As every other industry clamours for a stimulus (read bailout) package and intensifies its lobbying efforts with the powers that be (read government), the question that arises is whether there is a superior way to allocate scarce resources.

There is.

How about putting some money back in the individual tax payer’s pocket. Instead of the government collecting the money and choosing which industry to shower it upon, depending on the industry’s power to please, let the tax payer decide whether he wants more cars (an automatic stimulus for the automobile industry), more houses (stimulus for the real estate) or more consumer durables (stimulus for the consumer durables industry).

There is a case for lining the pockets of the buyer, rather than the  seller to stimulate the economy.

This is already being put in place by the United States. Barrack Obama’s $787 billion stimulus package has two components –  tax cuts (36 per cent) and spending on social programmes (64 per cent) – which will ensure that Americans will have more money in their pockets as early as April.

It is a fact that tax cuts would be a challenging task for a fiscally constrained government. However, if such cuts manage to revive sagging demand, and, in turn, the economy, buoyancy would return to tax revenues.

If such a course were to be followed in a country like India, there would also be an efficiency dividend which comes to the fore with every reduction in the footprint of the government. This reduction was one of the reasons for the country’s high growth trajectory post 1991.

Let’s just do it!