The myth of the trickle-down

News: This article says trickle-down is a flawed approach and that’s why Indian policymakers must discover India’s own model of development and shed defunct economic theories.

How budget 2022-23 is aligned towards a trickle-down theory?

The budget has not announced any populist measure, and taxes on incomes and wealth have not increased. Also, economists believe that investments in physical infrastructure will benefit the economy in the long run due to trickle-down and in the short run by creating more employment. Also, the allocations for health and social security are inadequate.

Why the “trickle down” approach is not suitable for India’s economy?

One, the budget presumes that large wealth creators will create wealth that will trickle down to the masses. Evidence shows that the approach of increasing the overall size of the pie by reducing taxes at the top and then “redistributing” the wealth has not delivered benefits to people.

 Also, current policies are making it easier for investors to do their business of making more profits for themselves in an uncontrolled manner.

Two, Gandhiji was not against wealth creators. But according to him, wealth creation should not be at the cost of workers and welfare. Wealth creators must be trustees of the wealth, not its exclusive owners.

Three, the Indian economy is suffering from a “demand-side” problem. The new generation with better education and vocational skills are not able to find decent jobs.

For instance, the CMIE estimates that in UP, the number of persons of working age who have a job has decreased in the last five years from 43 percent to 33 percent. Since there is no earning, that’s why investments in businesses will not be able to increase the demand.

Four, there is a growing reaction against globalization. In May 2007, the Prime Minister had said that the time has come for the better-off sections of society to understand the need to make the growth process more inclusive.

 However, business feared that he was going against the “Washington Consensus” of “minimum government”, “ease of doing business” and lower corporate and wealth taxes.

Five, due to Davos Man’s theory, the wealthiest people have influenced economic policies in democratic countries from the 1990s to make themselves wealthier. Wealth has accumulated at the top with regressive tax policies along with deregulation. Government expenditure on social reforms has been reduced.

Six, when inequalities increase without any control, governments divide to rule, and persecution of minorities increases with politics of national identities.

Seven, Neo-liberal Indian economists say that until the economy grows, there will be no resources to invest in human development. But China invested in human development before its economic take-off.

 Also, Davos Man’s theory says global free trade and competition will help the unprepared industrial sector to grow. But the UK, USA, Japan, and China grew their industrial sectors under protection and then demanded that the rest open their markets.

Source: This post is based on the article “The myth of the trickle-down” published in Indian Express on 15^th Feb 2022.