| The answer is yes and no, but not in the obvious way. India does not have a reliable measure of wealth inequality. What it has is a measure of income inequality, the Gini coefficient, by which yardstick it is by no means among the more unequal in the world; China is far more unequal though it is avowedly communist. The only societies tending significantly more towards equality than India are the Scandinavian and post-Soviet bloc entities. |
| Nothing is 'wrong' in another context too""the majority of dollar billionaires are first-generation entrepreneurs, therefore creators of wealth rather than inheritors. As role models, they might explain the surge of entrepreneurial instincts in India""more young people are willing to try their hand at starting a business rather than getting into a salaried job. This is good for the economy. As a happy corollary, the overwhelming bulk of the wealth is in shares in the companies that they run, so capital has been put to productive use. There is a visible increase in demand for the unavoidable accoutrements of great wealth""yachts, executive jets and the like. Individual perspectives will vary, though there is something inherently distasteful about flaunting wealth in a poor man's face (and many of our billionaires are conscious of this); but in a macro-economic context the issue is not important. |
| Is something wrong with our taxation policies? Without doubt, India's tax policies have been friendly to the rich following the abolition of the estate duty and the wealth tax on shares. This might seem an obvious thing to "correct", but it is wise to remember why these taxes were abolished""they yielded little revenue and caused both individual hardship and distortions designed to disguise corporate ownership. Admittedly, the scale of private wealth today is many multiples of what it was earlier; and if it is true that some three dozen people own wealth assessed at $191 billion, a 1 per cent tax on that wealth would conceivably yield about Rs 8,500 crore. Not bad pickings, you might say, from three dozen people. But reintroducing the wealth tax would immediately lead to a variety of tax-avoiding measures. The bulk of the shares are in any case owned through investment companies and cross-holdings, or through private trusts, so the actual tax collected will be much less than an arithmetical calculation suggests. There is also the regrettable but real-life risk of even more wealth being siphoned off out of the country and coming back as tax-free foreign investment through the Mauritius route. In a world where capital is mobile, it is best to tax it as lightly as possible. |
| What about creating greater equality of opportunity, so that wealth does not accumulate in the hands of a few? This is the nub of the issue. India has failed to provide basic nutrition, health and education to hundreds of millions of its citizens. At the same time, it has protected too many markets""so those who own assets (like land) find the value of their holdings sky-rocketing, as the new real estate tycoons will admit. The same conclusion of excessive protection is indicated by profitability levels (an average of more than 10 per cent of sales) in the leading companies. This is high by any international yardstick, and suggests that we need more competition in the system (still lower tariffs), and more players in every product or service market (like telecom). If profitability drops as a result, so will share prices and wealth. In other words, the systemic problems that the wealth-poverty divide points to are the lack of attention to the needs of the majority at the bottom, and excessive cosseting of markets. The solution to the divide (and it must be found) lies in policies that address these issues effectively, not taxation or any other form of expropriation""which will only kill the entrepreneurial drive that in some ways is at the heart of India's economic resurgence. |
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