Questions to the Congress on wealth redistribution
The Indian National Congress is promising to redistribute India’s wealth. At an election rally, the former president of the Congress party, Rahul Gandhi, according to newspaper reports, said that after a caste census, a financial and institutional survey will be conducted, following which a distribution of India’s wealth according to the population share will be undertaken. Many questions arise from this statement. It must be that the Congress has worked out the details ahead of such an ambitious promise — as elections are almost here and the plans must be fully cooked. I will just raise the questions here hoping to get an answer, ideally before the elections, so that the vote can be cast with full information on this historic move.
First, will the redistribution that is to be considered in the survey be of income or wealth? If it is income then this would mean that anybody earning more than the average per capita income of India of ₹1.69 lakh, would need to give up the extra over this number so that those below can be made at par. Will this extend to pensions as well? And since the data for income will certainly come from the tax records, leading to the question — will it only be the income-tax paying Indian whose income will be up for redistribution?
If it is a wealth redistribution, then will it be all assets or just financial assets? All assets would include land, gold and cash. The party must have worked out a way to survey the private possessions of these physical assets and found a way to value them. This would mean that land that belongs to wealthy farmers, for example, or private trusts or religious institutions will also be up for survey ahead of the redistribution. The land banks of some religious groups make up a good percentage of the total land bank of India. If so, will this survey extend to all communities, or will the minorities get an exemption from their land and other assets being mapped? For example, will a tiny but asset-rich community be exempt or will its assets be up for redistribution as well? I ask this since another part of the manifesto is very certain that minority rights must be protected. If indeed, the minorities are exempt, will it be the assets only of the majority community that will be in the pot for redistribution?
Will assets of all sections of the population be up for redistribution? For example, will the assets of judges, teachers, doctors, lawyers, the armed forces and rich farmers be redistributed or there will be carve-outs for certain sections of the well-off Indians? What about ancestral real estate and wealth — will that be included or it is only self-earned assets that are up for distribution? The answer will help the now vibrant startup community in India to decide where they would like to house their asset creation in the future.
Will assets such as residential real estate be a part of the redistribution? I ask in the interest of a person who might have a sixbedroom house in a Delhi suburb and lives alone. Will he, for example, have to sell and move to a cheaper one BHK or allow in co-owners who will now occupy the rest of the empty bedrooms? This part needs more clarity for sure.
Will this be a one-time exercise or one that repeats periodically? Studies have shown that many lottery winners tend to be bankrupt a few years down the line. Post redistribution, India will have equal wealth for the first year. What if, after five years, there are segments of the population who are in debt and have regressed into poverty again? Will this redistribution exercise repeat — maybe ahead of every general election? It would help the citizens to know this so that they can take the cues from the incentive structure and be permanently in debt.
There can be several tools to carry out this exercise. One is taxation. Assets (if they can be mapped) above a certain threshold can be taxed at very high rates. There is not much evidence that very high rates of taxation result in an increase in the tax-GDP ratio. Data for the US, for example, shows that even when tax rates were as high as 94% on taxable income in 1944, the tax-GDP ratio hovered around 20% — not very different from the time when the tax rate fell to a much lower 37% in the past decade.
If the high tax route is found to be ineffective, the other road is through the appropriation of assets over a certain threshold by the State. This would mean relying on an army of government officials who would do the survey and map the wealth of the people. But we run into the problem of graft on this route. The incentive to bribe the official to understate assets will be very large. Other than a small set of revolution-minded, clear-eyed honest officials, many will succumb to the lure of easy money. Then the question arises, will those illgotten gains also be subject to redistribution?
A mass redistribution of assets in a subcontinent-sized country with 1.4 billion people will need huge government capacity to carry out the exercise. It is unlikely that such a massive game-changing idea will be just a halfbaked election promise and answers to these questions will be given soon.