Black hole of public finance: Unequal fiscal burden on citizens

  • December 20, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
No Comments

 

 

Black hole of public finance: Unequal fiscal burden on citizens

Subject: Economy

Context:

  • Economic inequality in India impacts every aspect of our everyday lives, despite the country being a welfare state. The poor citizens of India continue to face increased fiscal burden in the form of inflation and higher taxes, with fewer benefits.

Details:

  • The Constitution of India envisaged the state’s role as a welfare one.
  • For that, the government is empowered to administer taxes and their transfer.
  • However ‘transfers’ are being painted as freebies and the lives of poor citizens are being burdened by regressive “taxes”.
  • Inflation acts as a hidden tax on poor and middle-class citizens.

Inequality scenario in India:

  • Oxfam observed in its 2021 report that 73 per cent of the wealth generated in India in 2017 went to the richest one per cent, while 670 million Indians, who comprise the poorest half of the population saw only a one per cent increase in their wealth.
  • Concept:
    • The Lorenz curve is used to represent economic inequality as well as unequal wealth distribution. The farther away the curved line is way from the straight diagonal line, the higher the level of inequality.
    • The Gini coefficient is the ratio of the area between the line of perfect equality and the observed Lorenz curve to the area between the line of perfect equality and the line of perfect inequality.
    • The value of Gini coefficient varies from zero to one. Zero represents the perfect equality and one represents the perfect unequality.

Inequality in governance: 

  • The roadways are meant to be available free of cost, being public goods. However, due to privatisation and PPP models, such services demand a fee.
  • In the financial year 2021-2022, the government mopped up Rs 35,000 crore as toll tax. The same is projected to reach Rs 1.34 lakh cr by 2025.
  • Diversion of funds:
    • In 2000, the government enacted the Central Road Fund Act (CRF), under which fuel cess was used to fund the construction and maintenance of roads.
    • In 2018, CRF was amended into the Central Road and Infrastructure Fund (CRIF).
    • This allowed water and sanitation schemes, communication, social infrastructure, etc, to be funded from this fund.
    • But the utilisation of CRIF funds for the year 2021-22 ranged from Jal Jeevan Mission to Swacch Bharat Scheme.
    • The government aims to generate Rs 1.6 lakh cr by monetisation of public highways, which will further increase the toll burden on citizens.
    • The monetisation of public spaces portends to weaken the state-citizen relationship.

Increased inequality due to excessive tax burden:

  • In the 2020-21 Budget speech, the finance minister announced a public-private partnership (PPP)-based smart cities, railways, and warehouses, amongst others.
  • PPP-based infrastructure, user charges and cess have established a parallel framework to raise revenue and are likely to impose a fiscal burden on citizens.
  • When citizens pay municipal tax, the municipality is supposed to ensure cleanliness and sanitation facilities.
  • But the Ahmedabad Municipal Corporation (AMC) introduced a “User Charge” of Rs 365 per household to make the city clean, which is 15% of the municipal tax amount.
Black hole of public finance: Unequal fiscal burden on citizens economy