In these notes, you will learn about three different types of Economy viz.

• CAPITALIST ECONOMY/LAISSEZ-FAIRE ECONOMY
• SOCIALIST ECONOMY
• MIXED ECONOMY

CAPITALIST ECONOMY/LAISSEZ-FAIRE ECONOMY

Image Source – Internet

• In this economy, resources are managed by and owned by private persons.
• It is a free economy and there are no government interventions.

FEATURES:

1. Right to private property: Factors of productions are under private ownership and they are free to use in like manner.
2. Freedom of enterprises: Producers are free to produce what they want.
3. Freedom of choice to consumers(Consumer sovereignty): Consumers are free to choose that good which they want to buy.
4. Profit motive: Producers produce those goods which give them a higher profit. Capitalism is a system of mutual exchange where the price-profit mechanism plays a crucial rule.
5. Competition: Due to freedom of choice of consumer there is a great competition among sellers.
6. Uneven distribution of profit: There is an uneven distribution of income due to unequal distribution o property.
7. Price determination: In the market economy price is determined through Price mechanism i.e. by the equilibrium of price and supply price is determined.
8. More innovation

Merits of the Capitalist economy:

1. Increase in production
2. Quality products at low costs
3. Progress and prosperity
4. Maximum welfare
5. Optimum use of resources
6. Flexible system

How capitalist economy resolves their central economic problem:

1. What to produce: That goods will be produced which are more demanded by the consumer due to increasing demand price will rise and it will give more profit to the producer.
2. How to produce: By that technique goods will be produced due to which cost will be minimum.
3. Technique:
   1. (A) Labour intensive  
   2. (B)Capital intensive
4. For whom to produce: For those who have higher buying capacity.
5. What provisions will be made: It depends on rate of return on capital

DEMERITS:

1. Leads to monopoly
2. Inequalities
3. Depression and unemployment
4. Insufficient production
5. Class conflict

GST-Know All About It

SOCIALIST ECONOMY

Image Source – Internet

• It is also called Command economy or centrally planned economy.
• There is a central authority who decides about the price of a commodity.

Features:

1. Collective ownership: There is collective ownership which means on resources ownership is of the state.
2. Centrally planned authority: There is a central planning authority who decides how to produce, what to produce, whom to produce and what provisions should be made.
3. Absence of consumer choice: Here restricted goods is produced hence there is no choice to the consumer.
4. Relatively equal income distribution: Here private capital is narrowed due to which there is equality of income.
5. Minimum role of price mechanism: Due to presence of central planning authority
6. Service motive: Here goods are produced with service motive to society.

MERITS:

1. Greater economic efficiency
2. Greater welfare due to less inequality of income
3. Absence of monopolistic practices.
4. Absence of business fluctuations.

DEMERITS:

1. Loss of consumer’s sovereignty
2. No freedom of occupation
3. Misallocation of resources
4. Bureaucratic

MIXED ECONOMY

• Co-existence of private and public ownership.
• The existence of economic planning
• It is also a planned economy government has a clear and definite role.
• Government also creates atmosphere for private sector

MERITS:

1. Best allocation of resources
2. general balance
3. Welfare state

DEMERITS:

1. Non-cooperation between the two sectors.
2. Inefficient public sector.
3. Economic fluctuations.

Read about GST Here

Indian Economy

• The Indian economy is a mixed economy. The public sector and private sector co-exist.
• There is an economic planning in India. There is a planning commission at the center.
• It formulates five years plans with the principle objective of achieving growth with social justice.
• It lays down priorities, targets, and policies for the different sectors of the economy.

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After the demonetisation phase, the expectations from the union budget were in the air. The budget matched the soared expectations of a common man to some extent, but it affected the rich taxpayers negatively, with the burden of heavy surcharge.

Today, I try to explain the effects of changes in tax payable by people due to change in taxation policies.

Taxpayers who are earning between Rs.50 lacs to Rs.1 crore have to pay an additional surcharge of 10% on their income which was not the case earlier. Apparently, there has been no change in the surcharge which is additionally levied at 15% on assesses who earn more than Rs.1 crore.

Furthermore, taxpayers who are earning taxable income between Rs 2.50 lacs to Rs 3.50 lacs will now get a Rebate of Rs.2,500 under section 87A as against the taxpayers whose taxable income was up to Rs. 5 lakhs.

FM Arun Jaitely said and I quote, “The present burden of taxation is mainly on the honest taxpayers and salaried employees.” So, in a bid to expand the tax base in the country, he reduced taxes. This step has given a rebate of Rs.12,500 for all the tax payers, but in the end, to overcome the accounting of less tax, the government announced an additional surcharge of 10% for salaried employees earning more than Rs.50 lakhs and less than a crore.

Let us understand the whole scenario with a hypothetical example, we consider a salaried employee who is earning an income of Rs.80 lakhs p.a.

Computation of Tax Liability (After Budget, New Slab)

Computation of Tax Liability (Before Budget, Existing Old Slab)

Information Source : The Financial Express

From the above calculation we can pierce through government’s veil of providing Rs.12,500 as a rebate or charging higher taxes.

It is clearly visible that even after paying at 10% on slab between 2,50,000-5,00,000 the total tax liability from the old existing slab is less as compared to the newly announced slab after the budget. The additional surcharge of 10% is a burden than the relief in the form of rebate provided by the government.

However, it should be kept in mind that, on total income exceeding Rs.50 Lakhs and not exceeding Rs.1 Crore, the total amount payable as income tax and surcharge on such income shall not exceed the total amount payable as income tax on a total income of Rs.50 lakhs by more than the amount of income that exceeds Rs.50 lakhs.

It can be said that government faces the trade-off between welfare of the rich class and the middle class. It has to look the both sides of the coin. So surcharge 10% cannot hide the fact of rebate of Rs. 12,500. We should accept it on the note that everything happens for a good cause.

The post Union Budget’s New Income-Tax Rates: Better off the Middle Class or Worse off the Rich Class appeared first on Kailasha Foundation.