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Masala bonds to be more spicy


Masala bonds to be more spicy

Government is planning to remove or cut down taxes on masala bonds. For all those who don’t know what masala bonds are, these are rupee denominated bonds issued outside of India. In other words these are bonds for foreign investors to invest in Indian business. Now what bugs me is that, a person with little knowledge of finance and tax, I feel it’s a stupid move. Let me break it down. Whenever a foreign investor is investing in your country, he/she is doing it not to uplift the contry’s economy or they feel your country is poor or help country in growing, prospering. Its pure investment for them, they see potential for their funds to gain capital over the years. Giving tax relief for them is just another way to say, hey you are earning so much from your investment, and here is a little Diwali bonus for you on the tax. Don’t worry I have increased taxes on my own people, let them strive a little more than usual. Not that I care about how much these investors milk from our markets, my concern is- what is the probability that these same investors will re-invest in the same markets. Not as much as a citizen of the same country who is earning would invest or spend in the same economy. (Common sense- if you win a lottery, u wouldn’t use the whole prize money to buy only lottery tickets). The cash rotation which is supposed to happen in the economy is hampered coz of these investors. The CAD also widens as they keep extracting profits from their fund in Local markets to invest in global markets. If taxed appropriately so that they remain attracted to the local market, the amount flowing out will go down and tax(income to govt) will shoot up. “Yeh toh aisa hi hua na, apne ghar mein khane ko lemon rice ka bhi tight chal raha ho tab, bahar waale ko biryani ki dawat pe bulane mantri ji thule hue hai”. 
On the other hand, govt is levying high tax burden on the earning population of the county (tax is inevitable and income for govt I agree but not when firangs are being relieved for just investing and citizens are levied with heavy burdens- bahut na-insafi hai yeh). R Rajan (for me atleast this guy is baap of all when it comes to predicting economical behaviour) clearly condemns this in so many instances. The logic behind this is to follow, if a person is earning 100Rs and u levy 20% tax, leaves him with just 80Rs to spend. We being conservative by choice and with savings in our genes,lets say the same person will try to save 30% of the earnings after tax i.e(30% of 80= 24rs. And will spend the remaining 56rs for his expenses (remember he is paying tax on these spending also in the name of indirect taxes). Now if the tax on the same income is just 5% his total earning is 95rs and his savings will be 28.5RS (4.5 rs more) and he is spending 66.5 (12.5Rs more) in the same economy. Numbers may seem small but the % is all that matters. When you look at it from whole macro- economy perspective the difference will in billions (after all we are a country with billion ppl right). Also the savings which is pointed (28.5) out in the above instance is just one step before investment, in other words these savings can also be attracted back to economy as investment in various sectors, depending on the personal choice. The catch here is the money is not leaving the country and being rotated in economy for uplifting of the nation.

I leave the choice open now whether to cut down taxes on FPI (no guarantee the money will come back to economy) or on the citizens (who work hard to build the nation at ground level). India is not a poor country to go in the shelter of foreign investors, we were the least hit among the elephants during the recession, courtesy household savings. To bare the government expenses and flood central treasury to apply funds in government policy implementation other revenue sources can be explored to meet the target.
-VikramShakthi

My first blog to publish, open of suggestions and other blogs to follow soon

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