Piketty's Call for Increased Wealth and Inheritance Taxes in India

On December 13, 2024, French economist Thomas Piketty urged India to take stronger action in taxing its super-rich, pointing to the country’s soaring levels of economic inequality. At an event hosted by the Research and Information System for Developing Countries (RIS) and the Delhi School of Economics, Piketty highlighted the urgent need for India to increase taxes on the wealthiest individuals, drawing attention to a significant disparity between the rich and the poor.

Piketty, renowned for his best-selling book "Capital in the 21st Century", emphasized that the growing wealth gap in India mirrors a broader global trend where the wealthiest 1% of the population is accumulating a disproportionate share of national income. According to a 2024 report co-authored by Piketty, the richest 1% of Indians now control 22.6% of the national income and hold 40.1% of the country's wealth. This figure surpasses the levels seen in countries like the United States and Brazil, where inequality has also reached alarming levels.

Proposal for Wealth and Inheritance Taxes

To address these imbalances, Piketty proposed two key measures: a 2% wealth tax on individuals with assets exceeding 100 million rupees ($1.18 million) and a 33% inheritance tax on estates above the same threshold. He suggested that these taxes could generate an additional 2.73% of India’s GDP in revenue annually, which could be reinvested to reduce inequality and fund social initiatives.

Piketty’s call for higher taxes comes in the context of India’s existing fiscal structure, where taxes on wealth are comparatively low, and the country does not levy an inheritance tax. This contrasts sharply with several other countries, where such taxes have been used to ensure a more equitable distribution of resources.

Government’s Opposition to Tax Proposals

While Piketty’s proposals have garnered attention, they have not been well received by the Indian government. V. Anantha Nageswaran, the Chief Economic Adviser to the Indian government, disagreed with Piketty’s suggestions, arguing that increasing taxes on the rich could lead to higher capital outflows. In a country where many wealthy individuals already hold assets abroad, raising taxes could encourage them to move their wealth to jurisdictions with more favorable tax regimes.

In 2015, India abolished its wealth tax after years of ineffective collection, and there has been little appetite among policymakers to reintroduce such measures. Finance Minister Nirmala Sitharaman has also expressed concerns that an inheritance tax could disproportionately affect the middle and aspirational classes, making it more difficult for them to pass on savings and property to future generations.

The Growing Wealth of India's Billionaires

Despite the government's stance, the growing wealth of India’s billionaires underscores the need for a discussion on wealth taxation. According to a Forbes report, India’s 100 wealthiest individuals saw their collective fortunes rise by over $300 billion in 2024, bringing their combined wealth to $1.1 trillion. This surge was fueled by a booming stock market, highlighting the widening gap between India’s elite and its broader population.

With economic inequality remaining a critical issue, the debate over taxing the super-rich is set to continue. As India looks ahead to future economic challenges, discussions around wealth redistribution will likely be central to shaping the country’s fiscal policies.

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