Inequality in India at historical high

In a baseline scenario, a 2% annual tax on net wealth exceeding Rs10 crore and a 33% inheritance tax on estates exceeding Rs10 crore in valuation would generate a massive 2.73% of GDP in revenues, research paper by economist Thomas Piketty suggested

India needs to impose a two per cent tax on net wealth exceeding Rs10 crore and a 33 per cent inheritance tax to deal with the problem of rising inequality in the country, a new research paper co-authored by economist Thomas Piketty has suggested.

The paper titled ‘Proposals For a Wealth Tax Package to Tackle Extreme Inequalities in India’ propose a comprehensive tax package on the ultra-wealthy to tackle the massive concentration at the very top of the wealth distribution and create valuable fiscal space for crucial social sector investments.

The authors in their working paper released on March 20 had said inequality in India has skyrocketed since the early 2000s, with the income and wealth share of the top 1 per cent population rising to 22.6 per cent and 40.1 per cent, respectively, in 2022-23.

“Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, top 1 per cent income and wealth shares (22.6 per cent and 40.1 per cent) are at their highest historical levels and India’s top 1 per cent income share is among the very highest in the world, higher than even South Africa, Brazil, and the US,” the paper had said.

“Raise phenomenally large tax revenues, while leaving 99.96 per cent of the adults unaffected by the tax. In a baseline scenario, a two per cent annual tax on net wealth exceeding Rs10 crore and a 33 per cent inheritance tax on estates exceeding Rs10 crore in valuation would generate a massive 2.73 per cent of Gross Domestic Product (GDP) in revenues,” the paper suggested.

The paper said that the taxation proposal needs to be accompanied by explicit redistributive policies to support the poor, lower castes, and middle classes.

“For example, the baseline scenario would allow nearly doubling the current public spending on education, which has stagnated at 2.9 per cent of GDP over the past 15 years, well below - less than half - the 6 per cent target set by the government’s own National Education Policy 2020 (NEP 2020),” it said.

The paper noted that the taxation proposal needs to be extensively debated, with a consensus on specific details of the design emerging from a broader democratic debate on tax justice and wealth redistribution in India. The paper has been authored by Thomas Piketty (Paris School of Economics and World Inequality Lab), Lucas Chancel (Harvard Kennedy School and World Inequality Lab) and Nitin Kumar Bharti (New York University and World Inequality Lab). According to the paper, debates on income and wealth inequality in India have gained significant momentum in recent weeks, partly following the release of its study ‘Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj’, which revealed that economic disparities in India have reached historical highs. These extreme inequalities and their close link with social injustice can no longer be ignored, it said.