27 December 2024 : Indian Express Editorial Analysis

1. Taxing the rich more will reduce inequality           

(Source: Indian Express; Section: The Ideas Page; Page: 15)

Topic: GS2 – Governance GS3 – Indian Economy

Context

●  The article highlights the urgent need for progressive fiscal reforms in India, including fair taxation of the super-rich, to address extreme inequality, boost public spending, and ensure sustainable development.

Public Spending and Socioeconomic Rights in India

• India’s public spending remains significantly below the level required to guarantee essential social and economic rights for its population.
• Despite decades of robust economic growth, large sections of the population still lack access to basic needs such as nutritious food, quality healthcare, education, and adequate housing.
• Infrastructure for amenities like fuel and electricity also remains inadequate.
• Furthermore, critical public investments needed to mitigate the effects of climate change and facilitate a green transition are alarmingly insufficient.
• This deficit in public expenditure highlights systemic challenges that hinder equitable development and undermine the realization of fundamental rights.

Rising Inequality and Its Economic Impacts

• India has emerged as one of the most unequal countries globally, with stark disparities in income and asset distribution.
• Research by the World Inequality Lab reveals that most GDP gains in recent decades have been concentrated among the wealthiest 10%, exacerbating wealth accumulation at the top.
• Such extreme inequality has not spurred economic dynamism or productivity but has instead led to stagnating mass consumption demand, dampening private investment.
• Social and political divisions have deepened as a result, further destabilizing the country.
• Moreover, attempts to mask poverty levels through manipulated indices and data have only obscured the need for urgent reforms.

Fiscal Policy Challenges and the Need for Progressivity

• Addressing India’s socioeconomic inequalities and public spending deficits necessitates a fundamental shift in fiscal policy.
• The country’s tax-to-GDP ratio is among the lowest in the G20 and relies heavily on regressive taxation methods.
• Indirect taxes disproportionately burden the poor and middle class while the wealthy, who have benefited most from recent growth, remain undertaxed.
• A progressive fiscal framework that increases government revenue without exacerbating inequality is essential to achieving sustainable development and social equity.

Taxing the Super-Rich: A Global Movement

• A pivotal step in addressing inequality and boosting public revenue is ensuring the fair taxation of ultra-high-net-worth individuals (UHNWIs).
• The G20’s Rio Summit endorsed international cooperation to effectively tax the super-rich, recognizing their ability to exploit loopholes and shift assets to tax havens.
• A proposed global minimum wealth tax of 2% for billionaires, suggested by economist Gabriel Zucman, could serve as a model.
• Such a tax could be complemented by reforms in income and wealth taxation, potentially extending to centimillionaires.
• This framework ensures that wealth held abroad is effectively taxed, reducing incentives for evasion.

Feasibility and Misconceptions About Wealth Taxation

• Critics argue that wealth taxation in India is administratively challenging or could deter investment by the wealthy.
• However, advancements in digitization and international agreements on financial transparency have significantly improved the feasibility of tracking assets and wealth.
• Countries like Colombia tax wealth irrespective of its location, while nations like the US and France impose exit taxes on individuals relocating to evade taxes.
• These examples demonstrate that fair taxation of the rich is both practical and enforceable, even in developing economies like India.

The Imperative for Fair Taxation

• Implementing equitable taxation for India’s wealthiest citizens is a critical step toward reducing economic inequalities and generating much-needed government revenue.
• Increased revenue can support essential public spending on health, education, and climate resilience, thereby fostering a more equitable society.
• The Narendra Modi government faces an urgent moral and economic imperative to pursue this path.
• With the necessary tools and precedents in place, there is no justification for delaying such reforms. Fair taxation is not only feasible but essential for India’s sustainable and inclusive growth.

Practice Question: Discuss the implications of inadequate public spending and rising economic inequality in India. How can progressive fiscal reforms, including fair taxation of the super-rich, address these challenges while ensuring sustainable development? (250 words/15 m)

 

For more such UPSC related Current Affairs, Check Out: 26 December 2024 : Indian Express Editorial Analysis