Economist flags widening inequality in India; calls for wealth and inheritance taxes

Noted economist Prabhat Patnaik has flagged India’s sharply rising income and wealth inequality and advocated the introduction of a wealth tax and an inheritance tax to finance a set of constitutionally guaranteed fundamental economic rights for citizens.

Delivering a special lecture titled ‘A Set of Constitutionally Guaranteed Fundamental Economic Rights’ after the release of a book in honour of late economist V.K. Nataraj at the Dr. B.R. Ambedkar Research and Extension Centre, Manasagangothri, on December 20, Prof. Patnaik said income inequality in India had reached its highest level in the last 100 years.

Citing estimates for 2022–23, he said the top 1% of Indians accounted for 23% of the total income. While income inequality had declined steadily from the pre-Independence period until the 1980s, it had risen sharply in recent decades, he observed.

Wealth inequality, he added, was even more stark. The top 1% holds nearly 40% of the country’s wealth, making India “probably one of the most unequal economies in the world”. “Such levels of inequality are inimical to democracy and to any civilised society,” said Prof. Patnaik, who is also a former professor of Jawaharlal Nehru University, New Delhi.

Poverty

More “worrying” than income inequality, which had been accompanied by the country’s high GDP growth, was the rise in the relative magnitude of absolute poverty, Prof. Patnaik argued. He rejected claims in the media that poverty was disappearing in India, recalling that when official poverty studies began in 1973–74, the Planning Commission defined poverty in terms of access to a minimum of 2,100 calories per person per day, with estimates actually calculated at 2,200 calories.

Based on these nutritional norms, he said that in 1993–94, when the neo-liberal economic regime began, urban poverty stood at about 57% and rural poverty at around 58%. By 2011–12, urban poverty had risen to 65% and rural poverty to 68%.

Prof. Patnaik further claimed that data from the National Sample Survey Office (NSSO) showing rural poverty levels exceeding 80% in 2017–18 were “suppressed” by the Union government. Subsequently, he said, the methodology for data collection was altered. Poverty, he maintained, had continued to increase when measured against nutritional benchmarks.

Fundamental economic rights

Arguing for the recognition of fundamental economic rights on par with civil and political rights, Prof. Patnaik listed five such entitlements: the right to food, the right to employment, the right to free, universal, publicly provided healthcare through a national health service, the right to free, publicly provided quality education, and the right to a non-contributory old-age pension and disability benefits.

He estimated that implementing these rights would cost an additional 10% of GDP. The required resources, he said, could be mobilised through just two taxes imposed on the top 1% of the population — a wealth tax and an inheritance tax.

“It is utterly shocking that India has no wealth tax,” he said, noting that despite the top 1% owning 40% of the country’s wealth, no such levy exists.

Referring to inheritance tax, Prof. Patnaik pointed out that all advanced capitalist countries impose death duties. “In Japan, the rate is 55%. In Britain and the United States, it is around 40%,” he said.

“Taken together, these two taxes are more than sufficient to finance a rights-based welfare state in India,” he added.