Kerala Tax and Economic Reforms

Kerala Tax and Economic Reforms

Economic Reforms:

What is Economic Reform?

The basic objective of economic reforms was to improve productivity growth and competitiveness in the Indian manufacturing sector. These reforms were aimed at making Indian manufacturing sector more efficient and technologically up to date, with the expectation that these changes would enable Indian manufacturing sector to achieve higher and sustainable growth. The government started to deregulate the Indian economy with a liberalization programme, focused on the investment pattern, trade policies, the financial sector, taxation and public enterprises.

In recent times, Industrialization has become the catch word of the mid-twentieth century and industrial development of the under developed countries or developing countries like India. One of the great world crusades of our times, the Less Developed Countries (LDCs) hope to find in it a solution their problems of poverty, insecurity, overpopulation, backwardness, illiteracy etc. They consider it a panacea for all the evils of their social and economic life. In fact, the essence of economic development of an LDC like India consists essentially in the growth of industrialization.

Realizing the importance of industrialization, once Pt. Jawaharlal Nehru rightly remarked, “Real progress must ultimately depend on industrialization”. His vision was to see India in the group of developed nations of the world and industrialization was the only key to restructure the economy and to achieve sustained growth. Indian economy is a basically an agriculture based economy. It has been evident from the experience of the most of advanced countries that growth based upon agriculture sector will not be sustainable growth.

On the other hand, if we develop only tertiary sector and ignore industrial sector then there may be tendency of inflation in the economy and this inflation may lead to deceleration economic growth. Therefore, industrialization is the only method to achieve sustained economic growth. Moreover, economic history demonstrates that to eliminate a country’s techno-economic backwardness it is necessary to develop the industrial sector and then to diversify it over a wide range of area and activities. Industrialization is a process of economic organization characterized by rapid setting up of industries and has invariably been the accompaniment of economic development. Nevertheless, economic development should not be treated synonymous with industrialization because industrialization is only a part of the whole process of economic development.

Economic Reforms in Kerala:

Economic reforms in Kerala were at a snail’s pace till the fiscal crisis of the state in 2001. Over the past four years, the state government has initiated a number of measures to accelerate economic growth. Taking into consideration mid-2001 to mid-2004 as the first phase of the reform period.

The UDF government, which assumed power in 2001 has drastically changed the development strategies and economic policies of the state. The salient features of the economic reforms are the following-

1. The economic reforms implemented by the UDF government had the characterstic of the SAR implemented by the central government. The focus of the reform was to revive the market forces by using price variables as policy instruments. Promotion of private investment and creation of a conducive atmosphere for investment, technological change and institutional change were the major objectives.
2. Though the reforms had the characteristics of structural adjustment, they also retained many aspects of the policies pursued in Kerala with respect to public sector undertakings, public health and education and social welfare activities for the weaker sections.
3. In order to promote investment and create favourable conditions for investment, new policies were formulated for industries, information technology, labour, urban development, education etc.
4. The reforms aimed at improving the financial situation of the state government through a number of measures to increase revenue and reduce expenditure
5. Private investment was allowed in the professional educational sector for starting educational institutions in medicine, engineering, technology, management etc.

With these reforms Kerala managed to obtain economic growth in industries, agriculture, educations, IT and tourism. Although certain sector did not expected growth rate due to various socio-economic reasons.

Kerala village tourism development scheme:

• The scheme is intended to involve local communities in the planning and implementation of tourism projects.
• 140 villages will be selected for assistance under the scheme this year.
• “My Village, A Tourism Friendly Village”, the initiative is part of an attempt to decentralise tourism development in the State.
• Kerala Tourism will provide financial assistance to the extent of 50 per cent of the cost of each project subject to a maximum of Rs. 10 lakh. The remaining funds will have to be mobilised by the local self-government institutions. However, roads to tourist centres will not be eligible for support under the scheme. Similarly, the cost of obtaining land for tourism projects will also not be considered under the scheme.

Tax Reforms:

Kerala Goods and Service Tax:

The Kerala government introduced in the state assembly, the Kerala Goods and Services Tax Bill, 2017.  GST will abolish all the taxation related disputes between the States and this will make Indian economy more strong. It was the highest tax reforms of state and centre as well.

Kerala Travel Mart (KTM) Society, a leading tourism body, has expressed concern over high rates of taxation under the GST regime, saying it would stifle the tourism business in the country by making it unsustainable and drive away foreign tourists to destinations other than India

Goods and Services Tax (GST) is a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. GST would replace respective taxes levied by the central and state governments.

DEMONETIZATION AND CASHLESS ECONOMY

What is Demonetization?

• It is a financial step where in a currency unit’s status as a legal tender is declared invalid.
• This is usually done when old currency notes are to be replaced with the news ones.
• The 500 and 1000 rupee notes seized to be a legal tender from 8 November, 2016.

Implications of Demonetization

• A parallel black economy would collapse.
• Of the Rs 17 lakh crore of total currency in circulation in the country, black money is estimated at mind-boggling Rs 3 lakh crore.
• Counterfeit currency: Death blow to the counterfeit Indian currency syndicate operating both inside and outside the country.
• On Employment: a large part of the Indian economy is still outside the banking system. So, the cash shortage will hurt the informal sector that does most of its transactions in cash.
• On elections: It will reduce the Vote-for-Note politics making elections more clean and transparent.
• On Economy:
• First, it will bring more borrowings to the exchequer, improve inflation outlook and increase India’s gross domestic product (GDP).
• Second, it will revive investment opportunities and give a fillip to infrastructure and the manufacturing sector.
• Third, it will help reduce interest rates and lower income tax rate.
• Real estate cleansing: An unexpected dip in land and property prices.
• On Higher Education: will become more reachable as the black money from ‘high capitation fees’ is discouraged.
• On security:
• Terror financing: Terror financing is sourced through counterfeit currency and hawala transactions.
• Kashmir unrest: The four-month-long unrest in Kashmir valley is on a backburner
• North-East insurgency and Maoists: Black money is the oxygen for Maoists collected through donations, levy and extortions. The illicit money is used to purchase arms and ammunition.