The Week That Was:

From: Vartaa Editorial Team on Feb 19, 2017

TN drama reaches a denouement

The political uncertainty of Tamil Nadu finally reached a conclusion this past week after two major events upended the dynamic in the state. Earlier in the week, Sasikala, who seeking the CM's post for herself was convicted by the Supreme Court in a disproportionate assets case and barred from contesting elections for 10 years. Sasikala's faction of the AIADMK then chose E.Palaniswamy as its candidate of Chief Minister. Despite continuing protests from the O.Paneerselvam faction of the party, Palaniswamy finally won the trust vote in the assembly. The trust vote though saw a violent ruckus will MLAs going over the top and throwing chairs, mikes and other objects at each other.

Phase III in UP

The election jalopy continued in UP this past week with the central part of the state, a Samajwadi Party stronghold, going to the polls. 61% turnout was reported for this phase. The political jostling continued with both PM Modi and the SP-Congress alliance taking potshots at one another. The past week also saw Priyanka Gandhi stepping into campaigning and calling out PM Modi for being an outsider to the state.

ISRO launches a century

ISRO achieved another feat this past week by launching a record 104 satellites into orbit, the largest ever collection in a single launch. The launch was made on a PSLV rocket and gained admiration from international media. Among ISRO admirers was also Elon Musk, the founder of Tesla, whose company SpaceX is also looking to launch a rocket to Mars.

Opinions you must read:

  • 100 days after demonetization, have digital payments become more popular?
  • Why do India's political parties shy away from creating a succession plan?
  • Why the Army Chief's remarks about Kashmir may be counter productive

Chart of the Week

One of the primary motives of the demonetization initiative was to punish tax-dodging and bring a greater part of the Indian economy into the formal fold and subject it to taxation. As India continues to grow rapidly, it needs to invest in infrastructure, public institutions, and programs. Tax revenues are becoming increasingly important to fund these initiatives. This week let's explore how the country has fared over the years with regards to tax collection.

India's tax revenues to GDP ratio has almost tripled to 17% in 2015-16 (Best Estimate from the Foreign Ministry). In the last 10 years, when the economy has been doing well, the tax revenues as a % of GDP have trended upwards, except for the global recession years of 2008 through 2010. This is good news for a country that has consistently run a fiscal deficit for a long time. That this figure is rising, also means that tax revenues are growing faster than the economy. This means the government is succeeding in widening the tax base. Although the government has not been very transparent in sharing the net impact on the economy of the demonetization initiative, it will certainly discourage tax-dodging at least in the short term. The passage of the GST bill, which simplifies taxation, will further widen the tax base.

It is interesting to note however that the World Bank, which vastly under-reports India's tax revenue share of the GDP at 11%. If you are interested to know how other countries compare: it pegs China's share at 9.7%, the United States' at also 11% and that of rich Western European nations in the mid-twenties.