In­dia’s new pub­lic and so­cial pol­icy chal­lenge: in­equal­ity

Mint ST - - POLITICS - BY GIREESH CHAN­DRA PRASAD gireesh.p@livemint.com NEW DELHI

The level of in­come in­equal­ity in In­dia in 2016 matched that in sub-sa­ha­ran Africa and Brazil

In­come in­equal­ity in In­dia has wors­ened over the past three-and-a-half decades and the top 10% of earn­ers now cor­ner more than half of the coun­try’s na­tional in­come in 2016.

Their share was 30% of the na­tional in­come in 1980, ac­cord­ing to The World In­equal­ity Re­port 2018 pub­lished on Thurs­day by World Wealth & In­come Data­base, which tracks in­for­ma­tion on in­come dis­tri­bu­tion.

Among ma­jor eco­nomic blocks, with the ex­cep­tion of West Asia, In­dia’s record on in­equal­ity is the worst. Not only does this pose a chal­lenge to pub­lic pol­icy—par­tic­u­larly in fig­ur­ing out a re­dis­tri­bu­tion of wealth—but it could po­ten­tially trig­ger so­cial un­rest.

The level of in­come in­equal­ity in In­dia in 2016 matched that in sub-sa­ha­ran Africa and Brazil, where top earn­ers ac­counted for a very high share of in­come.

How­ever, rise in in­come in­equal­ity has been more grad­ual in In­dia since 1980 com­pared to Rus­sia, where it has been abrupt and com­pared to China, where it was mod­er­ate, said the re­port.

This in­di­cates the role played by poli­cies and in­sti­tu­tions in evening out in­equal­ity, said the re­port, which ad­vo­cated “tax pro­gres­siv­ity” or tax­ing the rich more as an ef­fec­tive tool to ad­dress in­equal­ity. In­come taxes are levied based on a per­son’s abil­ity to pay and the rate in­creases as in­come level pro­gresses.

In­dia has been try­ing to tackle in­come in­equal­ity with a com­bi­na­tion of direct trans­fer of en­ti­tle­ments to the in­tended ben­e­fi­cia­ries, drive against tax eva­sion and schemes meant to im­prove ac­cess to en­ergy and fi­nance by the poor.

The find­ings of the re­port come at a time when the cen­tral gov­ern­ment has started work­ing on draft­ing a new direct taxes code and the state of Jammu and Kash­mir is set to make a bold ex­per­i­ment with univer­sal ba­sic in­come scheme from the next fi­nan­cial year.

The re­port au­thored by re­searchers Fa­cundo Al­varedo, Lu­cas Chan­cel, Thomas Piketty, Em­manuel Saez and Gabriel Zuc­man pointed out that ris­ing in­come in­equal­ity can lead to po­lit­i­cal, so­cial and eco­nomic con­se­quences.

The re­port also ad­vo­cated higher pub­lic spend­ing in ed­u­ca­tion to re­duce in­come in­equal­ity and set­ting up an in­ter­na­tional reg­istry of fi­nan­cial as­set own­er­ship for curb­ing tax eva­sion.

The re­port found Europe as the best per­form­ing re­gion, where the top earn­ers’ group ac­counted for 37% of na­tional in­come in 2016, fol­lowed by 41% in China, 46% in Rus­sia and 47% in Us-canada. The re­port called West Asia the fron­tier of in­come in­equal­ity as this group ac­counted for 61% of na­tional in­come.

One of the rea­sons for na­tional gov­ern­ments’ di­min­ished abil­ity to ef­fec­tively tackle in­come in­equal­ity is the trans­fer of pub­lic wealth into pri­vate hands, says the re­port. Also, net pub­lic wealth (that is, pub­lic as­sets mi­nus pub­lic debts) has de­clined in nearly all coun­tries since the 1980s.

“This ar­guably lim­its gov­ern­ment abil­ity to reg­u­late the econ­omy, re­dis­tribute in­come, and mit­i­gate ris­ing in­equal­ity. The only ex­cep­tions to the gen­eral de­cline in pub­lic prop­erty are oil-rich coun­tries with large sov­er­eign wealth funds, such as Nor­way,” the re­port said.

Ex­perts said ro­bust pub­lic pol­icy in­ter­ven­tion was re­quired to ad­dress in­come in­equal­ity. “While th­ese num­bers may be de­bat­able, poli­cies for broad­en­ing the tax base and in­creas­ing pub­lic spend­ing on health and ed­u­ca­tion are very much needed for a coun­try like ours where there is a so­cial in­fras­truc­ture deficit,” said N.R. Bhanu­murthy, pro­fes­sor at the Na­tional In­sti­tute of Pub­lic Fi­nance and Pol­icy, a New Delhi-based think tank.

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