@panduranghari and Mad Indian
A point is being made that India will become like Europe because, GoI is taxing a lot and spending mostly on welfare.
The point I am making is that India is nowhere close to a Greece like situation for the following reasons
(1)Indian welfare spending as a percentage of GDP is very low. Welfare spenging even if the subsidies like fertilisers e.t.c. are included is very low. Major welfare spending is usually on food, education and health. I have listed the data and atleast for the last few years they have been around 3-4% of GDP
INCLUDES subsidies. If you take out the subsidies part which are quite inefficient and focus on only education, health e.t.c. spending, then it is close to 1-1.5% of GDP. If you compare this with European countries, these are in the 30-40% range. Even in the US its around 14-15% of GDP.
We are comparing central govt. here for both countries. We are NOT comparing state and provincial debt and spending for Greece. And we are not comparing state owned companies in Greece with the PSUs in India. So lets keep the like for like comparison. But just FYI, the govt. budget does include any cash subsidy paid to PSUs. These items are available in the union budget.
(2) India has room to improve its revenue collection by implementing DTC and GST and increase its tax-to-GDP ratio. GoI has been actually cutting taxes consistenlty rather than raising them. In the past couple of years, GoI HAS been offering major tax cuts as part of the GFC stimulus package. For FY11 this was around 30-35 Billion USD(
Revenue Foregone Due to Tax Exemptions Double: CAG | Anirudh Sethi Report).
And this is also once of the reasons why the tax-to-GDP ratio has gone down with the deficit going up. At some point in time, preferably when we have a growth uptick, this has to be rationalised. These include things like IPL's five year tax holiday. Or how the zero taxes on Software exports was ended recently which they enjoyed since 1991 when MMS passed his budget now that software companies have become established.
While India's tax to GDP ratio is around 10-11% now, Greece has a tax to GDP ratio of around 20%. So while Greece has little room to raise taxes further. India can do a lot more to increase its tax base. We don't even have to increase our rates. Just widen the net, end tax holidays selectively on profitable industries and provide tax cuts and incentives to innovative and tech centres like renewable energies. The same idea with applied with software exports.
And just last month, another set of tax cuts were provided to boost exports as part of the Trade policy. (
Government unveils changes to Foreign Trade policy, new export sops | Real Time News, India).
That is why I choose the words,
improve revenue collection rather than just raise taxes.
(3) India's debt-to-GDP ratio is much lower than Greece. This is a no brainer and if you have been following the debt-to-GDP ratio, you will notice that it has come down from the high of 80% in 2002-2003 to around 55% now. For Greece we are talking around 126% of GDP and increasing.
If Greece had its own currency and central bank, it could atleat devalue its currency and become more competitive and increase exports. And its very likely that Greece would not have gotten in this situation in the first place because its credit rating would have meant that it would have to pay increasingly higher interest costs and deter it from getting bigger and bigger euro loans based on the credit rating of Germany.
In India's case, our currency can be independantly devalued and we have a central bank in the RBI.
Not to mention that Greece has had 4 consecutive years of negative growth, India has been the second fastest growing major economy after China for about the same period even briefly beating China in 2010 with a 10.4% vs 10.3% (
India outpaces China: Winning the growth World Cup | The Economist).