Our K-shaped recovery is a story that adds up

Source: The post is based on the article “Our K-shaped recovery is a story that adds up” published in Live Mint on 5^th April 2023.

Syllabus: GS 3 – Inclusive Growth

Relevance: about declining tax-payers

News: The article discusses the various reasons behind declining tax-payers in India.

What are the different reasons about the decline in tax-payers in India?

The Periodic Labour Force Survey (PLFS) data shows that all-India poverty went up during the lockdown quarter (till June 2020), but declined thereafter for four quarters.

The poverty declined due to state aid such as free food and remote employment.

However, an accurate picture of poverty caused by the pandemic is still cannot be determined by the data and statistics.

What are the findings associated with income tax data?

Income-tax data has been recently placed in the Parliament. There are debates over the shrunken population of the income tax payer under the ₹5 lakh category.

This group’s size peaked at 50 million in 2018-19, shrank to 46.3 million in 2019-20 and then again to 41.2 million in covid-stricken 2020-21.

The arguments like the net tax benefits and upward movement of the people from lower slab to the next are given to justify that reduction is not due to poverty increase.

However, reasons such as pre-pandemic distress, covid and a smaller tax base are the main reasons behind the decline in the taxpayers.

Moreover, if there has been decline due to upward shifts and tax benefits, the shortfall still suggests a base-level income crunch, as consistent with surveys like ICE360.

Further, it is argued that India’s income Gini coefficient dropped as a result of fiscal transfers. However, the Gini coefficient compares a huge population, so it does not become clear to know the beneficiary of the tax benefits.

It is also argued that India had a K-shaped recovery after the pandemic.

However, its K-shaped recovery is more about divergent wealth rather than income. For instance, asset prices soared and stocks portfolios made gains over the pandemic.

Due to which, Oxfam and other reports provided that India’s wealth gap is widening after the pandemic.

Must Read: The case for an inequality boom in India is greatly exaggerated