Populism and America

Populism is one tool which is expensive for every government. Not every government in the world can afford it, but many indulge in it without realizing the dangers and hazards that will surface in the future because of exploiting this tool. The picture of every government with a huge fiscal deficit is similar to that of a farmer who is caught in a quagmire of debt. The obvious difference is that unlike the government which is bailed out by the IMF and World Bank and other such “kind” and “noble” organisations, nobody bails out the farmer.  The farmer is left to fend for himself and eventually he commits suicide. After the IMF bails out the government, despite being bailed out, the government still commits suicide, guess why? Because after the bailout package the government is forced (by IMF) to reduce expenditure and increase taxation, and this is political suicide isn’t it, because that almost ensures that the present government might not come back to power.

It’s interesting to note that in the last 30 years, if there has been one factor which has been largely responsible for major economic restructuring and introspection by democratic governments; it has been a rising fiscal deficit. This is what we saw in the 1980’s in the Latin American countries, who wanted to adopt an import substitution industrialisation program, which needed them to develop their domestic manufacturing and industrial capacities. Around  the same time oil prices had sky rocketed, the petroleum exporting countries were making huge money and all this money was deposited with the international banks. These banks recycled this money to the Latin American countries in the form of loans for their industrialisation program. Soon Mexico declared that it couldn’t pay back the loans, and had a huge current account deficit, because the foreign money was flowing in the country and now they couldn’t pay it back. The other Latin American Countries soon followed in similar fashion. IMF typically intervened, gave a bailout package and made the government change its plans from an import substitution industrialisation program to export oriented industrialisation. A complete change in policy, also not to mention that the governments had to reduce expenditure and raise tax collection.

Similarly the Indonesian countries in the late 1990’s went through a similar crisis. Thailand, Malaysia had huge deficits, which they were unable to pay back. These were countries that had a growth rate of more than 8% for about a decade and they enjoyed the confidence of most foreign investors, this phenomenon was called by the IMF as an “Asian miracle”. It dint take time for the miracle to become a mess, and soon these countries were unable to return the money which was flowing in from abroad, all that money had come in with a short term profit in the mind of the investors. Once again the Noble IMF intervened and bailed out the country with austerity measures as the condition and that lead to change in policy.

Similar story in India, in 1991 when the fiscal deficit was high and the current account deficit was high, and the country had foreign reserves which could barely take care of the expenditures of the next few weeks. The then Finance Minister and Prime Minister decided to take the help of the IMF before they offered it themselves. And the result of that help is what we see today, the liberalization of the economy and the removal of the license raj system.

Therefore it is very clear that if there is one major factor which leads to restructuring of the economic policy, it is a rising fiscal deficit. Currently the US and Europe is faced with the same crisis.

The Debt/GDP ratio of many of the western countries has gone above 100%. It is but obvious that the US government has to reduce its debt. Let’s look at their possible options: (A) They raise the taxation, but for that to happen effectively the GDP has to rise which seems difficult in the near future. (B) Reduce expenditure, which seems to be the most sensible thing to do. Currently 40% of the expenditure of the government is from borrowed money. And (C) is to print so much money that they blow the debt away, at the cost of huge inflation and the reduction of the value of the dollar. The option of reducing expenditure seems to the most viable.

It’s very clear that US can no longer afford to keep low taxes while giving high social security benefits and wage wars on foreign soils.

 

Underdeveloped-Developing-Transforming-Third World-New South

In an article in the ‘Hindu’ by Jorge Heine from the Balsille School of International Affairs, the subject is very interesting, the author speaks of the World Bank President Robert Zoellick now officially stating that the term “Third World” is now made redundant. This term was coined by Peter Worsely  in his book “The Third World: A vital force in International affairs”. The author of this book had spent many years after World War 2 in Africa and India, he had the first hand experience of how these post colonial countries were emerging. The author was particularly impressed by seeing how Nehru, Castro, Nkruhma, Nyere left behind the debris created due to colonialism and started the work of nation building.

Going by this perception of Mr. Worsely the term Third World seemed appropriate at that time, many other people at that time gave other terms like Underdeveloped, Developing, lower income each more disappointing than the other. These terms only tried to suggest that these Post Colonial countries only were a mere footnote to the real history.

In the sixties and seventies many nations in Asia, Africa and the Carrribbean were economically weak and were dependent on trade from the north, hence they created groups like Non Aligned Movement (NAM), UNCTAD, and forwarded proposals in the U.N  like New International Economic Order, sometimes these proposals got passed but very often they were not backed by any concrete reasons, they had little power apart from the voting rights in the U.N.

But over the last 10 years this scenario has changed substantially, countries like India, China, Brazil who are some of the fastest growing economies now “speak from strength not weakness”, they do not ask for aid but they want to trade. They expect a stronger say at the IFI, high table of global economic governance. Also another trend that has been observed is that these countries are not dependent only on the north countries for trade, they also trade among themselves.

Noted historian Ram Chandra Guha in a recent lecture spoke about why India is not and should not be a super power. The lecture was a kind of refutation to the media’s favourite headline “The Global Indian take over”, when there exists so much tension, conflict and disparity in our own society the take over in the world is “premature”. India’s domestic challenges and the situation with the immediate neighborhood demands more of settling immediate issues than any take over.

Therefore concludes the author the New South in the new century is going to be a strong force to reckon with. And the term Third World has been done away with.

Union Budget and the Common man

I recently read a quote about the union budget, “The common man can’t understand the union budget, and the union budget can’t understand the common man!!” Although our current finance minister would like to contest the second part of the phrase, there is still no doubt that the common man can’t understand the budget. First of all the budget is prepared in complete isolation and secrecy. It is kept a big secret until ‘budget day’ for mysterious reasons. When every issue of national importance is discussed in a transparent and open manner in the parliament, why should the budget be an exception? Why is it that the finance minister straight away comes to parliament and reads out his speech and how he and his assistants have planned things for the entire year. The point that Im pressing here is that of transparency in the budget making process. Now let us see why the common man can’t understand the budget or why is it that he is not much interested in it, which in my view is the real reason behind his not understanding it. It is lack of interest not intellect which determines this. When Nani Palkhivala eminent jurist and economist delivered a lecture on the budget in brebourne stadium in Bombay, thousands of people used to come to attend the program, and were interested in knowing what is in store for them in this budget. Palkhivala could actually make a dry and boring subject like the budget interesting and enjoyable and moreover could simplify it from the technical economic language, which drove people to listen to him. His budget speeches finally ended in 1994. Today there are many people who deliver a similar lecture on the budget, lawyers, Charted Accountants, tax consultants; financial experts all express their opinions and views about the budget and its implications for the various segments of the population. But these people cater to a very niche audience. These are lectures where, businessmen, management experts, industrialists go and attend. It is difficult to find the common man here, who once sat in brebourne stadium and intently listened. After interest comes knowledge of economics or atleast elementary economics. Arindham Chaudhuri says “Economics is complex, mathematised, pseudo intellectual, quite unfit for the common man, around whom economics should actually revolve”. Reading and understanding the budget definitely requires good understanding of simple macro economics nothing more. And finally comes the role of the media in spreading the analysis of the budget far and wide. The print media does a very good job in analyzing the budget. ‘The Times Of India’ made a good presentation of the budget, simplified most of the provisions, especially the ones related to income tax and other taxes. They even showed how various sectors are affected by the budget. But the problem is with the electronic media. On the day of the budget, I saw 4 programs on television, on CNN IBN, TIMES NOW, NDTV and CNBC. All these programs were good but the problem is that they were only and only in english, the hindi news channels dint seem to cover the budget as extensively as the english channels did. This straightaway means that only the english speaking urban people will be able to understand what the panelists are saying. The panel members were almost the same in all the programs. Why dint some of the eminent panel members like Sitaram Yechury, Kapil Sibal and other financial gurus go on to atleast one hindi channel where they can explain the details to a much larger audience.

Economic growth a global trend……………

 

MS Swaminathan wrote an interesting article in the Times of India on 16/3/08. The article basically spoke about the high growth rates that India and many other countries experienced for about a year or so. He argues that the sudden high growth rate that we experienced is not only because of the government’s economic policies and efficiencies; it was actually a global trend which was originating from America. We know at the moment most Americans are living beyond their means, this is reflected in the sub prime crisis, the housing market slump and the mounting losses of financial companies due to increasing number of loan defaulters.  The demand for goods and services had tremendously increased for the past 2 years, which resulted in America having a trade deficit of $700 billion. China being the biggest exporter of electronic goods to America and India exporting various other goods and mainly services, thrived because of this one factor of excessive consumption in America. And because there was huge demand for goods there was automatically a huge demand for raw materials and semi finished goods which came from Africa and other less developed countries.  Hence even these countries immensely benefited. Therefore Swaminathan says that every country remotely associated with America enjoyed high economic growth, the African countries which were growing at 3% also started growing at 5%, similarly in India economic growth was 6% to 7% for many years it suddenly became 9%. If the above reasoning is true, then we have to ponder over a very important question, what is going to be the state of the Indian economy if there is a recession or slow down in the US economy which is very likely. There has already been a dip in the industrial production rate for the last 3 months. And the industrial production also determines the government’s collection of the excise duty. As it is as per the Union budget 2008 excise duty has been reduced from 18% to 16%, combine this with a fall in industrial production and it results in a loss of revenue for the government.   

 

Zone family……Education and Health

There has been an addition to the “zone” family in our country, now along with SEZ (special economic zone) EPZ (Export processing zone) the intended SAZ (Special agricultural zone, we will now have SDZ (Social development zone. The setting up of this zone comes as a response to the increasing questions and concerns about our educational and health systems. On the educational front, problems are present at every junction right from funding to quality of teachers to receptivity of students to infrastructure and many other things. Institutes of Higher learning have their own problems as well, as we recently read that IIT Bombay doesn’t have enough money to pay regular salaries to its professors and non teaching staff, they have requested for grants from the Central government of about 20 crores to meet all these expenses.

Apart from the IIT’s several other institutes for engineering also come under criticism from the HR managers of various firms, for example Infosys claims that till two years back they had to interview only 3 or 4 candidates everyday to find the correct profile for the job, today they have to interview nearly 14 to 15 people everyday. We all know that there has been a gap between the classroom and the industry, what is worrying is that this gap is now increasing at a faster pace.

Then comes the health sector, there are main parameters to judge the performance of this sector in our society. First, equitable access, low cost and good quality. The third factor is a requirement all over the world, but the first two are much more important in our country due to the increasing inequalities between people. Even in this case the problems exists in much severity at two different levels, the rural poor or for that matter even the urban poor have very little access to any proper medical treatment, infact their living conditions are so deplorable that they are duped by people who conduct the illegal business of selling kidneys by promising the donor a good amount of money in return.

At the higher level, it is estimated that in India all offices loose almost 14% of their working days on account of poor health of their employees. It was estimated by Indian council for research on International economic relations(ICRIER) that in 2006 India’s loss in GDP due to health hazards was almost $8.7 billion and if the existing situation persists then this loss can go up to $54 billion in 2015. Hence on recognizing these two major problems of education and health the government has come up with the SDZ as a tool to minimize this problem if not completely eliminate it. The details of this zone are not yet officially declared, let us wait and watch whether there is something in store for everybody!!

Roaring corporate sector and a booming economy!! But what about the last man standing on the street??

“20000 points on the sensex, the economy growing at 9% have a good weekend” wrote economic times on one Saturday. It is indeed great to have a booming sensex and it’s equally good to know that we are one of the fastest growing economies of the world. But does it end there?? Is a booming sensex and a roaring corporate sector all we want for our country, where millions of people still sleep on the road. In the history of our country this is truly one of the most important eras because on one hand we are the front runners in economic growth and global investments. In fact in the Presidential debate of 2004 between President Bush and Senator Kerry, Senator Kerry assured the people of America that if he becomes President then he will prevent American jobs from being “Bangalored” and sent to India where a booming IT sector awaits the best talent on the globe. On the other hand we are also known to be the front runners in mal nutrition and poverty and illiteracy. Do these people who are mal nourished and illiterate even know why their country is respected globally? They don’t, and why should they?? When the hyped growth and the boom that Economic Times raves about has not gone even remotely close to them.

Therefore the time has come when we need to make economic growth more inclusive. The current pattern of economic growth is only favoring specific sectors of the economy. And therefore people associated with those sectors are also benefiting. But the people who do not come under the purview of those sectors are experiencing stagnant growth. An article recently published in the Navbharat Times pointed out that the present government or for that matter any government has a tendency to start worrying about things only when a worrisome situation gets created. While the situation is gradually going from bad to worse they are indifferent. The economic policies being followed by the current government have undoubtedly increased foreign investment, boosted economic growth and made India one of the preferred destinations on the globe for any kind of business and financial activities. But at the same time as a result of all of this, the government is forced to reduce the fiscal deficit as per the terms and conditions of IMF and WTO. Reduction in fiscal deficit results in declining expenditure for essential services like health and education. According to the Kothari commission led by Dr Vijay Kothari in 1966 expenditure on education has to be minimum 6% of the GDP but for the last several years it has remained between 2.5% to 3.5%. In the eleventh plan it is estimated to be at around 4%. Recently it was reported the IITs don’t have enough funds to pay proper salaries to its professors. IIT Bombay made a request to the government to give a grant of 20000 crores, so it can look after its basic expenditure. This is one of the implications of reducing the fiscal deficit that even the premier institutes are down in the dumps. IMF tells our government to reduce the fiscal deficit to control inflation. According to an article on the Indian economy, when the government borrows money from the RBI it tends to increase the quantity of money and hence it results in inflation. This argument has two flaws one that the new quantity of money doesn’t chase the same goods conventionally perceived. While the quantity of money circulating in the economy increases the production and output also increases. But apart from these technical details and principles, it is important to note that if the government reduces its expenditures on health and education then any significant development for the masses is not achievable, and then it’s meaningless to merely float on the fact that sensex is on 20000 and economy is growing at whatever percent when it is of no consequence to majority of the population.

Retail sector in India and corporate houses

Entry of the corporate houses in the retail market or for that matter into any sector is popularly perceived to be a part of economic growth. The increasing participation of the private sector is considered as one of the instruments of economic growth and job creation. Economic growth by itself creates jobs says Lord Desai a professor of economics at the London school of economics. But this I reiterate is a popular perception, whether the entry of corporate houses into every market and field is justified or not is a different matter. In my view it is incorrect to make general statements about economic growth and job creation, one has to be very precise when dealing with this subject. Economic growth I agree does create jobs; it does push the economy to a more productive stage. As the economist Rosenstein Rodan has said in his theory the “Big push” that for a plane to take off it requires a certain minimum ground speed, anything less than that and the plane wont take off, similarly to pursue economic growth we need to mobilize a certain minimum amount of investment, anything less than that is inadequate. And investment mobilization happens through the corporate houses or the private sector. So Im not against the private sector per se, but for the government and people to jump to a conclusion that the corporate houses no matter what they do and where they go will bring beneficial results certainly comes under a cloud of suspicion. To prove that the entry of the corporate houses into the retail market is beneficial we would have to rely on the theory of trickle down effect, but the trickle down effect is simply another way of saying that what is good for the business houses is good for the country, which is obviously not true. Trickle down effect has been named the horse and sparrow theory by JK Galbraith “if you feed enough oats to the horse, some will pass through to feed the sparrows.” Unfortunately today the horse is the corporate sector and the sparrow is the working class.

When we speak of the retail market we are primarily dealing with a section of society where the people are not economically privileged. Retailers at the lower end, like the vegetable sellers, the fruit sellers basically are the underprivileged section of the society, and when the government permits the corporate houses to enter this field with their attractive pricing strategies the government is practically wiping these 4 crore middle men out. And the justification given is “growth will create jobs for them as well”. For people who say my question is can you give a guarantee that those very 4 crore people will get their jobs back. And they are 4 crore human beings not ants who can be trampled under the feet of men.

Entry of the corporate houses into the retail market is a part of the de licensing policy which was started in 70s. Before the 70s most of the industrial production was handled by the public sector. In the 70s it was realized that the participation of the corporate houses is also very essential if we have to be on par with the rest of the world in terms of technology and capital. For this reason the license policy was scrapped out. Only industries of national importance like defense, railways, atomic energy were to be kept in the control of the public sector. So the purpose of the de licensing policy was to increase productivity. Today in 2007 if we analyze the repercussions of this policy we find that the corporate houses have increased productivity no doubt, but have also increased the divide between rural areas and the urban areas, between the bourgeois and the proletariat. This divide has very unfavorable social consequences which need to be settled first than increasing productivity for only a certain class of society.

 

Urbanization and environment

This was my speech for a competition, the topic was “Urbanization improves environment” and i was speaking for the proposition.

Urbanization this term has economic as well as social significance. Economic because it brings about a structural change in the way people function and seek jobs and this influences the economic activity of individual units of the population and the economy. Social significance is the natural outcome of the economic significance, as Karl Marx once explained, that a change in the economic system and structure has its social repercussions as well. Urbanization today is a natural and independent process; the percentage of population migrating to the urban areas is rising inexorably irrespective of the developments taking place in the rural areas. According Warren Thomson an American demographer as the economy expands its people move from the rural to the urban, now this movement may not necessarily be geographic movement of going to urban cities but a change in the basic character of a place where people live, a change from the rural character to the urban character. So taking into account this principle urbanization in my view is an inevitable process and a natural outcome of development.

Coming to environment, environment isn’t just air, water, land and resources, it also includes man, his activities and his material welfare. The two major factors determining the environment in the urban setting, is the population and the economic development. One of the distinguishing factors of urbanization is capital formation. Goods are made to sell and money is earned to buy, but certain amount of consumption has to be kept away for future use. Current consumption has to be used for creation of capital in future. As Prof Shahuraja has put it “It is necessary to break away from the vicious circle of poverty and initiate the virtuous circle of prosperity. To improve the environment investments in education and health are important and this happen only through capital formation. The rural economy tends to be self sufficient, now self sufficiency is not bad per se but to move to a productive level interaction between resources and saving of resources is necessary and it happens only through urbanization. Also urbanization facilitates mobilization of huge investments to initiate and implement new policies. As the economist Rosenstein Rodan has said in his theory “the big push” that for a plane to take off it requires a certain minimum ground speed, anything less than that and the plane won’t take off, similarly for improving the environment we need a certain minimum investment to be mobilized, anything less than that is inadequate.

Now speaking of development it is not just the addition of physical capital but also human capital Urbanization facilitates the training of human capital we may have the best of equipments and machinery but to match that, we need equally good human capital. We need skilled human capital for economic growth and development and we need sensible human capital to maintain social tranquility and political stability. Urbanization gives importance to education and practical training. Education ultimately has the power to pull the poor people from the lower end of the poverty line and push them to the upper and through urbanization education assumes importance. Urbanization also increases the prospect of revenue generation and revenue collection for the government. And this revenue is utilized to give essential services like education and health at a subsidized rate. So essential services like good health care and education are given at a subsidized rate.

Coming to the point of natural environment, at the outset I must say that man has always been in a conflict with nature. Man, in pursuing his interests and the interest of the community at large has had no choice but to alter the physical structure of nature. A water power project requires the construction of a dam and a reservoir and this may have an impact on the physical environment, it may even force a number of people to relocate themselves. But on the other hand, it’s difficult to exist without electricity. If environment is for the people even development is FOR the people. If we are sacrificing the natural environment to some extents we are creating value at the same time. Development always comes with a price, we have to ensure that the cost of any project or plan does not outweigh the benefits; if this balance can be maintained then we can certainly have sustainable development.

Now let’s examine the commodity of land under urbanization. It so happens that in the rural areas the population is scattered over a vast region of land, almost every piece of land is utilized either for living or for cultivation. And as we all know that the supply of land is scarce in relation to the demand, so effective utilization of land is very important since it’s a very important natural resource. Now urbanization concentrates the population into smaller land areas, leaving more land undistributed and therefore protecting it and making it available for other important activities like farming, and other agricultural activities.

Resources are constantly needed by cities. And one of the outputs of resources is waste and this waste has to be properly handled to prevent any serious damages to the environment. The waste hierarchy system plays an important role in waste minimization, it refers to the three “R’s” reduce, reuse and recycle. The aim of the waste hierarchy system is to extract the maximum practical benefits from products and to generate the minimum amount of waste. Another method is the extended producer responsibility, in this system the producer has to be accountable for the entire life cycle of the product, so firms which manufacture are required to be responsible for the products during manufacture and even after their useful life. Also the standard sanitation technology in urban areas collects waste water and treats it so that it can be left in the sea or lakes. So urbanization provides safer and better water and provides better sanitation facilities. So the crux of the matter is that although urbanization harms the environment and creates waste it ALSO ensures its proper handling and disposal, infact the input of resources and output of waste has been described as the metabolism of cities.

And finally at a social and cultural level urbanization improves environment because it increases the credence given to status of education or other merit based achievements and reduces the credence given to birth status which originally existed. So urbanization does improve the social, economic, political and cultural environment and it does sustain the natural environment.

Real life immitates reel life….No it does not!!!!

Ricciotto Canudo an Italian film theoretician has described cinema as a combination of the spatial arts and the temporal arts, in other words a film is a combination of music and dance on one hand and a suitable story supported with adequate presentation and imagery on the other. So although what we see in reel life may be true, it is substantially regulated and designed with a certain objective in mind, it is a result of concoction. Whereas real life is beyond any definition or explanation if we try to define real life it can fill hundreds and thousands of books due to its vastness, uncertainty and complexity. Hence the concepts and issues which arise in real life will outnumber those in reel life substantially. Reel life is a part of real life infact it originates from real life. One of the major functions of reel life is to portray social reality in a systematic manner, its important that reel life has to be significant in the era in which it is made and showed. A very good example in this context is the transition between films of Rajesh Khanna and Amitabh Bachan. In the Rajesh Khanna films of early seventies like Anand and Bavarcheee many socialist values get reflected, values like fairness, equity and justice are reflected in these films because at that time Nehruvian socialism was predominant. Whereas in the Amitabh Bachan films of late seventies and early eighties the concept of the “angry young man” is used to show the frustrations of the people then due to the economic crisis and the introduction of mills which lead to the exploitation of the proletariat, all this was reflected through the angry young man.

Now the rural population and people from the lower social strata may be desirous of imitating reel life, but mere desire cannot lead to imitation, imitating reel life requires monetary backing and strong economic background which is absent in the people of the lower social strata, hence imitation by a large number of people is out of question.

If we observe reel life in its totality which includes not just films but also page 3, media and the add world we find that only those things get portrayed which sell easily. For e.g., if it’s a movie it has to be  a good story, a good actor, a captivating performance if its media it has to be some sensational news and other things. Whereas real life is not just about selling or acting or presenting, real life involves real situations real people and it may not always be very interesting and worth selling.

Another very important aspect is that real is driven by several ideologies, Joseph Stiligitz former chief economist at the World Bank mentions in his book that even economic and financial decisions at the World Bank were often made on the basis of ideologies and not solely on the basis of facts. Ideology therefore is an intrinsic part of real life, whereas reel life is not based on any specific ideology, its sole purpose is to attract public attention, do better business increase TRPs etc.

Some of my learned friends made a point that many people especially the youth lust for reel life at the expense of real life, now they may desire it, but imitation is not possible because the circumstances in real and reel are different, ideologies are different, and purpose is different. They may at the most imitate the clothes, accessories and fashion, but that forms a very minuscule part of what life is, we are debating whether real life imitates reel life and just because there is imitation in terms fashion that doesn’t mean life also in these two becomes similar.

Should Indian students working abroad be taxed??….Yes why not

The subject and concept of taxation has existed since 3000 BC, early taxation has been described in the bible, in genesis ch 47 mentions that “when the crop comes in, give a fifth of it to Pharaoh the remaining you may keep for yourselves and your children” So fourth fifth becomes 20% and 20% tax was levied even in 3000 BC. The eminent jurist and economist Nani Palkhivala has said that taxes like water have a tendency to find the lowest level, almost all the taxes ultimately hit the common man. Now in 3000 BC a person earning even 5 rupees was expected to give 1 rupee as tax that time taxation was a new concept but today it is not the case, if the income of a person is below a certain level he is not required to pay any taxes. It so happens in our country that people from the lower social strata are exempt from taxes because they dont have the capacity and people from the higher social strata are given benefits under income tax act because they are contributing towards economic development or increasing exports, so eventually the entire burden of taxation comes on the common man. So this system needs a sea change where only a certain class of people are heavily taxed and the remaining are either above it or below it. Hence one of the effective methods to change this is to tax Indian studets working abroad. Through this three main objectives are achieved, one it increases revenue for the government. Because firms located in SEZs are exempted from taxes and the government has been denied revenue from the BPO’s according to the supreme court judgment in the Morgan stanley case all this has resulted in a significant loss of revenue for the government, which has lea to an increase in the fiscal deficit, hence taxing students abroad will bring in revenue and reduce the fiscal deficit. Secondly the elite institutions were established in the 60s by out ex prime minister Nehru to generate a pool of talent to furthur the technological development and eventually economic development of our country, but because of globalization and attractive job offers abroad majority of these students went abroad and continue to go abroad. So paying taxes can be a compensation for this, that they acquire world class education at a much lower price due to government subsidy and they dont give anything in return, so taxation revenue now can become the return. The third aspect is Indian students working abroad do have to pay certain taxes there, so in addition to that Indian taxes shouldn’t be very high they should be reasonable, but the very fact a tax is imposed will discourage many students from going there to “earn higher and save more” this is usually the objective. They will in fact be able to save more in India and hence a pool of talent can be retained in India it self which was the original objective of Nehru when establishing the elite institutions.

To conclude I would like to elaborate the four principles of paying taxes according to Adam Smith in his book wealth of nations, equity, convenience of tax payer, economy and certainty and clarity. If these factors are taken into account while imposing the tax then it would certainly be fair for the Indian tax payer abroad and beneficial for the common man in paying taxes in India.