NEW DELHI: It is no secret that economic inequality has risen exponentially in the past few decades, both in India and globally. According to the World Inequality Report 2022, India is one of the most unequal countries in the world in terms of both income and wealth inequality. It is estimated that in 2021, the top 10 percent of Indians held 57 percent of the total national income while the bottom 50 percent’s share was just 13 percent.
The pandemic has sharply exposed and amplified these inequalities. Another recent report on inequality from Oxfam India found that in 2021, the combined wealth of billionaires in India doubled — the same year when 84 percent of Indian households saw a decline in their incomes and 46 million people slid into poverty due to the pandemic.
These numbers tell a clear story about the obscene levels of inequality we’re witnessing. And it’s important that we start talking about and addressing this right now because it’s morally unacceptable to have an unequal society of this kind. We cannot have a few families and individuals accumulating record wealth while most people on the planet suffer from climate change, lack of health care and hunger. It’s not viable economically, and it is socially and politically dangerous.
What needs to change?
The Covid-19 pandemic showed us how inequality is not just an issue for economists but something that affects each one of us. Take for example the case of India’s health budget. For the last two to three decades, we’ve known that the health system and the health care infrastructure are severely underfunded — we have invested just about 1.25 percent of our GDP toward health.
India ranks the lowest in the number of hospital beds per thousand population among the Brics nations — Russia scores the highest (7.12), followed by China (4.3), South Africa (2.3), Brazil (2.1) and India (0.5).
India also ranks lower than Bangladesh (0.87), Chile (2.11) and Mexico (0.98). Data shows that India currently has about 1.7 trained nurses per 1,000 people, against the WHO norm of four nurses per 1,000 people — a clear indicator of an under-resourced health care system. And we saw what an underfunded health system does to its people, particularly during the second wave of Covid-19, where everything from hospital beds, oxygen and essential medicines to vaccines was in short supply.
To change this, the government must have resources to invest in social infrastructure, such as education, health care and housing because they are the best drivers of equality. But how do we generate new resources to fund social welfare? The answer is twofold.
1. Higher taxes on the super-rich. There is clear evidence to show that a direct tax on the super-rich — be it in the form of a wealth tax, wealth surcharge, or inheritance tax — can be used to fund measures that combat inequality. For instance, a 1 percent wealth tax on the 98 richest billionaire families could finance India’s flagship public health insurance scheme, Ayushman Bharat, for more than seven years.
Even with a 1 percent wealth surcharge, the superrich will continue to be richer than they were pre-pandemic. So, from an economic perspective, the decision makes sense. And India isn’t the first country to be talking about this. Recently Argentina successfully imposed a new wealth tax on the super-rich to help pay for its Covid-19 response.
2. Ensuring that people pay their fair share of taxes. If we want to build a more equal society, we also need to ensure people pay their fair share of taxes. Last year, the Tax Justice Network did a study that showed that globally $427 billion is lost to tax evasion every year. And this is true for India as well. In 2012, Professor Arun Kumar estimated that the size of India’s black economy was 62 percent of the GDP and that it was growing at the staggering rate of 20 percent.
While taxation is an important piece when it comes to solving the inequality puzzle, it is one of many available solutions. What we need is an integrated approach where different sectors and stakeholders each play a part. For example, Oxfam can publish an inequality report advocating for higher wealth taxes and investments in social welfare.
But at the same time, we need somebody — say, for instance, the National Coalition for Education — to seek accountability from the government in terms of the investments it’s making in education. And simultaneously, we need a civil society collective such as Jan Swastha Abhiyan talking about how we can invest in and ensure that we have a more robust public health system. All these are interlinked, and as a sector, it’s important for us to understand that we cannot work in silos and our solutions cannot be microscopic. Because the issue of inequality is systemic — we live in an economic system that favors the superrich.
Often the common argument against raising taxes to fund government systems is that they are inefficient. There’s this concern that if you put in more resources, it will not go to the right places. However, there’s enough evidence to tell us that this is not the full story. Data shows that the government investments in public services actually improve outcomes and reduce inequality.
The real story is that there are vested interests in favor of maintaining the status quo. There exists an unfortunate nexus between policy makers in the government and the superrich. And therefore, as a society, we are not able to make decisions that may be detrimental to the interests of the superrich. And that is the problem we need to overcome.
Take, for instance, the fact that till 2015, India had a wealth tax. Similarly, last year India also lowered the corporate tax rate from 30 percent to 22 percent to attract investment, which resulted in a loss of INR 1.5 trillion and contributed to the increase in the country’s fiscal deficit.
This concentrates wealth in the hands of the rich, making them even richer. It’s critical, therefore, that we talk about reintroducing these taxes because the government needs these resources to fulfil its objectives of promoting social welfare.
The other argument against taxation is that many of the superrich engage in charity, and that is one way in which they help reduce inequality and promote social justice. While this is true to some extent, it is the responsibility of the state — rather than philanthropy — to guarantee an individual’s basic fundamental rights. Why should anyone depend on the whims and fancies or even the charity of another individual?
The fundamental idea of any modern state is to ensure some basic fundamental rights to its citizens, such as health, education and social security. So, why should society depend on the superrich and their decisions about when, how and to whom to give money? The Indian Constitution guarantees the right to education, the Directive Principles of State Policy talk about the right to health, and the onus lies on the state to deliver these. Any philanthropic work that happens needs to be done over and above millionaires paying their fair share of taxes.
Role of each stakeholder
As a society, there are multiple tangible steps that we can take to reduce inequality and build a more just and equitable society. One of the first things we must do is start acknowledging how a growing number of billionaires is not a sign of success; it is a sign of the failure of the economic system we have created — particularly when we look at these numbers in the context of millions of people sliding into poverty. There needs to be a shift in the public narrative to talk about how the business-first policies that we have are leading to greater inequality.
Fighting inequality is not about targeting individual billionaires but the economic system that allows the concentration of wealth at the top while the majority continue to live in misery without their rights. Here’s what different…