Towards equitable wealth distribution: A pragmatic approach for India

Congress leader Sam Pitroda's proposition has sperked off a political rhetoric

The disparity in wealth accumulation is starkly illustrated by the vast disparity in earnings The disparity in wealth accumulation is starkly illustrated by the vast disparity in earnings.

In recent discourse surrounding the notion of inheritance tax, sparked by Congress leader Sam Pitroda's proposition, India finds itself at a crossroads where economic principles intersect with political ideologies. The subsequent fervent response from Prime Minister Modi, labelling the idea as akin to "Maoist ideology", underscores the deep-seated divisions on matters of wealth distribution and economic equality in the country. However, amidst the political rhetoric, it's imperative to analyze the concept of wealth distribution through a lens that integrates theoretical perspectives, economic realities, constitutional principles, and historical context.

The discourse surrounding the inheritance tax fundamentally addresses the pervasive issue of wealth inequality in India. Despite significant economic growth, the nation continues to grapple with alarming levels of poverty and income disparity. According to the Credit Suisse Research Institute, indicators of wealth inequality have remained persistently high over the years. From 2000 to 2022, the Gini coefficient hovered around 82.5, with the top one per cent consistently holding a substantial share, reaching 40.4 per cent in 2022. This trend is corroborated by a comprehensive study conducted by Thomas Piketty, Lucas Chancel, and Nitin Kumar Bharti, revealing an alarming rise in the income and wealth share of the top one per cent of the population.

What exacerbates India’s situation is the intersectionality of economic inequality with existing fault lines of caste, religion, region, and gender. Oxfam reports that the top 10 per cent of the population controls a staggering 77 per cent of the national wealth, while the poorest half, comprising 670 million individuals, witnesses minimal wealth growth. The emergence of billionaires has surged, increasing from a mere 09 in 2000 to 101 in 2017, with projections anticipating a substantial rise in millionaire numbers by 2027. Shockingly, amidst this wealth accumulation, millions of Indians struggle to access basic healthcare, with a significant portion being pushed into poverty due to exorbitant medical expenses annually. 

The disparity in wealth accumulation is starkly illustrated by the vast disparity in earnings. A minimum wage worker in rural India would need almost a millennium to match the annual income of a top-paid executive in a leading garment company. Despite the overall increase in wealth per adult, which stood at USD 16,500 in 2022, the persistent inequality undermines not only social cohesion but also stifles sustainable economic development. Furthermore, projections of a continued increase in this trend underscore the urgency of addressing systemic issues of wealth distribution in India.

In essence, the perpetuation of wealth inequality poses a significant threat to India's social fabric and economic progress. Addressing this multifaceted challenge requires concerted efforts aimed at implementing equitable policies, fostering inclusive growth, and dismantling structural barriers that perpetuate economic disparity. Only through proactive measures can India realize its aspirations of becoming a truly equitable and prosperous society for all its citizens.

In examining wealth distribution, one must first consider the theoretical underpinnings. Economists have long debated the merits of various approaches, ranging from laissez-faire capitalism to socialist redistribution. However, pragmatic perspectives often advocate for a balance between market efficiency and social justice. Nobel laureate economist Amartya Sen's capability approach emphasizes enhancing individuals' freedom to pursue their goals, which necessitates addressing fundamental inequalities in wealth and opportunity.

From a constitutional standpoint, India's founding principles enshrine the ideals of justice, equality, and fraternity. Article 39 of the Indian Constitution mandates that the state shall strive to ensure that the ownership and control of material resources are distributed to serve the common good. This constitutional directive underscores the state's responsibility to foster equitable wealth distribution to uplift the marginalized and ensure inclusive growth.

Historically, India has witnessed sporadic attempts at wealth redistribution through policy interventions. Land reforms aimed at abolishing intermediaries and redistributing land to tillers were initiated post-independence to address agrarian inequality. However, the efficacy of such measures has been marred by implementation challenges and political resistance. Similarly, the introduction of wealth taxes in the past faced criticism for being cumbersome to administer and prone to evasion.

The proposal for an inheritance tax, while contentious, merits serious consideration in the Indian context. Such a tax could serve as a tool for curbing intergenerational wealth concentration and funding social welfare programs. Moreover, it aligns with global trends where several countries, including developed economies like the United States and European nations, have robust estate taxation systems in place.

Critics often argue against inheritance taxes, citing concerns about stifling entrepreneurship and disincentivizing wealth creation. However, empirical evidence suggests that moderate inheritance taxes have minimal adverse effects on economic growth while promoting greater social mobility and reducing inequality. Additionally, provisions can be made to exempt small inheritances or family-owned enterprises to mitigate unintended consequences.

In forging ahead, India must embrace a nuanced strategy that recognizes the intricacies of wealth distribution. Priority should be given to initiatives aimed at improving access to education, healthcare, and financial services, particularly for marginalized communities. Previous interventions such as subsidized grain distribution, increased investment in education and healthcare, and direct cash transfers through rural employment schemes have played a crucial role in fostering equitable income distribution. Simultaneously, progressive taxation policies, coupled with effective enforcement mechanisms, can ensure that the burden of wealth redistribution is borne equitably. Policymakers must engage in evidence-based deliberations, drawing insights from both domestic and international experiences. Learning from successful models of wealth redistribution in countries like Sweden and Norway, where high levels of taxation coexist with robust social welfare systems, can offer valuable lessons for India's journey towards economic equity.

The discourse surrounding inheritance tax catalyzes broader conversations on wealth distribution in India. By embracing principles of justice, equality, and pragmatism, the nation can forge a path towards inclusive growth and social cohesion. As the world's largest democracy, India has the opportunity to lead by example in demonstrating that equitable wealth distribution is not just a moral imperative but also a prerequisite for inclusive and sustainable development. However, in navigating the complex terrain of wealth distribution, India must remain cognizant of its diverse socio-economic landscape and regional disparities. Policies tailored to address the specific needs of different regions and communities are essential to ensure that no segment of society is left behind in the pursuit of economic prosperity.

Furthermore, fostering a culture of transparency and accountability in governance is indispensable for the effective implementation of wealth redistribution measures. Strengthening institutions, enhancing tax compliance, and combating illicit financial flows are indispensable steps towards building a more equitable society. Ultimately, by embracing a holistic approach that integrates theoretical insights with practical considerations, the nation can chart a course towards a future where prosperity is shared by all, as per the principles enshrined in its Constitution.

In this endeavour, the collaboration between government, civil society, and the private sector is paramount to ensure that wealth distribution reforms are comprehensive, sustainable, and conducive to the common good. Only through concerted efforts and collective action can India realize its potential as a beacon of economic equity and social justice on the global stage.

Amal Chandra is an author, political analyst and columnist. Views are personal.

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