Can’t the Centre Increase its Revenues and Social Sector Expenditures?

Can’t the Government of India — the Centre and the States — provide free, good quality education to all our children, make available good quality and free / affordable health care to all our people, guarantee nutrition and care to all our pregnant women and children, guarantee a decent pension to all citizens above the age of 60 years, increase spending on agriculture to make it profitable and thus enable our farmers to live dignified lives, increase the availability of decent jobs in the economy to bring back dreams in the eyes of our youth, genuinely increase spending on schemes directed at benefiting women, Dalits and Adivasis, …

Of course it can do so. It is not taking place, because our country’s social sector expenditures are among the lowest in the world, which is essentially because of low government revenues. It is the Centre that is mainly to blame for this situation, as it is the Centre which collects the bulk of the revenues in the country; it also has great flexibility in raising revenues through means like increasing the fiscal deficit. In contrast, the States have very limited revenue raising powers.

The Centre, that is, the Modi Government’s revenues are low, not because we are poor country. We are not a poor country, much wealth generation has taken place in the country in the last nearly 8 decades. The Modi Government’s revenues are low, because: it has given huge tax and non-tax concessions / exemptions to the affluent; indulged in mind-boggling transfers of public wealth and resources to the coffers of big corporate houses resulting in massive losses to the national exchequer; and even out of the limited government revenues, prioritised subsidies to the rich rather than social sector expenditures to benefit the poor.

This has resulted in massive income and wealth concentration with the richest 0.01 percent and 0.001 percent adults (this latter figure means less than 10,000 adults) in the country — our rich have accumulated so much wealth that India now has the third largest number of billionaires in the world — while the majority of people are living on the edges of destitution.

Therefore, if the Modi Government only partially reduces / withdraws some of the concessions–subsidies–transfers of public wealth being given to this tiny section of our population, and imposes some additional taxes on them, it can raise enough additional revenues to finance a big hike in the social sector expenditures of both the Centre and the States (by increasing its transfers to them). That will make it possible to guarantee the basic necessities of life to all our people so that they can lead decent, fulfilling and to the extent possible, creative lives.

We give below some of the measures the Centre can take to increase its revenues, and also make an estimate of the resulting increase in revenues.

i) Impose a Small Wealth Tax on the Ultra-Rich

There is nothing very radical about a wealth tax. It was first introduced in Netherlands in 1892. Several OECD and Latin American countries introduced a wealth tax in the 20^th century. But because of the neoliberal winds blowing across the world since the 1980s, annual taxes on wealth were gradually abandoned in several countries. Today, only three European countries have it — Norway, Switzerland, and Spain.[1]

With inequality growing to obscene levels across the world, several prominent ‘mainstream’ economists are calling for re-introduction of wealth taxes to reduce inequality and finance an increase in social sector expenditures. In the US, prominent mainstream US politicians like Bernie Sanders and Elizabeth Warren have demanded that the US impose a wealth tax on the super wealthy to generate funds to help pay for key social sector programs. During the 2020 USA presidential elections, both Warren and Sanders had proposed a minimum wealth tax of 2 percent, rising to 6 / 8 percent for those with fortunes over $1 billion.[2] In October 2023, the EU Tax Observatory (EUTO), an independent research institute located at the Paris School of Economics, published the Global Tax Evasion Report 2024, in which it proposed introduction of a wealth tax on ultra-high-net-worth individuals. In June 2024, at the request of the Brazilian G20 presidency, Prof. Gabriel Zucman, a researcher with EUTO, prepared a report calling for imposition of a minimum tax on the world’s 3,000 billionaires to ensure that they pay at least 2% of their wealth in taxes annually.[3]

In January 2024, more than 250 billionaires and millionaires sent a letter to the political elite meeting for the World Economic Forum in Davos, demanding that they introduce wealth taxes to help pay for better public services around the world. Their open letter said, “Our request is simple: we ask you to tax us, the very richest in society. This will not fundamentally alter our standard of living, nor deprive our children, nor harm our nations’ economic growth. But it will turn extreme and unproductive private wealth into an investment for our common democratic future.” The signatories of the letter span 17 countries.[4]

The working paper by the World Inequality Lab, that we have cited in the previous article (Article 17, published in this issue of Janata Weekly), has given data on the extreme income and wealth concentration in India. By 2023, the richest 0.01 percent and 0.001 percent adults in the country owned a mind-boggling 29.7 percent and 22.2 percent of the total national wealth respectively.[5] Therefore, the Centre can easily increase its direct tax income by imposing a small wealth tax and inheritance tax on these ultra-rich. In a follow-up note to this working paper, Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty and Anmol Somanchi propose imposing a wealth tax on the ultra-rich to raise revenues for crucial social sector investments. Their proposal calls for the imposition of a wealth tax on only those with net wealth exceeding Rs. 10 crores. They estimate that only the top 0.04 percent of adults would fall above this threshold.[6] They have given three possible variants of wealth tax, that they call ‘baseline’, ‘moderate’, and ‘ambitious’ variants. We give their calculations in Table 18.1. As the table shows, while 99.96 percent of the adults in the country are unaffected by the tax, it would raise phenomenally tax large revenues, ranging from Rs. 8.73 lakh crore to as much as Rs 19.46 lakh crore.

Table 18.1: Wealth Tax Proposals for India (2022–23) [7]

	Baseline	Moderate	Ambitious
Wealth Tax	2% on net wealth > 10 crores	2% on net wealth > 10 crores	3% on net wealth > 10 crores
		Wealth Tax	2% on net wealth > 10 crores
Adults Affected	Top 0.04%	Top 0.04%	Top 0.04%
Annual Tax Revenues as % of GDP	2.45	4.23	5.46
Annual Tax Revenues, 2022–23 (Rs. lakh crore)	6.60	11.4	14.71
Annual Tax Revenues, 2024–25 (Rs. lakh crore)*	8.73	15.08	19.46

* Assuming a growth rate in the wealth of the rich by 15 percent per year

In the baseline variant, they propose a 2 percent annual tax on net wealth exceeding 10 crore. That alone would generate a massive 2.45 percent of GDP in tax revenues, which works out to Rs. 6.6 lakh crore in 2022–23. Even if we conservatively assume that the total net wealth of the rich has increased by 15 percent per year (as per Forbes, the wealth of the richest 100 Indians has increased at the annual rate of 18 percent during the past 2 years[8]), in the current financial year (2024–25) this would yield a tax revenue of Rs. 8.73 lakh crore. Under the moderate and ambitious variants, Nitin Kumar Bharti et al. introduce progressivity in the tax schedules, and also increase the tax rates — this doubles the tax income to 4.23 percent of GDP in the moderate variant, and 5.46 percent of GDP in the ambitious package. This implies a huge Rs. 15.08 lakh crore and an even larger Rs. 19.46 lakh crore in tax revenues for 2024–25 respectively.

Why are the revenues so large despite taxing only 0.04 percent of the adults? That is because of the extreme wealth concentration in India. The top 0.04 percent alone hold over a quarter of the total national wealth. Their total wealth amounts to a whopping 125 percent of India’s GDP.[9] To put it another way, the total wealth of the top 0.04 percent is 25 percent larger than India’s entire economy.

For our calculations, we take the ambitious variant proposed by the economists of World Inequality Lab, that result in wealth tax revenues of Rs. 19.5 lakh crore.

(Note that Nitin Kumar Bharti et al. have proposed introduction of a wealth tax on only the top 0.04 percent of the adults with a net wealth of more than Rs. 10 crore. These constitute a total of 3.7 lakh adults. If the Centre expands the wealth tax net to include the richest 0.1 percent individuals with a net wealth of more than Rs. 5.4 crore, and imposes a 2 percent wealth tax on them, the total number of very rich who would have to pay these taxes increases to 9.2 lakh, and the wealth tax revenues would further increase by around Rs. 6.5 lakh crore.[10])

ii) Impose a Modest Inheritance Tax on the Ultra Rich

An “inheritance tax” is paid by the person who inherits money or assets, and is a one-time tax.

This tax is also perfectly in sync with the ideology of capitalism. While supporters of capitalism argue that the rich are so because of their special qualities like ‘innovativeness’ and ‘entrepreneurship’, there is no reason why their children should be in possession of all their wealth. On the contrary, unlimited inheritance across generations leads to an accumulation of extreme ‘unearned’ wealth. While capitalism talks of fair competition, such inheritances give the inheritors an unfair headstart over others. Therefore, it is perfectly justified if governments impose an inheritance tax on the very rich.

Inheritance tax was introduced in many countries after the First World War, and top inheritance tax rates were between 30 percent to as much as 80 percent in several developed countries during the 1960s–70s, including the US, UK, Germany and France. Such taxes were an important reason for the reduction of inequalities in these countries after the late 1940s.

With the onset of Reaganomics and Thatcherism in the developed countries in the 1980s, top inheritance tax rates have come down in several countries like the US, while in several other OECD countries the rates continue to be fairly high. Top inheritance tax rates are 55 percent in Japan, 50 percent in South Korea, 45 percent in France, 40 percent in the UK, 34 percent in Spain, 33 percent in Ireland, and 30 percent in Belgium and Germany.[11]

Apart from their proposal for imposition of wealth tax on the richest 0.04 percent individuals in the country, Nitin Kumar Bharti et al. also propose the imposition of an inheritance tax on them. We give their proposals and the estimated tax revenues in Table 18.2.

They propose a 33 percent inheritance tax on estates exceeding Rs. 10 crore in valuation in their baseline variant. In their moderate and ambitious variants, they call for higher inheritance tax rates on estates exceeding Rs. 100 crore in valuation. They estimate that the proposed baseline to ambitious variants proposed by them would result in additional tax revenues of between Rs. 0.75 lakh crore and 1.67 lakh crore in 2022–23. Assuming an average annual increase in the wealth of the rich by 15 percent, the additional increase in tax revenues works out to between Rs 1.0 and 2.21 lakh crore for 2024–25.

Table 18.2: Inheritance Tax Proposals for India (2022–23) [12]

	Baseline	Moderate	Ambitious
Inheritance Tax	33% on estates > 10 crores	33% on estates > 10 crores	45% on estates > 10 crores
		Inheritance Tax	33% on estates > 10 crores
Adults Affected	Top 0.04%	Top 0.04%	Top 0.04%
Annual Tax Revenues as % of GDP	0.28	0.36	0.62
Annual Tax Revenues, 2022–23 (Rs. lakh crore)	0.75	0.97	1.67
Annual Tax Revenues, 2024–25 (Rs. lakh crore)*	1.0	1.28	2.21

* Assuming a growth rate in the wealth of the rich by 15 percent per year

If the government expands the inheritance tax net to include the richest 1 percent of the adults, the tax revenues will further increase.

We take the moderate package for our calculations, that yields tax revenues of Rs. 1.28 lakh crore.

iii) Reducing the Huge Tax Concessions Given to the Rich

As discussed in Article 16 (published earlier in Janata Weekly), the Modi Government has been giving around Rs. 5.5 lakh crore in tax concessions to the rich every year. Even if the government reduces these concessions by 50 percent, it will result in an increase in the government’s annual tax revenues by Rs. 2.75 lakh crore. This figure excludes the possible increase in revenues if the government takes action to curb illicit flows of money (we have discussed this under the sub-head ‘6. Refusal to Act against Black Money’ in Article 16).

iv) Reducing the Huge Transfers of Public Funds to the Rich

The government is transferring huge sums of public money — to the tune of several lakh crore rupees every year — to big business houses, in the form of subsidies for infrastructural investments, transferring ownership of public sector corporations / public lands / natural resources at throwaway prices, waiving off bank loans, and many other such means. Just the loan waivers total more than Rs. 2 lakh crore every year.[13] Even if it partially withdraws these subsidies, it will increase government revenues by several lakh crore rupees every year. For our calculations, let us conservatively assume this increase to be Rs. 3 lakh crore every year.

v) Increasing Fiscal Deficit

We have pointed out in an earlier article of this budget analysis series published in Janata Weekly that another way in which the Modi Government can increase its revenues is by increasing the fiscal deficit. The economic theory that fiscal deficit is bad for the economy is all humbug, it is deliberately being pushed by international capital as it facilitates its entry and domination over the Indian economy.

The average fiscal deficit of the Central Government in the 1980s was around 7 percent of GDP.[14] This year, the budget papers project a fiscal deficit of 4.9 percent of GDP. Had the so-called ‘nationalist’ BJP Government resisted international pressure and increased the fiscal deficit to the level of the 1980s, it would have increased the budget outlay for 2024–25 by Rs. 6.85 lakh crore.

vi) Total

All the five suggestions given above would fetch the Centre an additional (19.5 + 1.28 + 2.75 + 3 + 6.85 =) Rs. 33.38 lakh crore in revenues for 2024–25.

Financing a Huge Increase in Social Sector Expenditures is Doable

According to the Economic Survey 2023–24, the Government of India’s total social sector expenditures (Centre + States combined) in 2023–24 were 7.8 percent of GDP. Assuming that this year’s social sector expenditures (as a percentage of GDP) remain the same, this works out to Rs. 25.46 lakh crore. Therefore, if the Centre implements the suggestions given above for increasing its revenues, it can more than double the total social sector expenditures of both the Centre and States combined.

This increase in government revenues would be more than enough to finance:

1. An increase in total educational spending (Centre + States) to 6 percent of GDP, from the present 2.7 percent of GDP. Additional spending required = Rs. 10.77 lakh crore.
2. An increase in total health spending (Centre + States) to 3 percent of GDP, from the present 1.2 percent of GDP. Additional spending required = Rs. 5.87 lakh crore.
3. Implementation of a universal pension scheme to provide all the old people in the country a (non-contributory) monthly pension of Rs. 3,000 per month. There are an estimated 15 crore people in the country above the age of 60. So cost to government = 15 crore x 3000 x12 = Rs. 5.4 lakh crore.
4. Implementation of a universal PDS, and also its expansion, to provide all citizens 35 kg of rice /wheat and 5 kg of millets (at Rs. 3/2/1 per kg respectively) and 2 kg of pulses and 1 kg of edible oil (at a subsidy of Rs. 100 per kg for both), per household per month. Additional spending required = Rs. 1.37 lakh crore (for 2024–25).[15]
5. Tripling of government expenditure on nutrition schemes (including anganwadi services, Pradhan Mantri Matru Vandana Yojana and Mid-day Meal scheme). Additional spending required = Rs. 1.08 lakh crore.
6. Genuine implementation of MGNREGA by spending Rs. 2.72 lakh crore as demanded by the NREGA Sangharsh Morcha. Additional spending required = Rs. 1.86 lakh crore.
7. Doubling of government spending on agriculture. Additional spending required = Rs. 1.32 lakh crore.
8. Total = 10.77 + 5.87 + 5.4 + 1.37 + 1.08 + 1.86 + 1.32 = Rs. 27.67 lakh crore.

After implementing all the above suggestions, the government would still have Rs. 5.71 lakh crore left to finance many more such proposals.

Implementing these policies would also alleviate the unemployment crisis gripping the country as the huge increase in social sector expenditures in areas such as education and health would lead to the creation of several lakh jobs in these sectors, and the doubling of agricultural spending would lead to the creation of lakhs of jobs in this sector too.

In demanding of the government that it implement the above suggestions, we are only asking the government to implement the dreams of our country’s founding fathers, which are encapsulated in the Directive Principles of the Constitution. They call upon the State to strive to:

• build an egalitarian society and a social order in which justice, social, economic and political, shall inform all the institutions of the national life [Article 38 (1)];
• minimise inequalities in income [Article 38 (2)];
• direct policy towards ensuring that the operation of the economic system does not result in concentration of wealth [Article 39 (c)];
• ensure that children are given opportunities and facilities to develop in a healthy manner and in conditions of freedom and dignity [Article 39 (f)];
• make effective provision for securing education and public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want [Article 41];
• regard raising the level of nutrition and the standard of living of its people and the improvement of public health as among the primary duties of the State [Article 47].

Appendix: An Alternate Estimate of Revenues from Wealth and Inheritance Taxes

According to an estimate made by Credit Suisse in 2023, the total wealth of the country in 2022 was $16,806 billion, of which the richest one percent in India owned 40.4 percent.[16] (Note that this is very close to the percentage estimated by the World Inequality Lab report cited in Article 17.) The wealth of the richest one percent then works out to $6,806.43 billion or Rs. 535.02 lakh crore in 2022.[17] The wealth of India’s richest has been booming. Conservatively assuming that the total incomes of the rich have increased by 15 percent per year during the past 2 years, their wealth in 2024 would be Rs. 707.56 lakh crore.

Imposition of a low 2 percent wealth tax on this would earn the government Rs. 14.15 lakh crore in revenues.

Apart from this, the government can impose an additional wealth tax of 3 percent (for a total wealth tax of 5 percent) on the country’s billionaires. There were a total of 200 billionaires with a total wealth of Rs. 79.71 lakh crore in 2024. An additional 3 percent tax on their wealth would yield a revenue of Rs. 2.39 lakh crore.

Thus, the total increase in government revenues by imposition of a modest wealth tax (of 2 percent, and an additional 3 percent on the country’s billionaires) on the country’s richest 1 percent people would lead to an increase in government revenues by Rs. 16.54 lakh crore.

The government can also impose a modest inheritance tax rate of 33 percent on the richest 1 percent people in the country. Assuming that about 5 percent of the wealth of these top 1 percent gets bequeathed every year to their children or other legatees, the government would earn 707.56 lakh crore x 0.05 x 0.33 = Rs. 11.67 lakh crore as inheritance tax revenues every year.

Our simple calculation thus shows that: An imposition of a modest wealth and inheritance tax on the wealth of the richest 1 percent adults in the country would result in an increase in government revenues of a total of Rs. 28.21 lakh crore.

We have done this calculation just to show that the estimates made by Nitin Bharti et al. of the World Inequality Lab are not exaggerations. Our estimates of tax revenues from wealth and inheritance taxes are much more as our calculation involves taxing the richest 1 percent in the country, whereas Nitin Bharti and his co-authors call for imposing taxes on just 0.04 percent of the richest people in the country. We have however taken the estimate made by the World Inequality Lab for our calculations, because their estimates of the wealth of the rich and the revenues from inheritance and wealth taxes are made on the basis of a much more rigorous methodology and so are much more accurate.

Notes

1. Martin Hart-Landsberg, “A Wealth Tax: Because that’s Where the Money Is”, 19 November 2019, https://mronline.org; Howard Glennerster, A Wealth Tax Abandoned: The role of the UK Treasury 1974–6, Centre for Analysis of Social Exclusion, London School of Economics, London, June 2011, http://piketty.pse.ens.fr; Julian Limberg and Laura Seelkopf, “The Historical Origins of Wealth Taxation”, https://www.tandfonline.com.

2. Martin Hart-Landsberg, ibid. For Warren’s tax proposals, see: “Ultra-Millionaire Tax”, https://elizabethwarren.com.

3. Catarina Gomes Correia, “The Elephant in the Room: A Minimum Tax on Billionaires”, 2 August 2024, https://www.ibfd.org; “G20 Blueprint Adds to Growing Wealth Tax Momentum”, June 2024, https://taxjustice.net.

4. “Tax Our Wealth, Super-Rich Tell Politicians at Davos”, 17 January 2024, https://www.theguardian.com.

5. Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, “Income and Wealth Inequality in India, 1922–2023: The Rise of the Billionaire Raj”, 18 March 2024, https://wid.world.

6. Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, “Towards Tax Justice & Wealth Redistribution in India: Proposals Based on Latest Inequality Estimates”, pp. 5–6, World Inequality Lab, May 2024, https://wid.world.

7. Ibid., p. 11. The nominal values of the annual tax revenues in the last 2 rows of the table have been calculated by us, using GDP figures for 2024–25 given in Budget at a Glance, Union Budget 2024–25.

8. See Chart 17.1 of Article 17 in this budget series.

9. Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, “Towards Tax Justice & Wealth Redistribution in India: Proposals Based on Latest Inequality Estimates”, p. 6, op. cit.

10. Calculated by us from data given in Table 17.2. This estimate is for 2024–25, assuming an increase in the wealth of the rich by 15 percent per year.

11. R. Ramakumar, “Inheritance Taxes: A Key Step Towards Reducing Economic Inequality”, 30 April 2024, https://frontline.thehindu.com.

12. Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, “Towards Tax Justice & Wealth Redistribution in India: Proposals Based on Latest Inequality Estimates”, op. cit.

13. We have discussed this in Article 16 of this budget series analysis (published in Janata Weekly).

14. We have discussed this in Article 5 of this budget series analysis (published in Janata Weekly).

15. This is the figure for 2023–24 BE, according to the Economic Survey 2023–24. We assume that it is going to remain the same for this year too.

15. Our calculation. We have explained the methodology followed for this calculation in our article: Neeraj Jain, “For a Universalised Public Distribution System”, Janata Weekly, 27 August 2017, https://janataweekly.org. We have updated this calculation with the 2024–25 economic cost for distribution of foodgrains as estimated by the FCI: for wheat, Rs. 27.74 per kg; for rice, Rs. 39.75 per kg.[Cited in: Demand for Grants 2024–25 Analysis: Food and Public Distribution, https://prsindia.org.] We assume economic cost of millets to be Rs. 26 per kg.

16. Global Wealth Databook 2023, UBS, https://rev01ution.red.

17. Average US dollar to Indian rupee exchange rate in 2022 was Rs. 78.605.

(Neeraj Jain is a social–political activist with an activist group called Lokayat in Pune, and is also the Associate Editor of Janata Weekly, a weekly print magazine and blog published from Mumbai. He is the author of several books, including ‘Globalisation or Recolonisation?’ and ‘Education Under Globalisation: Burial of the Constitutional Dream’.)