Economists Propose Wealth Tax to Combat Economic-Caste Disparity and Boost Social Investments in India

In a groundbreaking development, the World Inequality Lab (WIL) has unveiled a meticulously researched report proposing a comprehensive tax package targeting the ultra-wealthy. The proposal aims to address the severe concentration of wealth at the top of India’s economic hierarchy and generate significant fiscal space for essential social sector investments.

The study is led by Nitin Kumar Bharti of New York University-Abu Dhabi, Lucas Chancel of Sciences Po Paris and Harvard Kennedy School, Thomas Piketty of the EHESS and Paris School of Economics, and Anmol Somanchi of the Paris School of Economics. They provide an intriguing expose on the caste-wise wealth distribution among the wealthiest individuals. 

Tax Justice Plan 

The proposed tax plan, targeting individuals with net wealth exceeding Rs. 10 crores, aims to address economic inequality by affecting only the top 0.04% of adults in India. The plan outlines three possible variants—baseline, moderate, and ambitious—with differing tax rates on net wealth and inheritance.

In the baseline variant, the report suggests a 2% annual tax on net wealth exceeding Rs. 10 crores and a 33% inheritance tax on estates valued over Rs. 10 crores. The moderate variant proposes increasing the marginal wealth tax rate from 2% to 4% for net wealth exceeding Rs. 100 crores, along with a 33% inheritance tax on estates valued between Rs. 10 crores and Rs. 100 crores, and a 45% tax on estates exceeding Rs. 100 crores.

Image: Tax Proposal Variants of Baseline, Moderate and Ambitious Variants

The tax justice proposal also highlights the potential revenue generation and its positive impact on GDP. It estimates that the proposed tax package could generate significant tax revenues, ranging from 2.73% to 6.08% of GDP under the baseline, moderate, and ambitious variants. These funds could be utilised for crucial social sector investments, thereby benefiting the economy as a whole.

Fiscal Space to Key Public Expenditure

The report emphasises the importance of progressive wealth taxation, effective redistribution, and increased social sector investments to promote equity in India. As per the report, between 2008 and 2019, the total government expenditure (both Centre and States) on health remained stagnant at around 1.4% of GDP, with a slight uptick following the COVID-19 pandemic. Similarly, education expenditures have stagnated at approximately 2.9% of GDP for the past 15 years.”

Image: Tax Revenue and Percentage of Key Public Expenditure 

Caste and Wealth Inequality

The report delves into the unique feature of economic inequalities in India, which are closely intertwined with the deeply rooted caste system.

It classifies the wealth concentration among Forbes billionaires into four major caste categories: Upper Caste (UC), Other Backward Classes (OBC), Scheduled Caste (SC), and Scheduled Tribe (ST). This analysis combines caste-coded Forbes billionaire data with the All-India Debt and Investment Survey (AIDIS) for 2018-19 to estimate the full distribution of wealth and allocate it across these four major caste groups.

Image: Data suggest upper castes hold a significantly disproportionate share of national wealth, and that Indian billionaires are largely an upper caste club.

Co-author Anmol Sonmanchi explained to Kanal, “Indian billionaires are largely an upper caste club. A progressive wealth tax package of the kind we propose is most likely to benefit lower castes and the middle classes at the detriment of only a tiny number of ultra-wealthy upper caste families. In that respect, besides addressing extreme wealth inequality, such taxes could also play a small role in weakening the rigid link between social and economic inequalities in India.”

However, the World Inequality Lab recently released a report stating that income and wealth inequality in India have reached historical highs, particularly at the very top of the distribution. Between 2014-15 and 2022-23, India’s top 1% controlled over 40% of total wealth, and their share of total pre-tax income was 22.6%. This rise in inequality marks the “Billionaire Raj” as even more unequal than the British Raj.

In March 2024, prominent economists Jayati Ghosh and Joseph Stiglitz, representing the International Commission for the Reform of International Corporate Taxation (ICRICT), advocated for the implementation of a UN Model Wealth Tax Law. They see it as a pivotal measure in the global fight against inequality.

Overall, the WIL report advocates for progressive wealth taxation, effective redistribution, and broad-based social sector investments as urgent measures to build an equitable and prosperous India.