India ranks 79 out of 176 countries on the 2016 Corruption Index published by Transparency International.
Implementing new policies in terms of allocation of resources is the most important aspect of development in the coming quarter.
As much as 2016 was a year of reforms, it was also a year where the reformist claims were disputed. Predominantly, it was asked whether there were any real reforms, or whether it was just the Prime Minister’s speeches that talked about them. Further, it was increasingly seen that the people who supported the Prime Minister and his party were maintaining the narrative that reforms were abound, while the other faction was saying the opposite.
The 2017 Economic Survey and the annual Budget forecast a 6.75 to 7.5 per cent GDP growth rate for the forthcoming fiscal year. India’s growth rate appears to be high. Then why is it that India falls short on a number of development parameters? To assess the situation, we try to look at areas where India has grown in the past year and those where it might require a reallocation of resources. We compare India to its neighbours in 2016 and to itself by looking the Corruption Perceptions Index, the Human Development Index, and the Inclusivity Index.
Corruption
The incumbent Prime Minister has taken the narrative against corruption at different levels. While there are anecdotes and reports that suggest that corruption is being dealt with an iron hand, there are others that suggest otherwise. However, the Corruption Perceptions Index seems to favour the former.
India ranks 79 out of 176 countries on the 2016 Corruption Index published by Transparency International. In the sub-continent, we’re doing pretty well. Sri Lanka is ranked 95, Pakistan is at 116, Nepal at 131, Myanmar at 136 and Bangladesh at 145. China comes closest to India with the same rank of 79, while Bhutan is way above us at a rank of 27. So, from the looks of it, India seems to be the least corrupt of all the neighbouring countries barring Bhutan.
The fight against corruption has taken the centre stage in the past few years. In 2012 and 2013, India ranked 94 with a score of 36, with no improvement between the two years. In 2014, it moved up to 85, and in 2015 it further improved to rank 76. The 2016 rank is lower than the 2015 one, but in 2016, India’s score went up by 2 points (to 40). The addition of 8 more countries in the 2016 index impacts the ranking in its real sense. Hence despite the negative perception in the ranking, India has marginally improved its position.
Clearly, there is some ‘walk the talk’. But, it may not enough. As much as we might be the least corrupt nation-state regionally, at a global level, India still ranks below 79 countries on corruption. The consolation is that we’ve moved 20 ranks up from 2012. Whether that is enough or not is anybody’s guess. On the colour coded map, however, it is still recognised as one of the ‘highly corrupt’ countries.
Human Development
Taking cue from Nobel Laureate Amartya Sen’s remark, “Economic growth without investment in human development is unsustainable and unethical”, we look at the United Nations Development Programme (UNDP) Human Development Report that ranks countries on the basis of the Human Development Index (HDI) it formulates.
Industrial forecasts, job opportunities and social services are fundamentally designed to make policymakers more informed about ways in which they can improve the lives of the people, much like everything else that is measured. An objective judgement of this progress is given by the HDI which maps out education, health and income using the following proxies: expected years of schooling for kids and average years of schooling for adults for education; life expectancy at birth for health; and gross national income for income. The geometric mean of the normalised indices is then used to rank each country.
India currently stands 130 of 188 countries under the category ‘Medium HDI’. Bhutan is at 132 while Bangladesh is at 142. Sri Lanka and China have ‘very high HDI’, each being at a rank of 73 and 90 respectively. Nepal at 145 and Pakistan at 147 are ‘low HDI’ countries.
Clearly, India is far away from being an example of human development. Sanitation and healthcare services require attention. And even though the government has mobilised schemes to this end, in terms of outcome, it clearly hasn’t made much of a difference.
While education enrollments are increasing, the Annual Statement of Education Report (ASER) portrays that learning outcomes are still lacking, even in primary class students. Clearly, more interventions and deliberations are required to make education work in India. Income levels are extremely low too. In fact, more than 90 per cent of the people are not even on the tax grid, leading to a strong black economy that doesn’t take employee benefits vis-a-vis insurance, provident fund, etc. into account.
The top five countries on the index are European, with the exception of Australia. There are some specific policies that these countries implement which gives them the edge.
One such example is that of ‘flexicurity’ in Denmark, defined as “coexistence of flexibility, in the form of low adjustment costs for employers and employees, and security”. It aims at promoting employment security over job security. So, the labour force is flexible which helps companies and employers have the cushion of a social safety net. India too needs to make certain adjustments to its labour laws to climb up the ladder on the HDI.
Inclusive Development Index
The Inclusive Development Index, published by the World Economic Forum is quite a holistic measure of the progress a country is making. It uses 12 development parameters under three broad pillars: “growth and development”, “inclusion”, and “intergenerational equity and sustainability”.
The rankings are divided into advanced (30 countries) and developing countries (79 countries). India ranks 60 of the 79 developing countries. Most of its neighbours are ahead. Bangladesh is at 36, Nepal at 27, Pakistan at 52 and Sri Lanka at 39. Clearly, India is the worst of its neighbours.
The report specifically stresses concern on India’s rising debt to GDP ratio, questioning the fiscal spending of the country. It points out that educational enrollment rates are relatively low across all levels, consequently translating into low formal labour force participation. It also points out that the tax system could be made more progressive in order to develop infrastructure which is currently inhibiting new business creation. Another reason for lack of environment to do business in India includes corruption and a large administrative burden.
Among the top-ranked developing economies are countries like Lithuania, Azerbaijan and Hungary, and the ones that showed the most-improved five-year trend were Lesotho, Nepal and Georgia.
Where do we go from here?
The budget and economic survey have highlighted several important points, but implementing new policies in terms of allocation of resources is the most important aspect of development in the coming quarter. Education, healthcare and food will need a boost, as the HDI numbers clearly suggest. There is also a case for enhancing businesses in India, particularly small and medium-sized enterprises which carry the potential to thrive. Implementation will be instrumental in outlining the priorities of this government in the coming fiscal year, which should be based on the above data points and indices.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.