resolve into, and what will be the impact on India?

ISRAEL has succeeded in diverting world attention from Gaza and Hamas to Iran. This is similar to how Hamas, in October 2023, successfully short-circuited US efforts at normalising relations between the Arab states and Israel under the Abrahams Accord.

These moves and countermoves are ratcheting up the intensity of conflict in West Asia with serious global implications, including for India. The Indian approach seems to be similar to that in the case of the conflict in Ukraine— to play both sides.

Countermoves

Iran’s attack on Israeli soil is unprecedented. It is a response to the Israeli attack on its consulate in Syria on April 1, killing some of its top army commanders. It had warned of a retaliation and that gave Israel and its partners, the US, the UK, etc., time to prepare.

The US had already moved its forces and prepared its allies in the region to shoot down the projectiles from Iran. Even Jordan apparently participated in this. Israel could take care of the projectiles that managed to reach its territory. So, 99 percent of the projectiles were shot down in the air and there was little damage in Israel.

The Indian approach seems to be similar to that in the case of the conflict in Ukraine— to play both sides.

It provided a sense of victory to Israel, the US and their allies. This was US President Joe Biden’s message to Israeli Prime Minister Benjamin Netanyahu and to forestall any immediate Israeli retaliation.

Also read: What Palestine teaches teachers of politics and law

Did Iran need 15 days to prepare to attack Israel? Could it not have used many more than 300 projectiles to attack to overwhelm Israeli defences? Could the Iranian allies like the Hezbollah in Lebanon and the Houthis in Yemen not have fired a much larger number of projectiles?

Clearly, Iran was making a show of avenging an attack on them but did not want to hit Israel. It did not want to provoke an attack on its territory from the much superior US and Israeli forces.

The Iranian foreign minister stated in a press conference after the attack that the US, Turkey and some Arab neighbours were given advance information about the limited attack. The US has denied that it had advance information.

Not only were 15 days given to Israel to prepare its defence, the timing of the attack was also conveyed in advance. The drones, which would take six–seven hours to reach Israel, and cruise missiles, which would take two–three hours, were bound to be neutralised given the advance preparations.

Only ballistic missiles, which take only a few minutes to traverse the distance that exists between Israel and Iran, were a serious challenge, but due to the advanced notice and preparation, even they got neutralised.

The Iranian army briefing after the attack also mentioned that the attack was a limited one and had achieved its objective and no more attacks would occur unless Israel attacked its territory. Thus, the Iranian attack was for show and not effect.

The US and the G7 that met in the aftermath of the Iranian attack while condemning the Iranian attack suggested that Israel had won and that it should not retaliate against Iran.

Some even argue that this presents an opportunity to take out Iran’s nuclear establishments and cripple its nuclear bomb capability.

Indeed, Israel’s attack on the embassy in Syria was meant to draw the US and other allies into unequivocally supporting Israel. That support had been dwindling due to the ongoing genocide in Gaza which was inflaming world opinion. Israel has succeeded in this aim. Today, the attention has shifted from genocide in Gaza to the global implications of a wider war in West Asia.

Pressures escalating

The US, while saying it does not want an escalation and that it would not support an Israeli strike, has also said its support to Israel is “ironclad”. Just as Israel has defied US advice to avoid civilian casualties in Gaza and allow more humanitarian aid to enter, it can defy the current US advice to not escalate the conflict.

Also read: The only language Israel understands

Israel could attack, secure in the fact that the US and the allies would defend it if Iran retaliates substantially in response to the Israeli retaliation.

Will Israel oblige by not attacking Iran? The ultra-right in Israel is pressurising the government to retaliate. They have been a part of the growing problem created by the displacement of Palestinians from the West Bank, coming up of new settlements and aggressive assertions in Jerusalem. All this has led to rising Palestinian resentment.

Many Israelis and conservative Republicans in the US are arguing for Israeli retaliation. The Israeli war cabinet said the conflict is “not over yet” and we will “extract a price”.

Even the moderate leader Benny Gantz wants retaliation, though at a time of Israel’s choosing. The ultras argue that Iran has crossed a red line by attacking Israeli soil and it must pay for that.

Some even argue that this presents an opportunity to take out Iran’s nuclear establishments and cripple its nuclear bomb capability.

Hamas’s action was a result of perceived subjugation and atrocities by Israel over a long period, which could not have been anticipated by Israel and the US.

But, there are limits to such actions since there are other players who may be forced to intervene. Also, it could lead to a wider conflict in West Asia. The Sunni nations, though not allies of Iran, may also be forced to act. Already, some of these US allies have prohibited the use of their air space by the US.

Limits of shadow fights

Israel has a huge network of intelligence in not only Gaza but all over West Asia. It has been able to kill its opponents’ leaders in Gaza, Lebanon, Iran, Iraq and Syria. Recently, it could kill the sons and grandsons of Hamas leader.

But, the October 7 attack by Hamas in Israel and Hamas still being able to fight in Gaza six months later lays bare the limits of their intelligence. The extensive network of tunnels in Gaza, the troop strength of Hamas and Israel’s inability to get hostages released for six months also point to the same limitation.

Also read: The brutality in Gaza rekindles the horrible memories of women in war

All this points to the limits of shadow fighting in international relations. Hamas’s attack on October 7 destroyed an equilibrium because it was willing to accept the massive death and destruction in Gaza.

Israel’s attack on the embassy in Syria knowing that Iranians would retaliate has further shifted the out-of-equilibrium position. These instabilities are feeding into each other since one cannot anticipate what nations may do under uncertainty no matter how well a powerful nation may plan.

Hamas’s action was a result of perceived subjugation and atrocities by Israel over a long period, which could not have been anticipated by Israel and the US.

The attack on the embassy in Syria was also unanticipated and a result of Israel’s perception that Iran is behind the Hamas, Hezbollah and Houthis. Iran’s attack on Israel is also a result of its perception of having been attacked on its soil which required an attack on Israeli soil.

Conclusion: Rising global challenges

Now that the world is divided into two blocs, the situation has become more worrisome. Iran is a part of the bloc consisting of Russia and China. It has been supplying drones to Russia for its war in Ukraine. Even though this bloc may not want a second front, it cannot but stand with Iran in case of a Western bloc attack on Iran.

Its stand on the issue will be a crucial determinant of what happens next. The stance of G7 and NATO will be vital since they have been unsuccessfully trying to restrain Israel. Military mobilisation will rise in key nations. The beneficiary will be the military-industrial complex.

Also read: Interview with Adila Hassim, counsel for South Africa versus Israel before the ICJ

War in West Asia will impact the petroleum products market. If Iran is attacked and it blocks the Hormuz Strait or attacks oil tankers, petro-goods prices will rise. Shipping through the Suez has already been impacted and may face further disruption.

India imports 85 percent of its petroleum requirements so the outgo of foreign exchange may increase leading to a deterioration in the balance of payments (BOP), weakening of the Indian rupee and higher inflation.

Thus, the post-pandemic easing of supply bottlenecks may reappear and create inflation globally, disrupting many economies.

India imports 85 percent of its petroleum requirements so the outgo of foreign exchange may increase leading to a deterioration in the balance of payments (BOP), weakening of the Indian rupee and higher inflation.

Foreign investments may slow down. A substantial number of Indians working in West Asia may be forced to return and that will reduce repatriation by non-resident Indians.

Thus, capital flows may be impacted and further aggravate the BOP. India would need to prepare for these challenges in the midst of the fraught election season where the leadership’s attention is not where it should be. 

Author of `Indian Economy’s Greatest Crisis: Impact of the Coronavirus and the Road Ahead’. 2020.

 

Friday, April 12, 2024

Video: Electoral Bonds enquiry needed urgently from independent agency

How come loss-making companies gave crores to the BJP? | Satya Hindi

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