The wrong way to fight inequality 

• The research reveals a stark contrast between the top and bottom earners in India. In 2022, the top 1% of the population held a massive share of the nation's wealth (40.1%) and a significant portion of the total income (22.6%).
• In stark contrast, the bottom 50% of the population struggled with a meagre 6.4% of the wealth and just 15% of the total income. The situation for the middle class (represented by the top 10%) is only slightly better, with 65% of wealth and 57.7% of income.
• The study's authors argue that India's current tax system, which relies heavily on income tax, is regressive. This means it places a greater burden on those with lower incomes. In response, Piketty and his team propose a wealth tax on the affluent as a potential solution to address the widening wealth gap.

2. Understanding Economic Trends in India

Rise in Inequality and Economic Growth

1. Income and wealth inequality surged notably from the 1980s onward, coinciding with India's gradual embrace of market principles. During this period, the share of national income held by the bottom 50% plummeted from 23.6% in 1982 to 15% in 2022, while the income share of the top 10% skyrocketed from 30.1% to 57.7%.
2. Economic growth in India stagnated during the socialist decades but gained momentum after 1990. The economy expanded at a dismal rate of 1.6% per year from 1960 to 1990, but this rate accelerated to a robust 3.6% per year from 1990 to 2022.

Implications of the Trends

• Contrary to the decline in their share of national income, data from the World Inequality Lab indicates that the real income of the bottom 50% surged more than fourfold between 1991 and 2022.
• Despite their diminishing share of national income, the bottom 50% now enjoy higher real income levels, underscoring the significant expansion of India's economic pie over the past three decades.
• The disparity in income shares among different economic groups underscores the unequal distribution of economic freedom.
• While the top 1% and top 10% command substantial economic freedom, the bottom 50% face significant barriers. For instance, the average annual income of the top 1% in India stands at ₹53 lakh, in stark contrast to the mere ₹71,000 earned by the bottom 50%.

Addressing Inequality and Enhancing Economic Freedom

• In a truly free market, stark income differences would create opportunities for individuals to capitalize on high-paying professions, thus narrowing the wealth gap.
• However, various barriers, such as limited access to capital and exorbitant costs of education, hinder the mobility of lower-income individuals toward lucrative occupations.
• Therefore, liberalizing sectors like finance and medical education could empower the poor to invest in skill development for high-paying jobs.
• The inadequate protection of property rights among the bottom 50% exacerbates their economic challenges, making it difficult for them to earn a livelihood or ascend the income ladder.
• Thus, ensuring robust property rights protections is essential to fostering economic mobility and prosperity among India's disadvantaged populations.

The potential drawbacks of a wealth tax, are that it might disproportionately impact lower-income groups and hinder economic growth.

The Investor Backlash

• A wealth tax might not achieve its intended outcome. Investors, faced with higher taxes, may choose to invest less capital in ventures, calculating their returns based on the reduced post-tax income.
• This could lead to a scenario where businesses have to compensate by offering lower wages to workers and landowners to maintain investor returns.
• Ultimately, the tax burden would indirectly fall on ordinary workers, most of whom belong to the lower and middle-income brackets. This could negatively affect their output and overall standard of living.
• The argument for wealth taxes levied on labour and land ownership, suggests similar negative consequences. In essence, a wealth tax designed to target the rich might inadvertently become a tax on the less fortunate.

The Role of Capital Assets

• It argues that the vast majority of wealth possessed by the top 1% is not concentrated in consumer goods and services, but rather in capital assets like factories and real estate. Therefore, the notion that the poor have a lower standard of living because the rich have hoarded consumer goods is inaccurate.
• On the contrary, the capital assets owned by the wealthy play a crucial role in boosting worker productivity. These assets contribute to a rise in the output of consumer goods and services, ultimately improving the living standards of the masses.

• A wealth tax would have a detrimental impact on economic growth and living standards. Instead of taxing the wealthy, they propose promoting economic freedom for the poor.
• This would empower them to compete more effectively in the market and secure a larger share of the economic pie.

5. Income and Wealth inequality

Income and wealth inequality refers to the unequal distribution of income and assets among individuals or households within a society. Income inequality typically refers to the gap in earnings or income between different segments of the population, while wealth inequality focuses on the unequal distribution of assets such as property, savings, investments, and other forms of wealth.

The key points about income and wealth inequality

• Income inequality is often measured using indicators such as the Gini coefficient, which quantifies the extent of income distribution within a population. Wealth inequality is measured using similar indicators but focuses on the distribution of assets and net worth.
• Income and wealth inequality can be influenced by various factors including differences in education, skills, employment opportunities, inheritance, taxation policies, access to resources, and social mobility. Globalization, technological advancements, and changes in labor markets can also exacerbate income and wealth disparities.
• High levels of income and wealth inequality can have several negative consequences for society. It can lead to social unrest, political instability, reduced social mobility, increased crime rates, health disparities, and lower levels of trust in institutions. Moreover, it can hinder economic growth and development by limiting opportunities for human capital development and entrepreneurship.
• Governments often implement policies to address income and wealth inequality. These may include progressive taxation, social welfare programs, minimum wage laws, education and skill development initiatives, land reforms, financial inclusion efforts, and regulation of markets to ensure fair competition.
• Income and wealth inequality is a global issue, with significant disparities observed between and within countries. While some level of inequality may be inevitable in any society, excessive inequality can undermine social cohesion and economic stability.

6. Government measures to tackle income and wealth inequality in India

The Indian government has implemented various measures to tackle income and wealth inequality in the country. Some of these measures include:

• The government imposes higher tax rates on individuals with higher incomes, aiming to redistribute wealth and reduce income inequality. Additionally, wealth taxes and inheritance taxes may be levied to target accumulated wealth.
• The government runs several social welfare programs aimed at assisting the poor and marginalized sections of society. Programs such as the National Rural Employment Guarantee Act (NREGA), subsidized food through the Public Distribution System (PDS), and housing schemes aim to improve the living standards of the poor.
• Investing in education and skill development is crucial for reducing income inequality in the long term. The government provides scholarships, subsidies, and vocational training programs to ensure that all citizens have access to quality education and opportunities for skill development.
• Creating employment opportunities, especially in rural areas, is vital for reducing income inequality. Initiatives like the Make in India program, infrastructure development projects, and microfinance schemes aim to generate employment and promote entrepreneurship.
• Promoting financial inclusion through initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY) aims to provide banking services to the unbanked population. Access to financial services can help low-income individuals save, invest, and access credit, thereby reducing wealth inequality.
•  Land ownership patterns often contribute significantly to wealth inequality. Implementing land reforms to redistribute land to landless farmers and providing secure land tenure can help address this issue.
• Enforcing regulations to prevent monopolies, promoting fair competition, and ensuring transparent governance are essential for reducing wealth concentration among a few elites.
•  Strengthening social security nets such as old-age pensions, disability benefits, and healthcare coverage can protect vulnerable populations from falling into poverty due to unforeseen circumstances.
• Infrastructure development in rural and economically backward regions can spur economic growth and reduce regional disparities in income and wealth.
• Encouraging broader participation in the stock market and promoting employee stock ownership plans (ESOPs) can help in spreading wealth among a larger section of the population.

7. Conclusion

Addressing income and wealth inequality in India requires a multifaceted approach that combines progressive taxation, social welfare programs, investment in education and skill development, creation of employment opportunities, land reforms, regulation of markets, and promotion of financial inclusion. By implementing comprehensive and targeted policies, the Indian government can work towards creating a more equitable society where economic opportunities are accessible to all segments of the population.