 "Thomas Piketty")
Known for his best-seller on the rise of inequality, Capital in the 21st century, Thomas Piketty, on a visit to India, talks to Indivjal Dhasmana on Indian policy and where to change it. Excerpts:
You are a votary of the inheritance tax, which India abolished in the 1980s. Your suggestion to our government in this regard, ahead of the Budget?
Everywhere in the world, you have an inheritance tax — in Germany, Japan, Britain, France. These are countries with very different political cultures. In all these, tax administration was able to so design the levy that revenues are much higher than collection cost. It would be very surprising if it was impossible for India to do the same.
Remember, too, that inheritance tax in these countries has been there for a long while. For instance, in France, it was introduced at the time of their revolution (late 18th century) and in place during the entire 19th century. At that time, the per capita gross domestic product was less in France than in India today. So, it is possible to so organise such a tax that tax revenues are higher than the cost of its administration. It is good for democracy, it is also good for organising the economy and businesses. Well established property rights are part of the requirements of a modern economy.
You also advocate a tax on the 'super rich'. In our country, an additional surcharge of two per cent on those with an annual taxable income of over Rs 1 crore is imposed. Should the rate go up?
Experience suggests you can have a 40, 50, 60 per cent tax on the very, very high income class. But, my first recommendation would be to make income tax much more transparent. First, we want to know how much various income groups have been paying in tax over recent years in India and how fast the income and the number of tax payers in high income brackets have been changing. Then, it will be much easier to see how we should change the tax rate.
At this stage, it is disturbing that there are no public statistics of income tax in India. These used to be available. There used to be a big publication, the All India Income Tax Statistics, published in this country since Independence till 2000. Then, it was suppressed. For the past 15 years, many people, including myself, have been asking the tax administration to resume publishing this data.
Indian economic growth has stagnated — it was 7.3 per cent in 2014-15 and 7.2 per cent in the first half of 2015-16. There is a question mark over revival of private investment even in 2016-17. As such, there is a debate here on whether to adhere to the fiscal consolidation road map or defer it for one more year. Which side will you take?
India needs to invest more in basic public infrastructure, the public health budget and public education. What is the ideal mix for financing this investment, how much should come from an extra deficit, how much should come from taxing top income groups, is a difficult question. There should be a balancing financing between debt and taxation. But, it is really important to finance these investments.
Even if it means deferring the fiscal consolidation schedule a bit for another year?
Given, your level of growth and public debt, comparing it with historical and international standards, I don't think this (schedule) should be your main concern. The main concern for India's development should be your level of deprivation. The bottom two-thirds of this country do not have the means to acquire skills to benefit from market forces. That should be the real concern, rather than the fiscal deficit.
You spoke of lack of transparency in income tax data. Your work relates mostly to income inequalities. In India, we don't have income distribution data but we have household consumption expenditure figures. Do you think this is a hindrance to assess inequalities and make policies to address these?
Official sources of data to study inequality in India, such as households surveys, probably underestimate inequality a lot. Inequality in India is pretty high by international standards but is underestimated. So, it important to supplement with other pieces of information.
In your lecture in Delhi, you favoured a caste-based reservation system. There are many who favour class-based reservation. Could the two ideas be synergised?
We need to combine income-based reservation and wealth-based reservation with caste-based reservation. In the longer run, it is desirable to have a reservation system which uses parental income and parental wealth more intensively, as the relation between the caste system and wealth is very complex and multi-dimensional. I think data on the caste system from the 2011 census should be published. For, if caste-based reservation is to be accepted by people, there needs to be transparency. This is a bit of the same problem as with income tax. India is a country where the Right to Information Act was passed 10 years ago but in practice, there is a decline in the quality of public information about the income tax, the caste census.
In your book, Capital in the 21st century, you advocated a global tax to reduce inequalities because the return on capital is higher than the rate of economic growth. Do we have the required administrative structure to impose such a tax or is your suggestion only an academic one?
We don't have and we will never have an administration to perfectly coordinate a global tax. However, we can make progress in terms of better coordination among countries to fight tax havens. India and other emerging countries will benefit more from financial transparency than the richest countries in the world. A lot of the Indian elite go abroad, to tax havens, to western countries. India should be in the forefront of international cooperation for automatic exchange of information on cross-border financial assets.
