A special levy on property ownership is intended to compensate for the dip in growth. Economists see devastating consequences of the pandemic for the economy. An old rival of Prime Minister Modi is also getting into position.
In Asia’s third-largest economy, leading economists in the fight against the consequences of the coronavirus bring up the idea of a special tax for the rich and high earners: They should contribute up to the equivalent of 12 billion euros to India’s economic recovery in the form of a one-off payment, explained Arvind Subramanian, the former chief economist of Indian government. “This contribution can come in the form of taxes or the removal of subsidies for the middle class. The affluent could contribute through a wealth tax that comes in above the limit of real estate ownership of 50 million rupees, ”said the esteemed economist.
Converted, this would be a property value of a good 600,000 euros. The country with its almost 1.4 billion people is facing the lowest economic growth since its fundamental reforms in 1991. Subramanian calculates that India will suffer damage of around 10 trillion rupees (121 billion euros) as a result of the crisis. Among other things, he also takes into account lower tax revenues of 1.5 percent of economic output, which are caused by the artificial coma during the curfew until May 6th.
In addition to the solidarity contribution of the better-off, lower government spending, the issuance of bonds by the central bank and the help of multilateral organizations are intended to fill the gap. This concept will hit the business-friendly government under Prime Minister Narendra Modi hard. Even before Corona, she had completely missed her goals of how many jobs she wanted to create and to what extent she wanted to stimulate the economy. Because there is no doubt that it will now have to save instead of fueling the economy with further state investments.
Economists see the situation more critically than in the financial crisis
Subramanian assesses the situation much more critically than the multilateral organizations and went heavily to court with their forecasts published on Wednesday. He is thus on the course of the commercial banks, which, similar to the Japanese bank Nomura, expect the Indian economy to shrink by between minus 0.5 and minus 2.6 percent this year. The International Monetary Fund, on the other hand, is still anticipating a growth rate of 1.9 percent.
“The figures from the World Bank and IMF are far too optimistic, we will have a clearly negative rate and we should respond to that,” said Subramanian. However, Changyong Rhee, the IMF’s head of Asia, said on Thursday that the region would come to an economic standstill due to Corona. The situation is much more serious than during the global financial crisis in 2008, when Asia-Pacific grew by 4.7 percent, and during the Asian financial crisis in 1998, when the rate was at least 1.9 percent.
Former Indian central bank governor Raghuram Rajan also said he was ready to help the Modi government. The University of Chicago economist had been driven out of office by her, but had just been appointed to the IMF’s global crisis management advisory board. Among other things, Rajan criticized the collection of cash by the Modi government, which was at the expense of the poor.
“If the virus spreads like in Italy or America, we have to take it very seriously. In these countries we are already seeing a huge public health impact, hospital congestion and, of course, many deaths – in such conditions it becomes difficult to just get on with economic activity, ”warned Rajan. Officially, the world’s largest democracy currently has around 12,000 infected and almost 400 dead. However, the country only tests 137 out of a million people; Italy has 16,000, America a good 8,000 tests per million inhabitants.
At the beginning of March, before the Indian government reacted to Corona, the former Prime Minister Manmohan Singh had warned: “India is in imminent danger due to the trinity of social disharmony, an economic slowdown and the global epidemic. The social unrest and economic ruin are homemade while the coronavirus is an external shock. I am deeply concerned that the powerful combination of risks not only breaks the soul of India, but also damages our global reputation as an economic and democratic force. ”It was not until eleven days later that Modi spoke out publicly.