The article "Selective taxation to curb inflation" (

Business Line

, February 19) argues that the current inflation is primarily the result of poor management of education, real-estate and agriculture. This is indeed true as the present inflationary spiral is due to a situation of "too much money chasing too few goods".

But the suggestion of a tax on the increase in disposable income (total income less savings) over the previous year to combat inflation, one feels, is impracticable. Tax is a payment for which there is no

quid pro quo

and the people, in general, and salaried, in particular, cannot be expected to pay tax at the expense of consumption. In other words, people prefer expenditure to tax. Also, certain segments of society will try all the tricks in the book to show less disposable income.

The marginal propensity to consume (ratio of increase in consumption to increase in income) is so high in developing countries such as India that attacking excessive consumption by tax is a difficult proposition.

On the contrary, focussing on the supply (of goods and services) is a practicable and effective way of containing inflation.

S. Ramakrishnasayee


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(This article was published in the Business Line print edition dated February 21, 2007)
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