Date:03/03/2008 URL: http://www.thehindubusinessline.com/2008/03/03/stories/2008030351960500.htm

Back No economic theory

In economics, it is said that a finance minister can tax commodities that are inelastic (which means people are insensitive to changes in prices of commodities) in nature. Drugs, for example, have inelastic demand, but the Government cuts the excise duty of medicines and, thereby, their prices. India, it may be said, is a welfare state and, therefore, cannot cash in on the economic theory of elasticity of demand of commodities to earn considerable revenue. On the contrary, luxury goods have elastic demand (people are responsive to price changes) and the government reduces the excise duties on two-wheelers, cars, etc. (correctly so) so that the reduced prices of vehicles can stimulate their demand and bring revenue to the exchequer. But waiving of farm loans to the tune of Rs 60,000 crore does not come under any economic theory. This is a feature (money going down the drain) peculiar to Indian economics.

S. Ramakrishnasayee, Principal, DAV-BHEL School, Ranipet, TN.