To Support Welfare or Businesses?

So yesterday, I uploaded a rather boring and long-winded post on the Modi government's rollbacks of welfare schemes and how that basically sucks for the generally poor Indian population. Like most blogs on economics and policy, the amount of fucks given were close to zero, with one person being more interested in my Google+ display picture than the content(Normally, I'd be pleased, but the issue I believed, deserved more attention).

But among the fuck-givers, the most common complaint from those of a rightist persuasion(bordering on Wingnuttery) was that none of these welfare schemes can happen now because we don't have the money to finance our welfare schemes given India's 50-60% debt to GDP ratio and that increasing welfare spending contributes to deficit and that's bad for the nation as a whole.

Let me start off with a salacious accusation that people who scare the masses with debt, deficit and their seemingly disastrous consequences on the economy are basically a bunch of selfish fucks who are more concerned with having money in their pockets than your or my general condition and this is a merely a ruse for the Government to cut down on welfare for the masses and cut down on their taxes.

Since I was unable to convince people of the need to expand spending on welfare for its own sake, because y'know, some people have a manic fetish for growth rates and 'free' markets which they believe are the panacea to every economic and social woe on the planet. Most of them advocate widely debunked theories of increasing austerity(which naturally compromise development and welfarist policies) to bolster growth and reduce deficit and debt, which they believe are the biggest fucking problem the economy and society at large faces.

Their thinking is simple, the biggest problem is debt and debt hampers economic growth which in turn makes the world a shittier place. Unless you run a surplus, you're not gonna get anywhere with development. Look at Greece! They've gone to shit because they're racking up debt! Seems commonsensical enough, but it isn't.

Because people in general are fuckwits who are unconcerned about what happens to 90% of Indians as long as they get that high-paying job and are relatively well-off, it's alright to believe in widely debunked economic policies. That's how some people are and unless one can demonstrate that short-sighted idiocy is a problem for the 'growth rate', big businesses and industrialisation, they don't give a shit.

But think about it from a different very commonsensical angle, what do you think drives growth? Your entrepreneurial enterprises need labour, and where will you get that from? The need for skilled labour is perpetually on the rise, as industries become more technologically oriented and where will you get that if you do not bother ensuring that the masses receive free education? Unless you can ensure social mobility, security and welfare, where will you get the labour which you require?

If you've already made it, there's nothing much to say, but most of you reading this haven't. You might think that this idea of entrepreneurial India gives you a better chance of 'making it', but it doesn't. Not all of you will be making it that far, and chances are, you won't be making it because the limited skilled labour force that you can tap into, has been drained by corporations much larger and more powerful than yours. If you want to set up a new business, in this day and age, you will need skilled labour and for that, the Government needs to ensure that people have access to education. If you do not have a social security net, why do you even suppose anyone would take the risk of trying to educate themselves when they don't have access to the bare essentials? 

This is something that I hope none of us disagree with, but assuming you're one of those who piggishly believe that narrowly focusing on GDP growth(by incentivising corporations at the cost of social security), name a few countries that have achieved overall development without having comprehensive social security programmes? I do not know of any. The much touted example of South Korea as a corporate capitalist haven of sorts, also incidentally, had massive government spending in the critical areas of education and healthcare during the '60s and '70s. Without these, mobilising a skilled labour force would be nigh impossible. Even America's apparent lack of social security is a rather recent phenomenon that gained momentum during the Reagan era, what people forget is that 'The Great American Dream' is something that rested on programmes of social security for the masses.

The notion that social development at the cost of incentivising corporations hampers GDP growth in the long run is a myth even outside Heterodox paradigms.

Now, let's turn to the more jargon-y matter of deficit, because even when most people agree with the argument concerning the need for welfare and development, the right comes up with the reasoning that we're in debt and that implies that spending money will lead to financial collapse.

The thing is, that is not really true. Deficit scaremongers often use analogies with households to convince you into equating any debt that a person may have, with that of the government. It's really not the same thing.

For one thing, India's external debt is 23.2% of its GDP meaning we do not owe much of the 60%-ish of the GDP debt to anyone else but ourselves. Moreover, the debt is not out of control yet. Since nobody bothers with reading Keynes anymore, I'm going to argue this from what seems to be a more accepted view, that the current account deficit does indeed need to be reduced.

Now, there are multiple ways of reducing deficit, one way, as the Government currently is practicing, is austerity, that is to reduce public spending. As I pointed out earlier, reducing public spending however, in a country as underdeveloped as India, is risky for sustained economic growth, unless you're okay with India turning into an oligarchy(which more radical critics may argue has already happened, and not unreasonably).

The other way, is to bring in both progressive tax reform and tax compliance. While service tax has been increased, which is a step in the right direction, corporate tax rates have fallen and wealth tax has been abolished in favour of a modest 2% surcharge in the taxation of the superrich bumping it up to 12%.

However, if we are to believe that the deficit is that big a problem, it surely stands to reason that larger tax increases should have been implemented instead of cutting back on essential spending. Furthermore, middle-class populism has resulted in a number of subsidies that only serve the middle-class.

Take a look at these two simplistic pie charts from the ToI

The thing is, there still is enough wiggle-room to increase returns from both corporate as well as income taxes. And once again, I reiteriate that the defence sector is bloated beyond belief. Furthermore, both the Customs and Excise duties on a variety of things could be increased to compensate for spending. The fabled black money also helps.

Coming back to my original salacious claim, the fact is, India Inc. would never agree to increasing taxation. They're more than happy keeping what they have in their pockets while the poor be damned.

The Modi Sarkar has a clear choice here, they can keep corporations happy by slashing their tax rates and implementing deregulations while cutting back on welfare and social spending, or they could increase social spending while increasing tax rates and regulating businesses. By recent trends, it is obvious what they've chosen.