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Indian Economy: Liberalisation gone for a toss?

Aakash Agarwal

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India always had an exasperating tie-in with quotas, low tariffs and restrictions. During 1960-85, it had sky-high tariffs but clearly the policies failed miserably. After it borrowed funds from the IMF in 1991 due to the economic crisis, it was compelled to follow the liberalisation policy and thus the regime of permit raj came to an end. The economic policy reforms remarkably upgraded India’s position in terms of GDP growth, quality of life and purchasing power parity. In recent years, it appears that the Indian economy is driving back to the protectionist policies which prevailed the pre-1991 period.

The Protectionism Hypocrisy

At the World Economic Forum meeting in 2018 in Davos, PM Narendra Modi, indirectly pointing towards Trump who have been propelling an “America First” Policy said that some nations were looking inwards and being protectionist. He appealed for more accessibility and free trade. Fast forward to 2019, India opted out of the Regional Comprehensive Economic Partnership (RCEP). The reasons are believed to be the fear of being swamped by imports especially from China, putting the domestic industries at risk. Given that India already suffers from a trade deficit from the members of RCEP of $105 billion and out of that $53.56 billion is from China alone, this decision seems very rational. But is it really?

Piyush Goyal (Commerce and Industry Minister) claimed that this decision will boost “Make in India” and that Free Trade Agreements (FTAs) with countries like Japan, South Korea and ASEAN provided them with duty-free access to Indian markets but domestic goods faced barriers in their territories. But this is not the entire picture. To test whether the FTAs were beneficial or not, the Economic Survey 2019-20 conducted research. For this, it took into account 14 trade agreements signed by India. Only the trade agreements with Korea, Japan and Sri Lanka had a negative impact which means that the percentage rise in imports was greater than the percentage rise in exports. Other trade agreements had either no impact or a positive impact.

Talking about the overall effect with the trading partners, the Indian economy actually gained. The impact on exports was 13.4% for manufactured products and 10.9% for the total merchandise. Whereas the impact on imports were found to be lower at 12.7% for manufactured products and 8.6% for total merchandise. Therefore, from the perspective of the trade balance, India has obviously gained in terms of 0.7% increase in trade surplus per year for manufactured products and a 2.3% increase in trade surplus per year for total merchandise. Although, all the views regarding the fallout of the decision to step back from the RCEP agreement are just speculations at this point and we will get to know about the actual effects in the years to come.

Back in January, when Jeff Bezos visited India, he got no reception from PM Narendra Modi. Piyush Goyal advocated that Bezos was only covering up losses from predatory pricing by investing $1 billion in India and also condemned his pledge to create a million jobs by 2025 arguing that it hardly made up for the millions of Indians put out of work by the e-commerce site. It is a popular opinion that the Chinese were able to build tech giants like Alibaba only because they shut out US-based firms like Google and Facebook. Therefore, it is believed that India should also block them and create its own local champions. But to aid its overall development, the Indian economy needs all the economic vigour it can assemble and that involves attracting foreign investors. With its frequent policy changes, India has already got an image as a troublesome and unpredictable place to invest. The government further signalled the investors about their protectionist intentions through this act and risked a dampening effect on investors globally.

Protectiveness Vitiates The Budget As Well

In the budget 2020, the government not only hiked custom duties on a wide range of goods like grocery items, shoes, dolls and toys, ceiling fans, wooden furniture, kitchenware appliances, hairdryers, shelled walnut but also intends to make changes in the Customs Act 1962 through the Finance Bill. It will be amended to give the government the power to impose safeguard duties and tariff-rate quotas on imports on the pretence of injury to the domestic industry. Since the 1991 liberalisation era, this power was restricted to trade of gold and silver. The procedure for claiming preferential tariff rates under trade pacts has also been made complicated with importers having to give declarations along with the certificate of origin.

These changes will surely increase the scope of corruption by bureaucrats as they get more power. Also, these arbitrary tax spikes will lead to economic distortions and worsen the rent-seeking activities by domestic industries as they will lobby for their preferred tariffs which would have been dampened in a world with uniform taxes. Thus, instead, it needs to adopt the strategy of simplified, uniform and predictable tariffs which will eliminate tariff Inversion (in which intermediate goods are taxed more heavily than the final goods) and distortion costs could be kept very low.

The current policy choice reflects a highly mistaken mindset that one can cut back on imports while boosting exports, not realising that a reduction in imports, induced by an increase in tariffs, is expected to lead to a decrease in exports of a corresponding value. This is known as the Lerner’s Symmetry Theorem, a result used in international trade theory stating that an ad valorem import tariff will have the same effects as an export tax and is based on the observation that the effect on relative prices is the same regardless of the policy.

A Call To Escalate Exports

According to the World Trade Statistical Review, 2019 by World Trade Organisation (WTO), India’s average annual growth rate in merchandise exports was 5.3% between 2008 and 2018 which is well below Vietnam, Bangladesh and China. The growth rate of India in commercial services export was 8.6% per year on average from 2008 to 2018. This is below many of the developing countries namely China, Philippines, Vietnam, Singapore, Thailand, Qatar and Myanmar. There has been a substantial increase in exports of transport equipment, chemicals and food products which contributed to moving up India to the 19th position in world rankings of top exporting countries.

Although India has achieved many milestones in the last decade, it can do much better given its potential and unexplored territories. In fact, the government should try to increase its exports than constantly trying to decrease the imports if it wants to be a $5 trillion economy. Some scholars argue that the huge trade deficit of India is not because of increasing imports but of decreasing exports.

“Unless India’s exports grow at 15%, we won’t get 8% growth. For that, we should reverse some of the protectionist measures taken. If we turn protectionist, I don’t know how can we be an exporting power. Self-sufficient exporting powerhouse is an oxymoron” – Arvind Subramanian said while speaking at a webcast organized by EY India.

In the Economic Survey, while discussing India’s performance on Ease of Doing Business (EoDB), a series of case studies shows the inefficiency in the Indian system of Trading across Borders. As Italy topped the EoDB ranking in Trading across Borders, they compared India’s performance with that of Italy. India takes 60-68 hours in border compliance for exports while Italy took only one hour. Moreover, the cost of compliance is zero in Italy compared to $260-281 in India for export. Almost 70% of the delays occur due to procedural complexities, multiple documentations and involvement of multiple agencies for approvals and clearances. These inefficiencies, in turn, lead to time delay and end up pushing the cost to trade. Progressing digitalisation and combining various companies in a single digital platform could possibly decrease these inefficiencies and enhance users experience considerably.

Also, a study found that an apparels consignment going from Delhi to Maine (USA) takes roughly 41 days, but 19 of these are spent within India due to delays in transportation, customs clearance and loading at sea-ports. Apparently, the process flow for imports is more efficient than that for exports. In contrast, however, the imports and exports of electronics through Bengaluru airport were found to be top-notch. It thus recommended that the processes of Indian airports should be replicated in sea-ports as well.

It also suggested adopting policies aimed at strengthening its involvement in the export market for Network Products (NP) in order to get linked with the Global Value Chain (GVC). Through observations, it has been found that countries who substantially increased their exports and managed to maintain it did it through linking up with the GVCs. Given our vast labour force with relatively low skill-set, India’s strength lies in the assembly of NP. While the short-term objective is the expansion of assembly activities on a large scale by making use of imported parts & components, giving a boost to domestic production of parts & components should be the long-term objective. Assembly is a highly labour-intensive area that can provide jobs for the huge population of our country, while domestic production of parts & components can create high skill jobs. But for a country like India to transform into a preferred location for manufacturing enterprises, it is imperative that import tariff rates for standard goods are zero or negligible.Thus, India needs to control itself on the tariffs and restrictions. India needs accessibility, it needs foreign investment, it needs the competition to be a world-leader.

Conclusion

There are different kinds of restrictions when it comes to protectionism. We can certainly have the set of duties which seeks to create a level playing field for the MSMEs but it becomes harmful when we instead try to protect the industries which are already in a good position in terms of opportunities in the hope to flourish them. There is just a slight difference between these two kinds and policymakers need to incorporate this idea when drafting policies. For instance, India refused to allow permanent tariff liberalisation on health and farm products at the WTO Council Meeting as an answer to trade disruptions caused by COVID-19 is not harmful protectionism. Every country will bear the brunt of COVID-19, the difference being the level of disruptions faced by each one of them. But we should also keep in mind that the least developed and developing countries need to be guarded given the lack of resources available to defend themselves from the crisis.

India acknowledges the disruptions caused in the flow of medical supplies, food and other goods and services across borders and has been playing a proactive role in combating it but doing so at the cost of its own industries is something India (or for that matter none of the countries) would like to do given the economic crisis they are going to face. At the same time blindly putting up restrictions will only lead to increased prices for competitively produced imports and the customers will end up footing the bill. India committed the same mistake back in the 1970s. In order to be self-sufficient, a country needs to make its industries capable through the competition so that the users do not pay the price by buying some cheap quality or inefficiently produced product. Protectionism is not the ideal approach if we want to grow. We should have an equally or even more efficiently produced substitute ready if we want to raise the tariffs. Thus, India should instead focus on the production inside the country and work on infrastructure, logistics, productivity and lifting the standards of products if it wants to reduce the trade deficit.

Aakash Agarwal is currently pursuing a Bachelor of Science in Economics (Honours) from Doon University, Dehradun, India. He has a research interest includes Global Economy, Financial Economics and IR Theory. His work has been published by the Diplomatist Magazine, South Asia Democratic Forum and the Kootneeti.

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Pandemic Recovery: Three Sudden Surprise Gifts

Naseem Javed

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A new shine across the globe is entering into boardrooms; a new awakening is enforced and a new shift emerges… the sudden popularity of new awakenings

“Simultaneous Synchronization”: For about a decade, the most difficult concept at leadership discussions in both Public and Private Sectors was ‘simultaneous synchronization’ deployments of national mobilization and upskilling of hidden talents on large-scale digital platforms. The obvious lack of vision and skills at top leadership grossly failed to figure out how all this works. Suddenly this the most talked about topic and now seen as a rapid-fire solution to save broken economies. The pressure cooker with skeleton economies on the boil now released the steam and blew the whistle to attract open-minded innovative thinking. It is finally time to lead, follow or get out of the way.

“Upskilling and Reskilling”: Last many decades the developed economies blatantly ignored this area, now like a shark bite there is global panic on upskilling and reskilling. Ignoring once the almighty German model of apprenticeships treated as young apprentices changing motor-oils but preferred teams of ‘wet behind ears’ young MBA learning hedge-funding charades as better options. Today, upskilling to have skilled citizenry capable of quality productivity, performance and profitability is critical for survival. Trade wars are old schools, internal wars of upskilling to create confident and skilled citizenry to save nations with dignity is now the new survival.

“Big Business Is Big But Small Business Is Bigger”:
Economic heads buried in sands all across Western economies, resorted to election time lip service and allowed SME slip down the drains. Big business is big but small business is bigger. Worship accordingly. Today, heavy membership fees from top firms influence all trade gropus all over the world, from national trade associations to Chambers of Commerce, sacrificing local SME. Do the math.

Pandemic awakened the sleeping giants: All three above challenges now suddenly becoming survival strategies and nation-by-nation and town-by-town new language and dialogues emerging as new gifts. A new series under way with high-level discussions and debates by Expothon covers such topics in greater depths.

The warm facts and cold realties;
No further proof required, as most economies of the world will be shrink-wrapped soon
No further validation needed, as unlimited printing monies will only flush down economies
No further denial accepted, as hologramic stock markets would not save the jobs or nations

When facing truth becomes taboo; facing music suddenly becomes a new occupation; understanding cries of public a new art and swimming against economic currents a new science. In the end, it is the critical analysis and complex problem solving to capture the dodging truth a new survival strategy. The pandemic recovery is no longer election theatrics but all about Mastery of Covidism, isolating novices to deal with recessions, depressions and economic compressions.

The Tribulation Factors:
50% of downtown of the world may not survive,
50% of tall office towers may go empty,
50% of retail shops may go under,
50% businesses may never open,
50% of displaced may not have any jobs soon
50% of office workers may work remote,
50% economies may lose a decade to recover,
50% hailed as successful economy now mostly illusion,
50% political leadership may lose power,

The Brand New Thinking:
100% brand new concepts underway around the world,
100% new skill-transformation underway for new economies,
100% global thinking connecting and shaping new platforms,
100% new vision shaping brand new voice over fakery,
100% rejection of old competency over new thinking,
100% adoption of entrepreneurial mobilization,
100% rise on diversity, tolerance and equality issues
100% critical thinking to face the truth and march forward,

Stand up and claim your expertise. Ask three difficult questions:
Why local or national mobilization of entrepreneurialism and upskilling of small midsize business base cross the nation stalled? When or if ever was there a national or regional bold debate on these specific topics? What possible forces are stopping such activities and why?Depending on style and type of skilled leadership and based on geographic location some, amazing opportunities are alive and active. Study Pentiana Project, especially when all such thinking is not new funding dependent as these are all deployment hungry and execution starved steps.
The rest is easy

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Millionaires for Humanity Petition: Who does not want to sign

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Recently millionaires from different countries signed a petition under the name “Millionaire for Humanity” demanding their respective governments to raise taxes on them to help with the coronavirus pandemic. More than 80 individuals have signed the letter, and most signatories belong to the developed nations like the US, UK, and Germany. One of the key aspects of the petition is that taxes can only create a huge impact against charitable contributions, no matter how generous these contributions are. It might be a rare and historic moment to witness wealthy individuals quoting “Tax us, Tax us, Tax us” to fund the social sector like health, education, and security. The phrase “rebalance our world through wealth tax” seems like a unique moment of truth for the wealthy to play their part towards humanity.

But is the voluntary action enough to counter the state’s inaction to tax the wealthy? A few individuals’ voluntary actions are a drop in the ocean that might not even make a dent to make all wealthy accountable?Wealthy do indeed pay proportionate taxes according to their state laws in many parts of the world. But the bitter truth is that there are also increased tax avoidance cases by the wealthy, which the Paradise Papers, Panama Papers, and other evidence show. That is why there is a rigorous debate on taxing the rich even more.

According to Oxfam’s 2020 report world’s 2,153 dollar billionaires had more wealth than 4.6 billion people or 60% of the world population in 2019. Even in the aftermath of COVID-19 there has been no change in the millionaire’s status quo who actually saw their wealth grow exponentially. According to Forbes magazine report, 10 billionaires gained $51.3 billion or Rs 3.9 lakh crore (at exchange rate of Rs 76) in just a week between April 2 and 9 when the global economy was almost shut (except for a few essentials) and millions were losing their incomes and jobs.They did this through the stock market. These billionaires included Jeff Bezos, Mark Zuckerberg, Warren Buffett, Elon Musk, Bill Gates, and Mukesh Ambani.

Thus the paper analyses two main issues in relation to the petition. Firstly, why similar actions were not taken by the wealthy in the developing nations, with focus on India? Secondly, will a voluntary compliance mechanism via a petition resolve the ongoing issue of tax evasion by the wealthy?

  1. Why there is no similar petition in developing countries?

The petition seems to appear as a global movement, but in reality, it is a mere representative of the few wealthy individuals residing in developed economies. The less participation and debate amongst the developing countries on taxing the rich can be understood in terms of their societal and cultural background. In India, it is easier to project it as a home to the poorest, but it is also a home for some of the world’s wealthiest people. In this context, it is essential to understand how the wealthier population’s nature changed significantly since Independence and how a favourable tax system helped them to grow.

1.1. From Inherited wealth to private enterprise:

When the British left, a handful of business families and dynastic royalties were in charge of key economic industries. These dynastic royalties had amassed and inherited great fortunes over time due to their close ties to the colonial administration. Although there was poverty amongst the general population, the most lavish lifestyles were only enjoyed by the princely classes, some business houses and large zamindars (landlords).

Primarily the inherited wealth was the primary source of wealth amongst the wealthier population.

However, between 1961 and 1986, India’s notorious macroeconomic plight undermined a progressive effort to reduce the incumbent rich’s size and importance. Low economic growth was accompanied by a sharp reduction of the real value of wealth held by the top 0.1%. The backdrop for this decline was itself rooted in the integration of India when the government quickly took steps to abolish inherited wealth amongst the super-rich royalty. Hence inflation, progressive taxation, and nationalization that characterized the late 1960s and 1970s punished the outdated rentier class and expropriated much-existing wealth.

In the 1990s, domestic and external liberalization happened in India, resulting in the deregulation of taxation and private investment. This led to a rapid increase in stock market capitalization relative to GDP. In fact, given the tremendous rise in stock market capitalization, it seems possible that wealth concentration in India may have surpassed its pre-1970 levels in recent decades. This transformative wealth dynamics of the 1960s and 1970s are crucial to understanding how the elite class, once populated by inherited wealth, is now made up of private enterprises.

However, the rise of the new private enterprise did not address income inequality, only to make the rich richer and the poor more miserable. According to Oxfam’s January 2020 report ‘Time to Care‘ said, in 2019, the wealth of top 1% Indians went up by 46% while that of the bottom 50% by 3%. In 2019, the top 1% Indians held 42.5% of national wealth, which is, more than 4 times the wealth of 953 million people constituting the bottom 70%. The bottom 50% held just 2.5% of national wealth. According to the Credit Suisse’s ‘Global Wealth Report of 2019‘, there were 7,59,000 dollar millionaires in India 2019, up from 725,000 in 2018 and 34,000 in 2010. This shows that even as a developing economy we do not have a dearth of wealthy people who are unable to participate in the petition.

1.2. How the tax system works favourably for the wealthy?

In developing countries, the governments’ primary focus is on resource mobilization, which dictates their tax system. This is due to the unequal income distribution. However, the tax system is also designed in such a way that makes it harder to tax the rich. This is because wealthy taxpayers’ political and economic power often prevents the government from developing fiscal reforms to increase their tax burdens.

Moreover, there are high personal exemptions and the plethora of other exemptions and deductions that benefit those with high incomes (for example, the exemption of capital gains from tax, generous deductions for medical and educational expenses, the low taxation of financial income). India has been an active recipient of FDI for decades. As a result, it results in lower effective tax rates for MNCs.

Simultaneously, the government keeps on slashing the corporate income tax rate during every budget, providing strong incentives for taxpayers to choose the corporate form of doing business for purely tax reasons. For instance, the Indian government slashed corporate tax to 22% (without exemptions) for domestic companies in September 2019, bringing the effective rate to 25.17%  (with surcharge and cess). Such a move happened when the economy had nose-dived for several consecutive quarters.

According to the IMF, the combination of tax incentives and low corporate tax rates leads to the following:

  • Increased incidences of tax evasion due to the ease with which multinationals seem able to avoid tax, combined with the three-decade-long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system and
  • the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty and meet the 2030 Sustainable Development Goals.

Hence, it can be observed that wealthy individuals are provided with a plethora of tax incentives in a developing economy to prevent capital flight. However, this does not translate into high tax morale for these individuals due to increased tax evasion incidences. Now is the time for the wealthy to take part in the petition to share responsibility in rebuilding the economy.

  • Will the Petition be effective in achieving fair taxation by the wealthy?

2.1. Assessing the problem of tax evasion by the wealthy

Empirical data has shown (e.g., E. Hofmann, Voracek, Bock,& Kirchler, 2017b[1]), that the motivation to engage in tax avoidance and evasion increases with wealth. Recent studies indicate that tax evasion is directly proportional to wealth, with the top 0.01% of the wealth distribution (i.e., households with more than $40 million in net wealth) evades almost 30% of their wealth and income tax versus 3% by taxpayers overall (Altstaeder, Johannesen, & Zucman, 2017[2]). With the aim to minimize their taxes, it is easier for the wealthy to hire tax agents who are skilled in devising ways to achieve that(Sakurai & Braithwaite, 2001[3]).

Tax avoidance is a huge issue that amounts to $240 billion every year (Rs 18.24 lakh crore), according to OECD-G20’s anti-tax avoidance initiative, ‘Action Plan on Base Erosion and Profit Shifting’ (BEPS). Recent data by Fair Tax Mark shows that Facebook, Google and four other US tech giants, described as the Silicon Six (others being Netflix, Amazon, Microsoft, and Apple) had avoided paying $100 billion tax (Rs 760,000 crore) between 2010 and 2019. Due to tax evasion, according to 2019 IMF study, the non-OECD countries are losing 1.3% of their GDP or $200 billion of revenue every year while the OECD countries about 1% of GDP or close to $450 billion.

Nonetheless, the blame cannot be squarely put on the wealthy for causing tax evasion. It is the legal, political, and economic context of national tax loopholes which not only give the wealthy many more opportunities to avoid taxes than the average citizen but might also create an ideal environment that legitimises aggressive tax avoidance behaviour.

2.2. How the petition will help in combating massive tax evasion problem?

It can be said that the petition is an example of committed motivation by the wealthy which drives them to pay taxes because of a felt moral duty(Gangl et al., 2015[4]) or due to emotional stress, caused by anticipated guilt or shame (Blaufus, Bob, Otto, & Wolf, 2017[5]). However before delving into the question whether such an initiative will be effective to combat tax evasion in the long run, it is important to understand the social psychological process that motivates the wealthy to either pay or evade taxes.

The wealthy can easily identify and compare themselves with other wealthy individuals as a result of pychological process in relation to belonging to a particular group. As a result they imitate not only lifestyles but also tax behviours out of comparison and competition, because one does not want to fall behind in the financial race (Mols & Jetten, 2017[6]).For instance, if all wealthy friends move money to offshore tax havens, then the individual will also more likely do that.

Also, wealthy individuals do acquire a heightened sense of self-esteem, freedom, and perceived control, which increases the willingness to resist anything that hinders freedom (Brehm, 1966[7]). Taxes on the wealthy is a classical case where the rich find it as an attack on their personal freedom for which they look for ways to fight against it. In fact, experimental research shows that coercive fines and audits increase taxpayer reactance more than less coercive attempts by the tax authorities (Gangl, Pfabigan, Lamm, Kirchler, & Hofmann, 2017). Thus, when faced with coercive form of taxation wealthier individuals will be motivated to employ more resources (compared to the average taxpayers) to escape this situation. This might make the classical coercive attempts to increase the tax honesty less effective.

In such a scenario, the voluntary form of tax compliance might appear as the ultimate solution to fight against reactance. Such a form of compliance comes with trust in the tax system, and thus, people accept their tax obligations without threatening audits and fines. However, state measures like suspending fines and audits or tax amnesties, which gives leeway to rich taxpayers to repatriate their money from tax havens without being fined, also show no long‐term positive effect (Alm & Beck, 1993[8]; Toro, Story, Hartnett, Russell, & Van‐Driessche, 2017[9]). Thus, it is important to combine voluntary and coercive tax measures to ensure fair taxation with a sense of tax honesty on the part of the wealthy individuals.

3. Conclusion

In view of the COVID-19 it is apparent that the petition by the few wealthy individuals brings in a wave of hope towards achieving fair taxation for the sake of humanity. However, the outreach is still not global, with a participation of a fraction of wealthy individuals from a few developed economies.Thus, there is a need to ensure the huge participation of wealthy people, not only from developing economies but those involved in tax evasion.

As discussed in the article,  tax-related decisions of the wealthy are different from average taxpayers due to social psychological differences of belonging to a particular community. So a unique approach must be followed to motivate the wealthier population to pay their share of taxes.

3.1. Possible solutions:

There are many ways to motivate the wealthy, either in developed or in developing countries, to contribute more taxes to the benefit of society. It is true that mere public plea to join the campaign will not attract the attention of majority of wealthy individuals. On the other hand, coercive audit or fines to ensure fair taxation also does not help much towards the cause. For example, a fine of 18.8 million Euros imposed on Portugal’s football superstar Cristiano Ronaldo did not diminish the fame and positive image associated with the player.

One possible solution to influence the tax decisions of the wealthy is to combine coercive and voluntary state measures by publicly naming and shaming the wealthy individuals who resist to be part of the global campaign or pay their fair share of taxes. Thus, if such accusations on famous wealthy individuals like Chief Executive Officers or politicians violate ordinary citizens’ tax morale, these latter might start questioning the reasons for their tax honesty. For instance, after Greece published a blacklist of over 4,000 citizens who owed tax money to the state (Aswestopoulos, 2012[10]),  it experienced a decline in the shadow economy’s size from 25.4% in 2010 to 22.0% in 2016 (Schneider, 2016[11]). This way, identifying evaders publicly may act as punishment and a deterrent from engaging in aggressive tax avoidance. However, it is equally true that shaming needs active public support and media coverage, without which the debate towards fair taxation will lose its grip. So the time is ripe for citizens to join their hands in the global movement towards fair tax and compel the wealthy to be accountable.


[1]Ackermann, L., Becker, B., Daubenberger, M., Faigle, P., Polke‐Majewski, K., Rohrbeck, F., … Schröm, O. (2017, June). Cum‐ex. The great tax robbery. Zeit Online .

[2]Altstaeder, A., Johannesen, N., & Zucman, G. (2017). Tax evasion and inequality . Retrieved from http://www.nielsjohannesen.net/wp-content/uploads/AJZ2017.pdf

[3]Sakurai, Y., & Braithwaite, V. (2001). Taxpayers’ perceptions of the ideal tax adviser: Playing safe or saving dollars ? Working Paper No 5, The Australian National University, Centre of Tax System Integrity.

[4]Gangl, K., Hofmann, E., & Kirchler, E. (2015). Tax authorities’ interaction with taxpayers: A conception of compliance in social dilemmas by power and trust. New Ideas in Psychology37, 13–23. https://doi.org/10.1016/j.newideapsych.2014.12

[5]Blaufus, K., Bob, J., Otto, P. E., & Wolf, N. (2017). The effect of tax privacy on tax compliance – An experimental investigation. European Accounting Review26(3), 561–580.

[6]Mols, F., & Jetten, J. (2017). The wealth paradox. Economic prosperity and the hardening of attitudes. Cambridge, UK: Cambridge University Press.

[7]Brehm, J. W. (1966). A theory of psychological reactance. Oxford, UK: Academic Press.

[8]Alm, J., & Beck, W. (1993). Tax amnesties and compliance in the long run: A time series analysis. National Tax Journal46(1), 53–60.

[9]Toro, J., Story, T., Hartnett, D., Russell, B., & Van‐Driessche, F. (2017). Italy. Enhancing governance and effectiveness of the fiscal agencies. Interantional Monetary Fund. Fiscal Affairs Department . Retrieved from http://www.mef.gov.it/inevidenza/documenti/Rapporto_FMI_Eng.pdf

[10]Aswestopoulos, W. (2012, January). Finanzamt stellt “Liste der Schande” ins Netz. Focus Online . Retrieved from http://www.focus.de/finanzen/news/staatsverschuldung/liste-der-schande-viele-deutsche-unter-griechischen-steuersuendern_aid_706059.html

[11]Schneider, F. (2016). Estimating the size of the shadow economies of highly‐developed countries: Selected results. CESifo Dice Report14(4), 44–53.

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Decoding European Union’s Economy

Aakash Agarwal

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European Union (EU) is a political and economic union which consists of 27 member countries. It acts as one economic unit in the world economy and is considered a major world trading power. They are subject to obligation and privileges of the membership. It focuses on comprehensive growth of all countries.

The Formation

The EU was formed to end the centuries of warfare that culminated during World War II. The union was founded in 1992 with the Maastricht treaty but was given its reformed structure and powers in 2007 with the Lisbon treaty. Under these treaties, the 27 members agree to come together with their sovereignty and delegate many decision-making powers to the unified body. Currently, there are seven official EU institutions which are made for the executive, judicial and financial functions. The primary aim of this treaty was to boost economic social and political integration amongst the nation.

The European Central Bank is the EU’s central bank . It regulates monetary policy and manages bank lending rates and foreign exchange reserves . The institution over the

years has expanded and strengthened its own authority. It has proved to be a competent institution and is serving its purpose.

However, It has also faced a series of unforeseen circumstances including the 2008

economic crisis, an influx of migrants from the Middle East and Africa and Brexit Negotiations. In June 2016 the United Kingdom decided to leave the European Unionand officially from 31 January 2020, the United Kingdom is no longer part of the EU.

Breakdown Of The Economy

Most countries that are a part of the European Union and use the same currency Euro. A group of nineteen of the twenty-seven EU members use the Euro currency. Therefore the trade process is simplified and the rest of the EU is also legally required to join the eurozone at some point. In terms of the total value of all the goods and services, it is considered bigger than the US economy. The 19 EU member states that comprise the euro area accounted for 85.5% of the EU’s GDP in 2019. However, due to the unforeseen circumstances implemented across the world in 2020 GDP is down by 3.8% in the euro area and 3.5% in the EU.

The EU’s trade structure has helped it to become one of the world’s largest economies after China. In 2018 it surpassed China’s GDP with a difference of $3.3 trillion. These measurements use purchasing power parity to the account of discrepancy between each country’s standard of living. Some experts argue that the EU produces more but the US still a larger economy, whereas the US is a country and the EU is a trading area which compiles the 27 countries. Despite the eurozone debt crisis, the EU is staggering towards a bigger fiscal integration. The EU’s currency, the euro has successfully competed with the global currency dollar. The EU’s exports in 2019 were for products petroleum, automobiles and medication while its top imports are petroleum, communications equipment, and natural gas.

Classification Of Eu Budget

The biggest chunk of the percent spent on the agricultural sector. Which includes the direct payment to farmers development of fisheries, forest and rural areas. The second chunk goes into economic, social and territorial cohesion, which is meant to help the EU’s less developed countries. It includes infrastructure, job development, technical assistance for

Small business. The rest is spent on research and development and building the EU’s foreign policy which is under Global Europe. The EU budget must balance as it has no authority to spend more than it takes in.

Trade

The 64% trade is undertaken within the EU states. The trade with the rest of the world accounts for some 15.6% of global imports and exports. The EU countries had the second-largest share of global imports and exports of goods in 2016.

Employability

After the global economic crisis and eurozone turbulence in 2008, the employability saw a rise in future.


The Economy Post Covid-19

The world economy has witnessed a plethora of ups and downs in this pandemic. European Union leaders sealed a 750 million – euro ($857billion) deal for their coronavirus blighted economies after a marathon talk. The EU was slow to coordinate initially with the pandemic and already weakened by Brexit, It was important for an upfront on economic aid which would demonstrate its come back. Earlier it has been observed bitter rows over how the grants would be managed. Council President Michel said securing a deal as “not only about money, it’s about people, about the European future, about our unity.”

Chancellor of Germany Angela Merkel said on Monday that EU leaders had come up with a “framework” for a possible agreement. Whereas Michel told, “This agreement sends a concrete signal that Europe is a force for action”. French President Emmanuel Macron, who spearheaded the deal with German Chancellor Angela Merkel, hailed it as “truly historic”.

But Currently, Countries like France, Spain and smaller nations in the EU have been adversely affected, It is believed that the economies of France and Spain will shrink by over 10%. The Country’s GDP is not expected to return to last year’s level before 2022. Earlier this month that it expects the EU economy to shrink 8.3% in 2020, The European Commission said considerably worse than the 7.4% slump predicted two months ago.

Comparisons With India

The deficiency in India’s COVID relief package is inadequate fiscal spending ( just 1% of GDP). For spending more the government will have to borrow more. However, without spending, the economy will likely struggle a little longer. Whereas in the EU package Euro 390 billion of grants. Cheap loans and credit guarantees are important but for a declining economy, stress should be given more to wage subsidies and emphasis on the MSME sector.

The meeting of the EU is the first major in-person gathering of world leaders since the COVID-19. The ideal emphasis which every leader is saying is the concept of ‘fundamental of the internal market should begin again with all necessary precautions and not just countries most affected by the crisis but also for those which benefit the most from the internal.

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