The economic crisis facing India in the year 2020-2021 is unprecedented. Economic growth has come into negative digits, for the first time, in fifty years. It was recorded at a shocking -20 percent. The rate of deceleration of growth has improved greatly to – 4 percent. But overall, the economic outlook for the year 2020-2021 remains dismal. In such a scenario, where corporate earnings have gone down rapidly and are showing a negative trend, the government has to step in and do the correction work. Since private investment has slowed down to a trickle and the banks have imposed tight lending controls, on new startups, economists all over the country are waiting with bated breath, for steps that the government can take, to alleviate the situation. Here are the four major steps, which the authorities can take, to kickstart the economy.
This is one of the most important steps, which the government can take, for kickstarting the economy. Currently, there is a huge gap between the rich and the poor, which is reflected in the high inequality ratio, in the country. For example, it is a shocking truth, that India contains the largest number of hungry people on this earth, and also one of the richest men on this planet. Such a huge gap is highly detrimental to the well being of society. In order, to contain this wealth disparity, the authorities should impose a ten percent inheritance tax on the super-rich of the society. The wealth collected from this tax can be distributed to the weaker sections of the public.
Long Term Capital Gain Tax
Long Term Capital Gain Tax, which was introduced by the authorities recently, is a wasteful tax. For those who, are new to this tax, it means that the long-term capital gain tax, resulting from the transfer of equity share, or the unit of an equity-oriented fund, or the business unit trust is taxed at ten percent, of such capital gains. The capital gain tax is levied, on more than one lakh rupees. The government is not getting any revenues, by imposing this tax. Recently, there has been a thirty-five percent correction, which has led to a further decrease in revenues. So, the authorities will do their best to remove this tax.
Financial Stimulus is one of the most important steps, by which the government can rejuvenate the economy. They should pump money and inject liquidity in the market, for spurring investment. The easiest way to do this is to give a lot of money to the banks and other financial companies, for restarting lending to small private investors. One thing to be remembered is that contrary to popular perception, small industries and businesses create much more jobs, as compared to large scale corporations, because, small firms require very less investment.
Dividend Distribution Tax
Dividend distribution tax is one of the most wasteful tools, by which firms are hoarding cash, especially in an uncertain environment with very less demand and zero CAPEX outlooks. For, those of whom, who are new to the concept of dividend distribution tax, it is defined as the tax, which is levied by the Indian government, on Indian firms, as per the dividend paid, to the investors of the firm. The tax is paid from the reserves/profits of the firm, declaring the dividend. There is an extra surcharge of twelve percent on the DDT and there is a four percent education cess levied.
In this blog, readers will come to know about the four major steps, which the government should take to revive the pandemic hit economy.