Many have written about the inappropriateness of the supply-side economics underlying current economic policy in India. It has been argued that in the present situation where household consumption demand is weak, policy should focus on increasing the purchasing power of the lower income households through demand side measures such as direct spending on schemes such as the MGNREGS and employment schemes, universal provision of public services in health, education and nutrition, expanding jobs in the government at the frontline level such as ASHAs and anganwadi workers and reducing the tax burden (direct and indirect) on the lower classes.
Considering that the rich in the country have been enjoying low taxes and increasing profits, it is suggested that the burden of fiscal consolidation should be shifted on to them through higher marginal taxes at the top income brackets and introduction of wealth and inheritance taxes on the super-rich. Such measures would also respond to the increasing levels of inequality in the country.
As shown by the world inequality database (WID) team, by 2022-23, the shares of the top 1% in income and wealth (22.6% and 40.1%) are at their highest historical levels in India. Not just that, India’s top 1% income share is among the very highest in the world, higher than even South Africa, Brazil and the US. Further, the WID working paper by Bharti et.al (2024) finds that ‘the Indian income tax system might be regressive when viewed from the lens of net wealth’. They estimate that, ‘a “super tax” of 2% on the net wealth of the 167 wealthiest families in 2022-23 would yield 0.5% of national income in revenues and create valuable fiscal space to facilitate such investments’. None of this is reflected in the government’s policy documents.
Also read: Isn’t the Government Also Responsible for Employment Generation?
The analysis in the recent Economic Survey is quite intriguing, and the preface lays out the summary. The Survey explicitly recognises that the profits of the corporate sector have been quite buoyant and that despite the tax cuts in 2019, the response in terms of increased investment and job creation has been disappointing. However, in terms of policy response, rather than going into the reasons for the reluctance to invest and hire, the Economic Survey seems to be rather appealing to the goodwill of the corporate sector.
To quote:
“In terms of financial performance, the corporate sector has never had it so good. Results of a sample of over 33,000 companies show that, in the three years between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled. Further, newspaper headlines told us that the corporate profits-to-GDP ratio rose to a 15-year high in FY24… Hiring and compensation growth hardly kept up with it. But, it is in the interest of the companies to step up hiring and worker compensation.”
This point is reiterated in a later place:
“It is in the enlightened self-interest of the Indian corporate sector, swimming in excess profits, to take its responsibility to create jobs seriously. Of course, it must find people with the right attitude and skills.”
Advertisement
Why is it in the best interest of the companies? And if it indeed was so, then why are they not doing it? There are no convincing answers to these questions in the Survey.
This tendency to appeal to the corporate sector’s better senses and towards making them more “responsible” continues in other parts of the preface. Here is another example from the Survey:
“For India’s working-age population to be gainfully employed, they need skills and good health. Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential. The private sector’s contribution to this toxic mix of habits is substantial, and that is myopic. The emerging food consumption habits of Indians are not only unhealthy but also environmentally unsustainable. India’s traditional lifestyle, food and recipes have shown how to live healthily and in harmony with nature and the environment for centuries. It makes commercial sense for Indian businesses to learn about and embrace them, for they have a global market waiting to be led rather than tapped.”
What does this mean? It seems to suggest that the entire employment problem is a behavioural one where people have to change their attitudes and skills, and the private sector out of benevolence must stop aiding such bad behaviour. It is indeed true that food consumption habits are unhealthy — but that is largely also because it makes tremendous commercial sense for the corporate sector to promote consumption of ultra-processed foods. World over governments are trying to deal with this through regulations on advertising, warning labels, ‘sin’ taxes and so on. What we must also be thinking about is how these foods can be made less profitable on the one hand and ways in which access to healthier foods can be improved.
Also read: India’s Job Market: A Statistical Conundrum with Underlying Concerns
On the issue of skills too, there is of course no discussion on the state of public services and their declining share in government expenditure despite the context of the poor state of the education system in the country or the fact that more than one-third children in the country are undernourished and not achieving their growth potential. Once again, it is expected that these things will somehow happen on their own if only individuals and corporates knew how to behave. The policy stance basically seems to be continuing to subsidise the corporate sector and cajoling them into ‘responsible’ behaviour while individual citizens are left to fend for themselves — failure to do so is their problem. The state does not need to be accountable.
Dipa Sinha is a development economist.
