This video reminds me of one of my college classes relating to Asia. We discussed how China was leading the way with its foreign direct investments, and creating capitalistic free zones. Unfortunately, we are seeing how that played out, but it was a good run and if they can figure out their water and pollution issues they will probably be quite successful. Half of the quarter was dedicated to India. Our professor was Indian and seemed so frustrated with India and the amount of bureaucracy and red tape. To have anything done required stamps, signatures, and more stamps and signatures before a final approval. It kind of reminds me of Obama’s health care proposal, and what it will do to free enterprise.
The first time I visited India we drove from Agra to Jaipur. Now the road is four lanes, and paved. However, when I went in 2005 it was a two lane road filled with scooters, camels, donkeys, cows, buses, cars, and I’m sure I’m missing a few things (many of these are still on the road in 2009). At that time the road was under construction, which made the drive even more precarious not to mention we almost slammed head on into a bus going 60 Mph (I was luckily asleep, and found out afterwords).
For the dividers and to have traffic change lanes they were using bricks. At first I just couldn’t belief it, and then I sort of nodded my head and thought well it is India after all. All along the journey there are small cones sticking up into the sky spouting smoke, and all around were bricks. So, from a semi-practical standpoint I can understand, but imagine trying to move all these bricks when the time came. No barricades to hopefully prevent being run over, but a small series of bricks.
I was just there in 2009 and some things have changed, but much is the same. A lovely country in many respects, but very 3rd world at the same time. Getting horrendously sick in Agra didn’t help matter nor did being at the hottest place on the planet. However, what struck me was the construction of the underground. They already have one, but it is being expanded at a rapid pace for the upcoming Commonwealth Games Delhi 2010. All around the ground is being ripped open, but there are dividers, there are areas you can’t go so it seems like a step up. For the rest of the country I can’t speak.
Now we get to the big news. I think it is big new because simplification of the tax code is no small feat. Watch the following video. Instead of raising taxes, India is proposing to drastically simplify its code. No tax up to a certain point (in the video), a 10% tax on incomes above said level.
Without knowing all the details… what does this potentially mean?
Let’s start with a few basics about the government and taxes:
1) Governments don’t have an income — I know someone will try to refute this, but the majority and I mean majority of income comes from two places. Its tax base meaning you and me, and through inflation. You know that thing that Ben Bernake is so fond of doing these days. Right we aren’t experiencing drastic price inflation at the moment, but he is monetizing debt like crazy, which means printing money out of thin air and buying crap with it.
2) As a government provides more services it needs more cash. How do they get that? See #1
3) Government doesn’t like to reduce its tax income because that means it has to provide fewer “services”, subsidies, welfare programs, etc… This makes getting elected more difficult, because people want to be provided for.
4) With a smaller government due to a reduced “income” there is less of a foothold on controlling its society.
5) Less control over its society means more free will to the people.
You may or may not agree with me about points 1-5, which is fine as I won’t take it personally. What it does mean is that people will have more money in their pockets to utilize as they see fit. Who wouldn’t want more of their hard earned cash to spend as they wish.
I imagine if India passes this reform, and it is what they say it is there will be a boom in India. Business will flourish, people will come out of their shacks, and start producing on a grander scale. For clarification when I say shacks I mean it literally. There is a staggering amount of poor people in India, crippled, sick, and desperate.
As businesses grow due to increased retained earnings, which will be used as productive capital there will be an increased demand for employees. Greater demand for work, wealth increases all around, and everyone’s living standard rises.
For the sake of the people of India if this proposal is what it might be I hope it passes.
So, take a couple minutes and watch this!