Tax-free incomes for women can’t save the economy

The Indian economy is going through a significant slump. Industrial output contracted 3.8 per cent in October from a year earlier, the worst performance in seven years. As policy-makers scratch their heads, some are suggesting ‘radical’ measures. One of these is that the government should consider giving 10-year or 15-year completely tax-free income for women. That is, zero income tax for all women to increase consumption but mainly to encourage paid jobs for women.

The above proposal is being made at a time when the female labour force participation rate (LFPR) in the 13 years from 2004-05 to 2017-18 has seen a disturbing 10 per cent drop to 23.3per cent. The decline in urban female LFPR has been from 24.4 per cent to 20.4 per cent. The rural decline is much more staggering, halving from 49.4 per cent to 24.6 per cent. It is with this backdrop that the proposal should be evaluated.

Firstly, the fall in rural female LFPR has been significantly on account of the decline in agriculture, the main source of employment for village women. Diversification away from agriculture has happened more for men than for women, who have not found adequate jobs in the non-farm sector. The decline according to a NITI Aayog report has been attributed to what in economics is called the ‘discouraged worker effect’. Unemployment is at an all-time high, so where are these ‘paid jobs’ in the first place which are supposed to attract women to enter/re-enter the labour force?

Secondly, given that most rural women’s incomes would in any case fall well below the tax exemption limit of Rs. 2.5 lacs, it is unclear how the proposed incentive will attract them back into the labour force.

Thirdly, another underlying assumption of this proposal is that more money in the hands of women will inevitably lead to more consumption and thus stimulate aggregate demand in the economy. This itself is doubtful. Women are typically bigger savers than men within the household, and certainly bigger savers than governments who are to offer them income tax breaks. Maybe economists underestimate the frugal powers of women and the Indian household belief in the virtue of saving. 

Fourth, if it is true that more purchasing power in the hands of women may lead to greater overall savings (instead of consumption), the Keynesian notion of a savings paradox may apply. An economy’s savings can decline if everyone saves more, because the implied fall in consumption demand may lower national income (and thus also, savings). So, instead of reviving the economy, putting more tax-free income in the hands of women may end up lowering growth.

Most women in India contribute significantly to the economy in one form or another. Much of their work is not documented or accounted for in official statistics. Consider this: women making cow dung cakes are contributing much to the national economy, but this is excluded from GDP. Millions of households in India run on this bio-fuel. If they were to switch to fossil fuels, it would be an ecological catastrophe, in addition to being an economic disaster, given that India spends a large proportion of foreign exchange to import coal, petroleum and their products.

Fifth, an examination of the fundamental assumptions is in order. According to the modern ‘script’ of development, in the initial stages of growth, agricultural labour should be encouraged to move to higher productivity jobs in industry, with a focus on increasing agricultural productivity and incomes as well. This is meant to increase rural incomes, resulting in more demand for industrial goods, producing a "virtuous cycle of growth".

Here, it is important to ask why this push to move people out of agriculture in the first place? Why is the offering of cheap labour in industries seen as higher in hierarchy than working with dignity in agriculture? Farmers themselves have usually considered independent farming, howsoever modest in rewards, as more dignified than factory labour. Insofar as people have an ‘autonomous’ incentive to move out of agriculture, could it be because the economics of small farming has been, over many decades, rendered inoperable by hostile policies around the world, India being no exception?  

In a long-neglected essay from the 1990s (Lokvidya Approach to Women’s movement), Gandhian thinker Chitra Sahastrabudhey argued that women have suffered for generations on account of this kind of development because mechanisation of agriculture and the destruction of domestic industries (by policies favourable to modern ones) rendered them significantly redundant. New industries located in cities were not only far away from home, forcing women to work in alien conditions but they also destroyed household industries which were dependent on women’s knowledge, something modern policy cognition refuses to notice. All of this further isolates women from the community (effectively breaking them up), making them more dependent; now the state must ‘skill’ them to render them employable!

Most women in India contribute significantly to the economy in one form or another. Much of their work is not documented or accounted for in official statistics. Consider this: women making cow dung cakes are contributing much to the national economy, but this is excluded from GDP. Millions of households in India run on this bio-fuel. If they were to switch to fossil fuels, it would be an ecological catastrophe, in addition to being an economic disaster, given that India spends a large proportion of foreign exchange to import coal, petroleum and their products. Dung also serves as fertiliser to raise crops along with having several other uses.

The billions of dollars in foreign exchange saved by India on this account aren’t factored into the mainstream economist’s understanding; this kind of labour isn’t respected. According to the development script, these women must ‘develop’, be moved into industries far from home, where they can sell their cheap labour for minimal rights and live in dirty, urban slums, deprived of clean air and water - and to lure them, the developmentalists are willing to give them an imaginary ‘tax-break’.

India hasn’t been very successful in following the development script. Not only have we created for ourselves an agrarian crisis but also destroyed our soil, water and air along with the domestic knowledge of crop patterns, food, healthcare, clothing and building homes, leaving local and home industries in shambles. On top of this, we couldn’t generate enough ‘high productivity’ jobs in industry to 'move the labour’ either, thus leaving hundreds of millions in a limbo, uprooted and unemployed. Women have suffered disproportionately from this. Their knowledge has been disregarded and areas of autonomous activity stolen by mechanised development.

Alternatives do exist. An approach out of the crisis sensitive to women would concentrate on rural reconstruction. Women are involved in agriculture in large numbers. The problems that farmers have been highlighting must be addressed on priority. The handicraft and handloom industries which have been increasingly marginalised must be recognised and given their due space to thrive. Eschewing the current city-centred development model for a labour-intensive rural one will allow men to find jobs closer to their homes and share domestic responsibilities in order to ease the burden on women. Decision-making on local water resources, common lands, education, health services and food must be devolved to the local communities so that women have due say in their economic lives.

(Irina Cheema is an independent researcher; Aryaman Jain is an Environmental Engineer; Aseem Shrivastava teaches Ecosophy at Ashoka University)