Strategy to Achieve Social Objectives: Use of Fiscal Policy

It is important for you to understand that the Mahalanobis investment strategy extensively implied that increase in production would be supplemented by better and more equal distribution of income and wealth. Apart from this supposition, Indian planners relied on Fabian socialist strategy of utilising fiscal policy of taxation and public expenditure to attain the two social goals of planning, viz., the removal of inequalities of income and wealth on the one hand and the establishment of a socialist society based on equality and justice, on the other.

Fiscal policy intending at the reduction of inequality of income and wealth had two aspects. Highly progressive income tax was to be imposed to lop off the high incomes beyond a specific level (marginal rate of income tax at one time was 97.25%). Estate duty was to be extremely progressive so as to remove a measure of large fortunes; other taxes falling exclusively on affluent sections of the community included capital gains tax, wealth tax and gift tax. When direct taxes endeavoured to transfer part of the income and wealth of the rich to the Government, public expenditure was particularly used to encourage the welfare of the lower income groups and weaker sections of the community.

A fast and concerted development of education was to be a significant means for ensuring greater equality of opportunity to various sections of the population. Public expenditure on public health and sanitation, housing, etc. was used to attain “a measure of redistribution in the consumption of basic necessities such as health and medical care, sanitation, water supply and cheap housing. Tribals, dalits and other backward classes were to receive favoured treatment under special programmes.”

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