New Delhi, India – As one of the world's largest and most unequal democracies heads into a major general election, both Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP) and the opposition Indian National Congress are embroiled in a new dispute.
At the heart of this latest political battle is the idea of a possible redistribution of wealth. But while the Indian National Congress has cited the need to reallocate some resources to traditionally marginalized economic and caste-based communities, Modi and his Bharatiya Janata Party have accused the opposition of plotting to transfer wealth from Hindu families to Muslims.
So what's the debate about the proposal to overhaul India's wealth distribution, and what are economists saying?
What's the controversy?
Rahul Gandhi, scion of the Nehru-Gandhi clan, said in April that if elected, his party would conduct a caste census along with an economic and institutional survey to find out who owns what and how much they earn. He then said he would give back some of the 16 trillion rupees ($192 billion) in handouts the Modi government has given to 22 large companies to 90 percent of the population as a starting point for social justice.
Gandhi described the caste census as an “X-ray” of Indian society. “This is not a political issue for me, it is my life's mission,” Gandhi said. “It can be written down. No force can stop the caste census.”
The Indian National Congress manifesto does not directly mention wealth redistribution. It says, “Appropriate policy changes will be made to address the growing inequality in wealth and income.” Regarding a caste-based census, it says, “The Indian National Congress will conduct a country-wide socio-economic and caste census to enumerate castes and sub-castes and their socio-economic status. Based on the data, it will strengthen its affirmative action agenda.”
But responding to Gandhi's speech, Prime Minister Modi has repeatedly alleged at election rallies that the Congress party is hatching a “deep conspiracy” to take away people's wealth and the money of Hindu women and distribute it to Muslims who he describes as “infiltrators” and “people with many children”.
Opposition parties have accused Modi of resorting to “lies” and “hate speech” to divert people's attention from high unemployment and rising prices, and have filed a complaint with the Election Commission.
Whose wealth is it?
India is the world's fastest growing major economy, but it also suffers from rising inequality, and numerous studies have found that the benefits of India's rapid growth have been unevenly distributed.
According to a new study by researchers at the Global Inequality Institute, income and wealth inequality in India today is, in many ways, worse than it was under British colonial rule. India's richest 1 percent control 22.6 percent of the national income and more than 40 percent of the country's wealth, while the bottom 50 percent control less than 10 percent of the country's wealth.
Inequality has worsened under Modi's last decade in power: India has 271 billionaires, the third-highest number of people in the world after China and the United States, but the number of poor is the highest in the world, at 228.9 million, according to Oxfam India.
The Indian National Congress has accused Modi's government of “crony capitalism” and favouring certain companies in government contracts, a charge the government denies, saying it does not favour companies and invests in welfare programmes to improve the lives of the poor.
Experts say inequality in India is the result of the current economic and political system: despite reforms and spurring economic growth under both the Bharatiya Janata Party and Indian National Congress governments over the past three decades, they have failed to create enough jobs, control inflation, or shift the workforce from low-income agricultural jobs to higher-paying non-farm jobs, leading to wide inequalities in wealth and income.
Would wealth redistribution help?
Economists are not unanimous in their views: opponents argue that redistribution is counterproductive because it takes capital away from wealth creators, thereby discouraging and disincentivizing them from contributing to the economy.
However, others argue that not only is wealth redistribution necessary, but also redistribution of opportunities such as education, health care, access to financial resources, water, energy etc., which will increase the income-generating capacity of the poor and reduce inequality in the long run.
Deepankar Basu, a professor of economics at the University of Massachusetts, Amherst, said income and wealth redistribution is a very good idea in modern India.
“High and growing levels of economic inequality indicate that the economic system is not working equally for everyone. The wealth and income generated by the system is primarily monopolized by the wealthy,” Bass said. “This not only has economic implications, but also distorts the democratic process. Extreme wealth inequality allows the super-rich to disproportionately influence the political process through a variety of means, including campaign finance and contributions to political parties. This undermines our democratic system of governance.”
Devashish Mitra, a professor of economics at the Maxwell School of Civics and Public Policy at Syracuse University in New York, agreed that some wealth distribution “may not be a bad idea.”
“But this is a politically contentious issue and enacting any measure to redistribute wealth could be politically problematic,” Mitra acknowledged.
Mitra said one solution could be to combine wealth redistribution with “income tax cuts,” which could partially compensate for the wealth redistribution. “You could then have a combination of wealth tax and income tax, which could be both fairer and more efficient than the status quo,” he said.
What are the politics around it?
The Indian National Congress says caste-based census data will help it implement welfare and social security schemes. The party has promised to lift Supreme Court-mandated reservation limits in higher education and government jobs for disadvantaged groups known as Scheduled Castes (SCs), Scheduled Tribes (STs) and Other Backward Classes (OBCs).
If successful, this political overture could, in theory, help the Congress break the stranglehold of the BJP, which is increasingly monopolizing Hindu votes across castes and sub-communities. Meanwhile, Modi hit back, accusing the Congress of trying to give Muslims benefits that should be allocated on the basis of caste, not religion. He cited a 2006 speech by then Congress prime minister Manmohan Singh in which he said disadvantaged communities and religious minorities, including Muslims, should have priority over state resources.
The Indian National Congress says there is no plan for wealth redistribution and that Singh's 2006 comments were misconstrued.
What about inheritance tax?
In a television interview on April 24, Sam Pitroda, an adviser to the Nehru-Gandhi family and overseas chief of the Indian National Congress, added a new twist to the debate, arguing that India should debate whether an inheritance tax would help reduce wealth inequality.
Modi hit back, accusing the BJP of plotting wealth and inheritance taxes that would strip people of their hard-earned wealth. He said the BJP was looking to plunder people's wealth “while they're alive and after they're dead,” mimicking a popular tagline from the state-run life insurance company.
If the deadline for filing your inheritance tax return is approaching, contact the tax office before seizing any inherited assets.
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The BJP has distanced itself from Pitroda's comments, saying they do not reflect the party's position. Congress spokesman Jairam Ramesh pointed to past comments by Bharatiya Janata Party ministers in favour of an inheritance tax. Modi has made it clear that the BJP has no intention of introducing an inheritance tax.
What is inheritance tax?
Inheritance tax, also called estate tax or inheritance tax in some countries, is a tax levied on a deceased person's total money and assets before they are passed on to his or her heirs. This tax is usually determined by assessing the value of the assets remaining after certain exemptions or deductions. Essentially, the government collects a portion of the assets transferred from the deceased person to his or her beneficiaries.
Globally, inheritance taxes are widely implemented in countries such as the UK, Japan, France, and Finland. The US has an estate tax but does not impose an inheritance tax at the federal level, although six states maintain their own inheritance tax systems.
India does not impose inheritance or estate taxes. Inheritance tax on property passing to legal heirs after a person's death was abolished in 1985 by Rahul's father Rajiv Gandhi's then Congress government, citing the need to simplify the tax system and encourage investment and savings. However, inherited property is subject to other taxes, including capital gains tax, wealth tax and gift tax, depending on the circumstances.
Before its repeal, the inheritance tax was levied in graduated rates ranging from approximately 7.5 percent to 40 percent of the principal value of the inherited property. The inheritance tax was introduced in 1953 with the aim of reducing economic inequality.
In recent years, there has been a growing movement around the world to abolish estate and inheritance taxes. Five European countries have abolished estate and inheritance taxes since 2000. Meanwhile, US President Joe Biden supports raising taxes on inherited wealth.
Is inheritance tax a good idea?
Finance Minister Nirmala Sitharaman said an inheritance tax could undo a decade of progress for India. Former Reserve Bank of India governor Raghuram Rajan said inclusive growth would help the economy expand, but increasing taxes on the wealthy was not the way to do it.
Other economists support an inheritance tax. “An inheritance tax would make the entire economic system fairer by redistributing some of the accumulated wealth from the children of the wealthy,” Bass said. “These revenues could be used to fund public education, provide public health care and affordable housing, and support mitigation efforts for the adverse effects of climate change, which disproportionately affect the poor.”
Syracuse University's Mitra said that while an estate tax may make some economic sense, “there is enormous room for corruption, resulting from the subjectivity in valuing inheritances and unlimited room to misreport the actual value of inheritances.”
What is the way forward?
Progressive taxation and increased social spending could also be solutions to increase economic equality. A focus on wealth taxes, such as capital income taxes, net worth taxes, and transfer taxes, could generate revenue to allow for increased investment in health, education, and infrastructure.
“There are a number of policies that can be adopted to address growing economic inequality in India,” Basu said. “These include raising taxes on the top 1 percent of earners, raising corporate tax rates for larger companies, and improving educational opportunities to make education more accessible to the poor.”
