Desperation is creeping into India's economic policy-making. Having lost the fiscal plot, bureaucrats are trying to marshal resources by squeezing taxpayers, foreign investors, firms planning buybacks and even the central bank. Such overreach never ends well.
Tax collections last year were a full 1 percentage point of GDP lower than the 7.9% the government had hoped to obtain. Rathin Roy, director of the New Delhi-based National Institute of Public Finance and Policy, describes the situation as an "unstated fiscal crisis." Instead of confronting the sober reality, revamping a flawed goods and services tax, and taking steps to pull the economy out of a synchronized slowdown in consumption and private investment, bureaucrats are trying to make up the revenue shortfall by taxing everything that moves.
What else can explain an increase to 42.7% from 35.8% in the tax rate on annual earnings over 50 million rupees ($730,000)? Such a steep jump sends a damaging signal to globally mobile professionals. Why should they put up with Mumbai's poor infrastructure, New Delhi's unclean air and Chennai's acute water shortage when they can just as easily ply their skills from low-tax Singapore?