Economic Survey drops a hint if Budget will bring Covid cess, tax on ultra-HNIs

Economic Survey drops a hint if Budget will bring Covid cess, tax on ultra-HNIs

MUMBAI: For those worried about grapevine that the Union Budget for 2021-22 may bring in some form of redistributive taxation, including a Covid-19 cess on corporates and ultra high net-worth individuals to shore up the government’s finances and ease concerns over the rising inequality, the Economic Survey may have just dropped a hint.

While the government and much of the formal sector maintain that the domestic economy is seeing a V-shaped recovery post the national lockdown to contain the Covid-19 cases in April-May, the true shape of the recovery has been rather ‘K-shaped’.

Several renowned economists, who were part of the the ETMarkets Global Summit 2021 last week, acknowledged that the shape of the recovery was rather ‘K-shaped’, as the informal sector and small businesses have faced the brunt of the economic chaos caused by the pandemic.

Economists have called upon the government to step up social spending in the Budget through rural and urban job guarantee schemes in order to help the lowest strata of society cope with the after-effects of a deadly pandemic.

In that context, there has been concerns among investors that the government could resort to a temporary wealth tax or ‘super-rich tax’ to shore up its revenues and redistribute the income to the more needy.

That said, here is what the Chief Economic Adviser Krishnamurthy Subramanian had to say about inequality and its impact on poverty alleviation: “Economic growth has a far greater impact on poverty alleviation than inequality. Therefore, given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie.”

Subramanian’s comment implies that the best strategy to bring those worst-affected by the pandemic out of their perils is by growing the economic pie and creating sustainably high GDP growth, rather than wholesale redistribution of income.

The CEA carefully asserted, however, that it does not imply that redistributive policies are unimportant, “but that redistribution is feasible in a developing economy only if the size of the economic pie grows.”

The Chief Economic Adviser’s argument aligned with his assertion in the previous economic survey that the ‘ethical wealth creation’ that includes combining the invisible hand of the market with the hand of trust was the way forward for India.

From the CEA’s point of view , what India needs currently are pro-cyclical fiscal policies that will rev up the engines of the economy and let growth take care of poverty alleviation. Whether Finance Minister Nirmala Sitharaman pays heed to the CEA’s comments will be known on Monday when she presents the Union Budget, but for investors the CEA’s hint may offer some short-term comfort.

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