Resolving economic disparities with an overhang of seven decades of poverty needs political will, without which the gap between the rich and poor cannot be narrowed
Amidst heightened concerns of widening global inequality, a Kotak Wealth Management study points that the number of the rich have grown at a faster pace in India than the country’s Gross Domestic Product (GDP). The findings corroborate a 2017 paper on inequality by French economist Thomas Piketty, as also the Oxfam report. Ultra-high net worth Indians are classified as those with a net worth in excess of Rs 25 crore, who have grown their capital by 12 per cent in 2017, and the number is expected to double over the next five years. This is what the Bloomberg report terms as ‘The Robinhood Index’.
A year away from the General Election, the key takeaways for the Government of India from these reports necessitate altering perceptions that the Government is elitist in its policies, as the “richest one per cent in India cornered 73 per cent of the wealth generated in 2017”. When 67 crore Indians, comprising the population’s poorest half, see their wealth rise by just one per cent, it becomes a strong electoral talking point for the Opposition. Though a common man understands little of economics, GDP etc, but when social polarisation is trumped up by the Opposition, it’s a reminder to the aam aadmi of his economic angst and the Bharatiya Janata Party’s (BJP) failed promises.
Influential business houses have for long gamed the system, the latest being ‘jewel thief’ Nirav Modi. Reserve Bank of India data shows, State-run banks have reported 61,000 crore of loan frauds within a five-year span, the scale of which poses the biggest risk to India’s financial sector. So, a good chunk of the taxpayers’ money is used in all capitalist societies, to bail out bad loans, to fund the profligacy of the rich, while the retail borrower is penalised by banks should he default on equated monthly installments (EMI).
Prescriptions to seal the leaking wealth bucket necessitated reforms against tax evasion which has become the signature reform credited to the Modi sarkar — imposing higher taxes on the super-rich, like revival of inheritance-tax that was much speculated before the Budget; raising corporate taxes, which at this stage of economic revival would have been a big deterrent; and curbing the excessive influence of big business over Government policy-making.
In capitalist societies, curbing cronyism of businesses-politicians nexus is an idealistic dream as the relationship between the two is an abiding one of co-dependency, inextricably linked to electoral funding in exchange for Government largesse.
The goal is not to bring down the one per cent who hold 73 per cent wealth. The aim is for holistic growth, wherein a rising tide takes all ships up with it. Wealth concentration occurs through inheritance; through the ‘robber baron model of capitalism’; or through ‘meritious capitalism’, as in, think: Bill Gates, Mark Zuckerberg, Jeff Bezos of Amazon, Jack Ma of Alibaba, or their Indian counterparts who struck fortune through innovative disruptions.
When only 2.56 per cent pay income tax in India, it infers those 2.56 per cent Indians pay all the 100 per cent of our taxes. In seeking solutions for wealth redistribution, it may sound virtuous and politically correct to victimise the rich, especially in India, where poverty alleviation is a competitive plank which every political party tries to patent as being messiah of the underprivileged. But doing so borders on cynicism, as Governments do not create wealth, nor does socialism, and nor did communism confer the very basics citizens aspire for to acquire minimal ownership of assets as rewards of labour. It is equally fallacious to believe that free market economies only favoured the rise of cartels and oligopolies, as World Bank figures show a decline in extreme poverty by 58 per cent over 30 years.
Further, 37 per cent of India’s billionaires have inherited family wealth and control 51 per cent of the total wealth of billionaires in the country. let’s interpret this: Why should there be objections, if during the lifetime of billionaires, the wealth that is passed on is after taxes paid on rents, capital gains, dividends etcIJ Estate duty is then an avoidable punitive tax on the affluent, a tax-on-tax, expected to be paid during and after ones lifetime, a form of unfair State extortionism.
The inequality theory implies that “inherited wealth grows faster than the growth rate of a nation, as inheritors become rentiers” who are at a vantage over the underprivileged who own nothing but provide labour in exchange for simple wages. In defence of the meritorious ‘one per cent’, robust growth in industry ultimately finds money flowing into job creation, paying taxes and beneficial corporate social responsibility (CSR) activities that supplement nation building. What stops the benefits of capitalism percolating to the bottom of the pyramidIJ
First, over a period of time, the composition of wealth and the characterisation of assets has altered. Ownership of land as an asset has declined in value as compared to ownership of data. In 21st century commerce, intellectual property rights gain primacy through patents for indefinite periods, so monopoly of data constitutes wealth. These are non-tangible assets, unlike land banks or physical assets, as ‘data is now the new oil’ and “he who controls data, controls the world”, as Prime Minister Narendra Modi said.
In fact, “a gigantic monopoly like Google, or its fellow oligarchs in the tech quadropoly, that includes Apple, Amazon and Facebook accounted for a market valuation of $2.65 trillion, more than India’s GDP,” making critics demand nationalising these behemoths deemed as public utilities. What is a possible way to narrow the rich-poor divideIJ Improvement in literacy rates would be a top priority.
Second, higher corporate taxation is viewed as pro-poor and anti-rich. To the contrary, the Trump Administrations tax-cuts have put more money in the hands of corporates, placing businesses into positive-sentiment territory, lowering unemployment rates to the lowest in 40 years. The fact that Union Finance Minister Arun Jaitley restricted lowering corporate tax to Ministry of Micro, Small and Medium Enterprises only with a turnover of 250 crore to the exclusion of larger industry, was a missed opportunity to achieve a rate of growth that would accelerate a faster trickle-down effect.
The ‘prosperity index’ is a better metric than ‘income inequality index’ to gauge progress and if the citizens have found a quantitative improvement in their income levels in the past three-and-a-half years of the Modi sarkar. Because resolving economic disparities with an overhang of seven decades of poverty needs political will to level economic distortions in land, labour and capital-spread, in order to invert the wealth pyramid and achieve inclusive prosperity.
(The writer is an author and columnist)