— Pranay Kotasthane
There is an unending debate on the north-south claims on government money. Every election cycle unmistakably sees a discussion on freebies and corruption. The states and the union continue to have multiple disagreements concerning the Goods and Services Tax. And while Indian cities contribute to the bulk of its GDP, they are perennially begging for money. Finally, every few months, commentators advocate for raising taxes on the wealthy to alleviate income inequality.
Discussions around the topics listed above are now commonplace, yet they often take place without a grasp on public finance concepts, even though this discipline provides a framework to understand the role of government in the economy. One probable reason is that public finance books written in India are academic and dry.
That’s what motivated Sarthak Pradhan and me to write Fiscal Fables. Our aim is to demystify India’s public finances to a general audience. The book explains public finance concepts with the help of relatable stories and examples, and belongs to the same genus as Missing in Action and We, the Citizens.
Here’s an excerpt below.
In Terry Pratchett’s celebrated novel Jingo, the benevolent despot of a bankrupt Ankh-Morpork city expresses his dissatisfaction with the city elite thus: ‘Taxation, gentlemen, is very much like dairy farming. The task is to extract the maximum amount of milk with the minimum amount of moo. And I am afraid to say that these days all I get is moo.’ This chapter is about the art and science of that dairy farming.
Come 1 February, and you will see a slew of discussions on the money allocated to new and shiny government schemes. Similarly, traditional books on public finance begin with discussions on government spending. But we thought differently. Shouldn’t a citizen’s guide to public finance, we opined, take off from the point where governments extract money from you? Isn’t that where the khel begins?
This act, euphemistically called ‘raising revenue’, is the lifeline of governments. In colonial India, the idea of raising revenues was so central to governance that the key district-level administrative position was referred to as the ‘collector’. The title has stuck, even though the role has evolved to encompass broader executive and administrative responsibilities.
As the introduction explained, governments perform various functions, such as allocating public goods, redistributing incomes and stabilizing macroeconomic conditions. All three require money. Thus, every government, from ancient Rome to modern India, raises revenues through three primary resources: taxes, non-taxes and borrowing.
A tax is a ‘pecuniary burden laid upon individuals or property to support the government, and is a payment exacted by legislative authority’. It is neither a voluntary contribution nor a fee paid in exchange for a specific good or service. Taxes can be imposed on what any entity earns, buys or owns. Personal and corporate income tax fall in the first category. Sales tax and GST fall in the second category. The examples in the third category include property tax, inheritance tax, etc.
Since taxes are mandatory payments, they are a more reliable source of government revenue. Governments can broadly estimate the extent of economic activity in a given year and, consequently, the amount of tax revenues. Further, the number of taxable activities is quite large. The share of taxes in government receipts vindicates its role as the most preferred revenue source. In India, taxes constitute more than 80 per cent of the revenue receipts at both the Union and the state level.
In other words, taxes are the Rahul Dravid of government revenue—reliable and consistent over long periods. No wonder governments love taxes more than the other two sources.
Non-taxes typically refer to fees, fines, dividends from the entities the government owns or other charges the government imposes for specific activities and services. Governments run power facilities to supply electricity at a fee that customers must pay. Such user fees are charged on voluntary transactions.
The government cannot force people to use its services to raise additional revenue. They’re voluntary in the sense that you can avoid them. Don’t speed, don’t pay speeding fines; don’t use the toll road, don’t pay tolls. They are also unpredictable, which is why governments can’t rely on them entirely.
If better options exist outside the government, individuals will opt to avail themselves of the same service from there. As markets tend to be more efficient than governments in allocating goods and services, the scope for user charges to be the most prominent source of revenue is low. This is validated by the usual low share of non-tax revenue in the total government receipts.
However, it is worth mentioning that user fees are an equitable way of raising revenue. Those who presumably benefit most from the public facility pay the most without passing on that burden to someone else.
Another form of non-tax revenue can be receipts from the sale of various natural resources such as minerals, forest products, etc. Some regions, blessed with these resources, generate a large part of their revenue from these resources.
For example, countries in the Arabian Peninsula have large oil reserves and generate significant revenue from selling oil products. However, most regions are not blessed with this kind of natural resource base, and these resources are finite. So, most economies worldwide do not have the luxury of depending on natural resources to meet their expenditure requirements.
The third source of the government’s earnings is borrowing. Borrowing is the credit card of government finance. It lets you spend money that you don’t have right away. But just like your credit card bill, it comes back to haunt you with interest.
Governments borrow domestically from the markets, the central bank and through public savings schemes. Governments also take external loans, such as those from international financial institutions like the World Bank.
Borrowings create future liability for the government. If the borrowed money is not wisely spent, the burden of repayment falls on future generations. Let’s say a government borrows money to pay salaries and wages to its staff or distributes it to non-performing firms; such spending does not generate the revenues needed to service the debt, so the debt will keep growing.
The burgeoning debt burden will have implications for future generations—today’s borrowing transmogrifies into tomorrow’s taxes.
Insights on current policy issues in India
—RSJ
I stopped watching Indian TV news channels almost a decade back. This was around the time the term ‘godi media’ (lapdog media) was gaining traction. Field reportage had by then become a thing of the past. All you had was some kind of an actor-anchor who would invite pedestrian spokespersons of political parties and then find ways to corner the opposition voice in such debates.
I briefly got back to watching mainstream TV news on YouTube during the pandemic. It didn’t last long. I distinctly remember the moment I went cold turkey on it. There was some kind of a debate show that I found myself watching in the run-up to West Bengal elections in 2021. I don’t know how, but Tagore and his views on Hindu-Muslim unity came up during the debate. A Bengali bhadralok who seemed to support the idea of Hindu-Muslim unity was invoking Tagore (as I remember it). And in true bhadralok style, he was using ‘Thakur’ (the actual surname) instead of Tagore and talking about how Tagore protested against the partition of Bengal et al. Then out of nowhere, the smug-faced anchor, Aman Chopra, started interrupting this bhadralok whenever he mentioned Thakur with “Tagore boliye’ (translation: call him Tagore).
After a few such interruptions, the gentleman politely told Chopra that Thakur is the actual surname of Tagore. I watched on. Here was the star anchor of one of the biggest TV news channels, debating on Bengal and Tagore with some kind of a subject matter expert, with almost no preparation on the topic except to direct the debate to claim Tagore wasn’t in favour of Hindu-Muslim unity. And on top of it, he tries to correct the expert on Thakur while not even pausing for a moment to consider that he might be wrong. It was way too much chutzpah for me to handle.
But I found myself watching Indian television news again, prompted largely by the student protests that broke out over the past week. I was keen to see how they were being interpreted, having scalped the education minister and sending a strong message to the government about their discontent.
Not much had changed. There were efforts to discredit the protesters with specific emphasis on their abusive language and their anti-national intentions on one hand. On the other hand, the protests, we were told with some gravitas, reflected growing discontent among India’s elites after more than a decade of political continuity at the Centre. Political fatigue was evident, and the BJP will need to reinvent itself. There was no real discussion on where the protests would go from here on. All they were interested in was how the PM would address this in his own inimitable way.
The description, however, did not seem to fit what one was actually seeing on the ground from the independent news channels running on YouTube. The students who appeared in those interviews from Delhi, Mumbai, Patna and several other cities came from families that had invested heavily in education. They were articulate, ambitious and invested in competitive examinations. Calling them elites was a stretch, though.
The real elite in India has checked out of the Indian education system over the past decade. Their children leave for undergraduate education abroad, begin careers outside India or keep those options permanently open. Their engagement with Indian public institutions is negligible. The students filling the streets did not represent the elite. This was the middle-class stock that had committed themselves to succeeding within India. They were protesting because they had chosen to place their bets here.
That difference is important to remember whenever you see another op-ed piece that talks of elite dissatisfaction as the starting point of these protests. If these are merely dissatisfied elites, then the episode will die a natural death after a month or two. If they are instead young Indians who have spent years preparing for opportunities inside the country and have begun questioning whether those opportunities will exist in the form they were promised, then the questions will continue to linger in the air.
That observation reminded me of a very different period. Engineering colleges across much of India through the 1980s and into the early 1990s, outside a handful of elite institutions, were often rough places. Ragging was widespread, and campus violence was common. Frustration frequently spilt over into behaviour that had very little to do with ideology or student politics. Looking back, one possible explanation was that many students knew by the middle of their course that graduation offered no assurance of employment. When young people lose confidence that effort will translate into opportunity, the consequences of present actions begin to matter less.
The transformation that followed the late 90s software boom in the same colleges remains one of the underappreciated social changes in modern India. Campus recruitment spread far beyond a handful of prestigious institutions. Students entered the colleges expecting that a substantial proportion of their batch would receive offers before graduation. Within a relatively short period, the atmosphere on campuses changed. Students who believed they had something waiting for them after graduation behaved with restraint, unlike the students of the past. People protect futures they believe are attainable. They become reckless when the future looks worse than the present. That memory returned while listening to the students who had gathered to protest.
What also struck me while watching television news after so long was the complete stupidity of it all. It is difficult to think of another industry in India where competitors appear so reluctant to distinguish themselves from one another. Competitive markets reward differentiation, and companies search for audiences and profit pools that their rivals have neglected. They experiment with formats, language and positioning constantly to improve their product mix. Indian television news appears to move in the opposite direction. Editorial positions, the structure of debates, the rhythm of prime-time programming - they all seem interchangeable.
Of course, you could say that the channels are only catering to their demand. But I find it incredible that in a nation where the vote share of the winning party barely crosses 40 per cent, the TV news channels have all concluded that the remaining 60 per cent has no interest in their content.
So, one can only surmise that they are serving objectives beyond the business as usual. Almost all media houses are owned by a select set of business conglomerates whose primary interests are in several regulated sectors of the economy. Broadcasting news for them is not a commercial venture that should concern itself with advertising revenue or television ratings. They own news channels to curry favours, influence masses, preserve access or reduce friction with governments. Now that they are so entrenched with this regime, they have a perverse interest in keeping the opposition out of power.
If this is the purpose of these channels, does it really persuade anyone? Television still occupies a place in many Indian homes. I have visited the homes of friends where the news channel stays switched on through the evening. The volume is turned down as the family goes about its evening, with the older lot looking occasionally at the screen that’s filled with what can only be politely described as propaganda.
Yet the youngest in the household are often looking elsewhere. Their information ecosystem flourishes on phones rather than television sets. They consume news through podcasts, YouTube channels, Instagram clips, Reddit forums and messaging platforms. They encounter multiple interpretations of the same event before dinner. Television to them is a relic of the past that is outdated and compromised.
Once such a generational shift occurs, recovering the audience is impossible. Newspapers experienced this transition, and TV now appears to be living through another version of it. The change is not merely technological. A generation accustomed to searching, sharing and arguing across digital platforms is unlikely to return to scheduled debates.
And no matter how hard the older institutions or the previous generations try, they will fail to establish their dominance on these new media. Trying hard will make them look like clowns, as we have seen with such efforts in the past week. The only recourse left for them will be to control the access of the young to these platforms. The recent scrutiny of social media companies, with the government asking Meta executives to fly down to Delhi and continuing debates around content moderation, fits within that broader pattern. Global technology companies, meanwhile, will weigh commercial interests alongside regulatory expectations in every market where they operate. I foresee tighter social media regulations for students on the anvil.
This gap, evident in media consumption, eventually led me to think about a divide that has been building for some time. The generations born between roughly the 1960s and the early 1980s experienced one of the most remarkable periods of economic transformation in Indian history for much of their adult life. They entered adulthood at precisely the moment when India’s economic possibilities expanded. Most built prosperous lives much better than their parents during those decades.
Yet their political outlook was shaped by factors other than economic reform. That included imagined victimhood (historical suppression by Muslim and British invaders), identity politics and a constant reinforcement of the belief that India could be great but for the deep state that’s on the rolls of some combination of global left, Islam and Christian supremacists.
I think some part of the explanation may lie in the way memory develops. People have experienced economic reforms transforming their lives. The economic reforms of 1991 and after needed vision and political acumen that was then sustained by institutional effort. This wasn’t easy. Yet the reform era never acquired a narrative matching the scale of its consequences. Reform by stealth was the preferred mode. Those who steered the reforms preferred to be quiet about how they did it. That absence left space for competing interpretations.
So, the beneficiaries of these reforms, including me, hardly became bhakts of the reforms. Rather, the ulta happened. As incomes rose and Indians travelled more widely, many naturally asked why the country had remained poor for so long. At the same time, events ranging from the Ram Janmabhoomi movement, the Mandal debate to repeated terrorist attacks and the global impact of September 11 reshaped public opinion about identity, appeasement, merit and national interest. These merged into a broader political worldview of my generation, which blamed the Congress for everything, which was then nurtured by the cyber cells.
One of the things I have written about on these pages is why political beliefs are more durable and rigid in people than other belief systems. Unlike religion or caste, which are endowed at birth, people think of their political beliefs as something they have reached through their own observation and reasoning rather than inheritance. Whether that self-perception fully reflects reality matters less than the fact that it becomes part of personal identity. So, I don’t see the generation born between the 60s and 80s changing their political views anytime soon or ever. Gen Z and every new cohort from here on is entering public life under very different conditions. They do not compare present-day India with the licence-permit era because they never lived through it. They compare it with the possibilities they encounter across the world in real time.
For more than a decade, India’s political conversation has played out on a media ecosystem that spoke to the generations shaped by liberalisation, Mandal-Mandir politics and global war on terror. While that continued, another generation was growing up learning about the world through networks rather than institutions. That’s the genie that’s now escaped the bottle. It is not homogeneous and doesn’t speak in one voice. It is too large and fragmented for that. But what’s certain now is that it will approach politics with a fresh set of assumptions. The protests offered a glimpse of that transition. India’s public square will look more like the chaotic mohalla nukkad than the bizarre sets that dot Noida news studios. This is destined.
Global Issues Relevant to India
— Pranay Kotasthane
The Artificers Act of 1749 in Britain was aimed at punishing “persons convicted of seducing artificers out of the dominions of the crown of Great Britain.” In 1774 and 1782, the British Parliament passed a law making it illegal for textile workers to emigrate. The spinning jenny and the water frame had given Britain a lead in mechanised cotton production, and Parliament understood that machines were useless without the men who knew how to operate them.
Two and a half centuries later, in another wave reminiscent of 18th-century mercantilism, China has converged on the same policy instrument.
On July 31, Premier Li Qiang signed State Council Decree No. 841, the Regulations on Exit and Entry Administration, which comes into effect on September 15. The decree covers everything from visa issuance to travel documents. But the provision that matters for technology geopolitics is Article 4, which states that:
… Citizens who violate export-control or technology import/export rules, potentially endangering national industrial or technological security, may be barred from exit by the State Council’s commerce and other competent departments.
Three features of this provision deserve attention. The trigger is not a proven breach. The standard is “potentially endanger,” a phrase so elastic that its primary function is deterrence rather than prosecution. Second, Article 5 creates a mirror on the entry side: foreign nationals on China’s Unreliable Entity List, countermeasure lists, or Malicious Entity lists can be denied visas altogether. Third, Article 6 requires authorities to notify individuals in writing of the facts, reasons, and legal basis for a denial, except where disclosure “may affect national security.” That exception is broad enough to nullify the rule.
These Regulations formalise practices that had been surfacing in fragments over the past year from China.
In July 2025, we analysed the news reports that Foxconn was recalling its Chinese engineers from its India facilities. Back then, I had called it a self-defeating move; it was like clutching at straws to prevent industrial capacity going abroad. Like the kid who walks away from a cricket game with his bat and ball as he senses an imminent loss, China seems to be trying to prevent the outflow of basic equipment, materials, and ideas.
In June that year, the Wall Street Journal reported that China’s Ministry of Commerce had asked rare-earth companies to submit detailed lists of their technical personnel, including expertise, educational background, and research history. Some staff were subsequently required to surrender their passports to employers or local authorities!
In May 2026, Bloomberg reported that senior AI researchers at Alibaba and DeepSeek working on strategic projects needed government approval before travelling internationally. Around the same time, the Financial Times reported that two executives of the AI startup Manus were summoned to Beijing by NDRC officials and told they could not leave China during the regulatory review of Meta’s proposed acquisition.
Each of these incidents was previously treated as an unverified media allegation. The July 31 Regulations make it clear that this is now an institutionalised strategy. The excellent Geopolitechs Blog describes this as “personnel compliance (are) becoming an integral part of export control compliance programs”.
The regulation reveals a logic that anyone familiar with the history of industrial policy will recognise. Technology geopolitics, for all its focus on machines, materials, and money, runs on people. Chips are designed by engineers. Fabs are operated by technicians. Process recipes live in the heads of the people who developed them. Nation-states can embargo equipment, restrict chemicals, and sanction firms. The hardest channel to control has always been the movement of human beings. China has now placed a formal gate on that channel.
For a foreign firm operating in China, say Applied Materials or ASML’s service operations, the knowledge asymmetry is striking. A company trains Chinese engineers on proprietary tools and processes. Those engineers absorb the firm’s IP and whatever they learn from the local ecosystem. The regulation does nothing to slow that inward flow. What it does is add friction on the outward movement. Now, rotating a Chinese national to headquarters in Santa Clara, posting them to a customer site in Hsinchu, or transferring them to a third-country fab now carries a regulatory risk that did not previously exist in law. The Q&A accompanying the decree repeatedly invokes China’s commitment to “high-standard opening-up.” But a regime that makes technical staff harder to move internationally raises the cost of integrating a China operation into a global R&D network. A firm deciding where to place sensitive work would definitely have to reconsider its decision given these regulations.
For Chinese nationals themselves, the regulation reshapes career incentives. The value of working at a leading foreign semiconductor or AI firm has partly been the international mobility it offers—postings abroad, eventual relocation, and access to global networks. Article 4 puts a discretionary state gate on that mobility, and it applies to the individual regardless of who employs them. If top engineers start calculating that a role at a strategic-tech company raises their personal exit risk, the talent pipeline to such firms narrows. This is a second-order effect the foreign employer cannot solve through compensation.
What this means in reality is that a Chinese engineer working at SMIC or Applied Materials China, or a rare earth extraction/separation/magnet-manufacturing engineer, or an AI/frontier-model researcher almost certainly cannot travel outside China without getting explicit permissions.
For technologies not explicitly in the export control catalogue, such as Tunnel Boring Machines or solar module and electronics assembly, the officials will make a case-by-case call on whether the foreign travel could lead to endangering national security.
There are other unintended consequences too.
Restricting outbound travel for scientific talent reduces leakage risk but also reduces the two-way conference, collaboration, and tacit-knowledge flow that Chinese research has relied on to stay near the frontier. China's talent-attraction architecture also faces an adverse selection problem now, as the researchers most likely to avoid returning are precisely the most mobile, most sought-after ones. Foreign firms would be far more wary of taking strategic functions into China. Finally, enforcing these restrictions might soon spill over into controlling intra-firm communication because a lot of knowledge flow transfers do not need physical travel.
So it’s funny that both the US and China are hell-bent on self-harming actions. Every time the US government comes up with a stupid tariff restriction or export control, China responds to it with another ludicrous move of its own. That’s how mercantilism worked the last time around. Britain tried to keep its spinning jenny advantage by banning workers from leaving. That delayed American industrialisation but couldn’t prevent it. China’s version of this play is backed by digital surveillance infrastructure and an institutional apparatus that George III could not have imagined. This time, the enforcement tools are considerably better, but so are the tools to leak knowledge. In either case, the oldest move in technology geopolitics is back in action.
[Dashboard] Check my colleague Amit Kumar’s China Economic Coercion Tracker to find out if your firm is at risk of falling under China’s new regulations.
[Fellowship Alert] The Network for Advanced Study Fellowship, offered by the Takshashila Institution, is accepting applications for the 2026-27 cohort. It is designed for those who want to develop serious, sustained work in their field. Fellows work on a research topic of their choice, with structured mentorship from Takshashila scholars and a network of domestic and international subject-matter specialists.
[YouTube Show] The first episode of our new show, Watching the Wheels, is now out. The Main Course section features an excellent reading by Shruti Rajagopalan on three recent papers related to women’s working and mobility patterns in urban India. DO NOT MISS, and please subscribe to our little channel.
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