New Delhi: Renowned French economist Thomas Piketty has proposed a wealth and inheritance tax on India’s super rich to drive up tax revenue and reduce income inequality—a view that has not found much favour with Indian economists.
Piketty was speaking at an event hosted Friday by the Delhi School of Economics (DSE) and Research and Information System for Developing Countries (RIS), an autonomous policy research institute.
He was joined by Dr Shamika Ravi, member of the Economic Advisory Council to the Prime Minister, Dr V. Anantha Nageswaran, chief economic adviser to the Government of India, and Dr Ravindra Dholakia, member of the Reserve Bank of India’s central board, to discuss income inequality and economic growth.
The three Indian economists seemed to disagree with Piketty’s tax proposal on various grounds, the most prominent being that an increase in taxation could have the unintended consequence of driving capital out of the country.
“In India, the top 10 percent of the population earns 55-60 percent of the national income,” said Piketty, underscoring the wealth inequality in the country.
The bottom 50 percent of the country’s population earns only 10-15 percent of the national income, he added, explaining that this type of disparity puts India in the ranks of Brazil and Mexico, far behind wealthier countries such as Sweden, Germany and even China.
“This distribution (of income) matters a lot,” said Piketty. “We cannot only look at growth.”
Piketty further discussed how historically, a century ago, Europe was a lot like Latin America or even India in terms of inequality.
“Countries in Europe have become more equal over the course of the 20th century,” said Piketty. “I would argue that this has made growth even faster.”
His proposal to combat inequality was an increase in taxation on the super wealthy.
Piketty gave a baseline, moderate and ambitious proposal for a wealth and inheritance tax, which he believes would affect only 0.04 percent of adults in India.
At the baseline, a wealth tax rate of 2 percent on net wealth greater than Rs 10 crore and an inheritance tax rate of 33 percent on estates greater than Rs 10 crore were suggested.
The moderate and ambitious proposals suggested higher tax rates for net wealth and estates. They also included a more aggressive tax for net wealth greater than Rs 100 crore.
“The bottom line is that given the rate of inequality in India today, this will bring very substantial revenue,” said Piketty. “In the moderate proposal, you will get tax revenue which will be 92 percent of total health and education spending in India today.”
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Indian economists’ view
Indian economists on the panel refuted Piketty’s theoretical underpinnings about income inequality as well as his proposals to combat it.
Dr Ravi disagreed with the suggestion that lower inequality is good for growth, saying the “causal link” was still unclear.
“My key concern is how do I raise labour productivity,” said Ravi. “I do see the intrinsic appeal of taxing the rich. But how does it translate directly into rising productivity is not clear to me.”
This was a big problem for Ravi, who also stated that “stagnant wages in many parts of the emerging market are also a reflection of stagnant productivity of labour”.
Nageswaran first defended the fight against income inequality in India.
He pointed out that while the Gini coefficient, a measure of income inequality, increased between 2015 and 2021, it has now come down closer to pre-Covid levels.
“Post-Covid, there has been a 75 percent jump in the income of the poorest households compared to the increase in income in the richer quintiles of the population,” said Nageswaran.
He also took issue with how Piketty included stock market wealth and venture capital valuations as reasons for the top percentile’s rise in wealth.
“If all that stands between India and a more equal distribution of wealth and income is a stock market correction, then we can ask if inequality is such a serious issue and an appropriate measure of the welfare of people at the bottom,” said Nageswaran, who has also co-authored an article criticising Piketty’s proposals.
On Piketty’s wealth tax proposals, Nageswaran warned about the “unintended consequence” of increase in tax possibly driving the rich out of the country and leaving India worse of.
Dholakia chose to focus more on the country’s tax base and need to combat tax evasion.
Rather than an increase in tax on the super rich, reigning in tax evaders would be more beneficial to the country was his view.
“Tax evasion in India is a rule, rather than an exception,” said Dholakia. “By conservative estimates, 7.42 percent of earners are evading tax and their average (annual) income is about Rs 10 lakh.”
Ram Singh, Director of DSE, closed the discussion after audience members had a chance to ask questions to the panel.
“The issue of inequality has got a lot of attention both internationally and within our country,” said Singh, adding that the subject was not a new one.
He underscored how the issue of trade-offs between growth and inequality has got more attention in the last 15-20 years when India’s growth rate picked up.
“It is no coincidence that we chose Dr Ambedkar (International) Centre for this debate,” said Singh, referring to Dr B.R. Ambedkar’s fight against inequality. “This is our way of acknowledging that this is an issue that requires attention and deliberation.”
(Edited by Nida Fatima Siddiqui)
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Idiots like Piketty must be arrested and put behind bars.
These buffoons have no idea on hiw to create wealth in the first place. But they are full of bizarre ideas when it comes distribution of wealth and equity in society.
Already rich Indians are surrendering the Indian passport in record numbers. It will hardly take anything for the business elites to purchase a citizenship in western European nations.