Economist Thomas Piketty Known for his work on inequality. In India, so to speak Delhi School of Economics and think tanks RISHe made the case for the government to tax the wealth of the super-rich at 2% and expand the tax base because the country has the highest levels of inequality, second only to South Africa. Excerpts from TOI’s interview with Siddhartha and Sarojit Gupta:
Your study shows that inequality has increased in India since 1991. But there seems to be a huge middle class, poverty is not as severe as it was 35 years ago. While the gap between the top 1% and the bottom 10% has widened, isn’t more people better?
Thomas Piketty: My general point is that India could do much better with less inequality. I am not saying that everything is going wrong in India. India is developing to reduce poverty. My point is that we don’t need the level of extreme inequality that we find in India. In fact, we could grow even faster, reduce poverty even more with less inequality. The level of inequality we see in India in terms of share going to the bottom 50%, share going to the top 10%, and share going to the top 1%, puts India on a world scale. Puts almost at the top. We have a few countries like South Africa that are even worse. Whether I look at rich countries today, European countries or even the United States, which is more unequal than Europe, less unequal than India and in the early stages of development through public policies, less unequal through progressive taxation. is done
Fifty years ago, China was no richer than India. It has become richer than India. One of the reasons it is richer than India is that it has been at least somewhat less unequal socio-economically. Politically, of course, that’s another story.
You have talked about tackling inequality by taxing the super rich. But in countries like India, this is a very difficult process. What other steps can be taken and how do you convince the wealthy to give more?
■ Taxation is always complicated because everyone would like to pay less tax. But the level of tax revenue in India is 13-14% of GDP, which is not very high. If you want to fund the police force, the justice system, infrastructure, education, everything with 13-14% of GDP, you end up not paying people well, you Not overfunding anything. Well, and you don’t get quality public service.
You have less than 10% of the income tax paying population in India. You have to say that as income increases and as your income increases in real terms each year, this percentage should increase slightly. Forty years ago, 10% of the population in China paid income tax, now it is 70-80% of the population. Hence, you get more tax revenue. And if you want it to be acceptable to the middle class and upper middle class, of course you need to start at the very top.
If they realize that the people at the top can avoid taxes and we have a kind of crony capitalism where the top billionaires are avoiding taxes entirely, then it’s hard to do that. The Indian government can also do things in India for greater tax fairness, becoming a more powerful voice in the international debate on billionaire taxation. Brazil played a role in the G20 summit to advance the Global South. But why was India inactive? I want India to push for ambitious redistribution, including taxing Indian billionaires.
In India, the top rate of income tax is around 43 percent. Where do we go from here? Also, there are a lot of rich non-residents who don’t pay taxes here. How do you address it?
■ Making it effective for the top 43% tax rate is important. If you look at the top billionaires, the income they report on their income tax returns is 0.01% of their wealth. You can tax it at 90% if you want, but that’s irrelevant.
The problem is taxing the rich. What we have calculated in our work is that a wealth tax of just 2% on India’s super-rich (167 billionaires) would raise significant revenue (0.5% of national income) when you include its education budget, health Will compare with the budget. These people can live anywhere but they have made their fortune in India, using Indian infrastructure, using Indian education system, using Indian legal system, sometimes using connections with the government. .
At some point, it is perfectly legitimate for the Government of India to say, for example, if you want to live elsewhere and you have spent the first 50 years of your life in India where you have accumulated your wealth, you still Will pay accordingly. The number of years you spent in India. If you start with the assumption that the very rich can get away, how are you supposed to convince the rest of the population to pay more taxes? The Government of India is capable of honoring its decision. It is a matter of political will.
India has done a lot on financial inclusion in recent years. Is this another way of trying to attack inequality?
■ This can be useful, but it is not enough. Access to credit is important, but you also want good quality basic public services, infrastructure, education, health.
Will something like Universal Basic Income work in a country like India?
■ It can be useful, but it is not a magic bullet. It will not replace high quality public services. It will not replace access to credit. But this is all part of the solution.
Will widespread public holdings of these family-owned businesses reduce the concentration of wealth?
■ In some cases this may make sense. I also believe in greater involvement of workers in these companies. Maybe, one day, India will adopt some form of German, Swedish company management system where an elected representative of the workers sits on the board.
Are you not convinced of the trickle down theory?
■ Well, with this level of inequality, no.