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Trickle Down Economic Policy would not work for India Part II

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Category: Uncategorised

Dr. Susmit Kumar, Ph.D.

The US educated economists think that trickle-down economy is the best - i.e. tax cuts, mainly to rich would create jobs as they would invest in creating new firms and technologies. But it is completely bogus theory. Let us consider following three cases – if you give one crore rupee to:

टपकने वाली (ट्रिकल डाउन)आर्थिक नीति भारत के लिए काम नहीं करेगा - द्वितीय भाग (हिंदी संस्करण के लिए यहाँ क्लिक करें)

  1. to a rich (one crore), he would buy a Ferrari car.

  2. to 10 middle class person (each 10 lac), they may buy 10 houses or 10 cars.

  3. to 100 poor people (each 1,00,000 rupee), they will spend on food, children (spending on food (retail stores etc.), clothing, school/college, doctor/medicines, etc.), auto, etc.

Now you can find out how many jobs would be created in these 3 scenarios. The government needs to create more and more jobs to uplift bottom half of population. In India, less than one crore people (less than 1% of population) pay any tax. Hence tax-cut fueled consumer driven economic theory would never work. The Modi administration should not increase the income tax exemption limit which is right now 2.5 lac. The government needs to directly create jobs for low income group. It needs to use the collected tax to create jobs for more than half of the population who have not received any significant economic growth.

During 1930s, the US President FD Roosevelt government went for two stimulus packages to come out of the 1930s Great Depression, but still unemployment was in double digit at the onset of World War II. The US was able to came out of the 1930s Great Depression only when it starts to churn out arms during World War II, i.e. massive government expenditure was behind the end of the 1930s Great Depression otherwise it would have taken couple of more decades for it.

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