S. Subramanian

The Covid-19 pandemic has brought with it a great deal of hard-headed analysis on how it might be confronted by governments without their having to sacrifice their hearts in the bargain. This is greatly welcome in a time where many governments are displaying evidence of a soft-headedness that is matched only by their hard-heartedness.

One of the most sensible and humane prescriptions on how Europe might raise resources to tackle the epidemic has recently been proposed by Camille Landais, Emmanuel Saez and Gabriel Suzman in an essay titled A progressive European wealth tax to fund the European Covid response. The article has appeared on the Vox CEPR Policy Portal.

The policy proposed by these authors is – to put it simply – for European governments to issue “Covid bonds” and to finance the resulting debt through a progressive tax on the wealth of the richest 1% of the population. The scheme has the merits of equitableness, reasonably unstressed tax-targeting, and a relatively non-inflationary mechanism for financing debt.

The progressive scheme of taxation advanced has the following structure, as summarised in Box 1 of their article.

Table 1

Wealth Group	Threshold (Euros)	Marginal Tax Rate
Top 1%	2 million (Rs 16.67 cr)	1%
Top 0.1%	8 million ( Rs 66.64 cr)	2%
Billionaires	1 billion (Rs 8330 cr)	3%

Landais et al say: “Such a tax would levy 1.05% of EU GDP each year.” What might a similar scheme for India look like? This is the back-of-the-envelope exercise that is addressed in this note. Before coming to that, it should be noted that there is no tax on wealth in India: the wealth tax was abolished in the Union Budget of 2016-’17. So if the numbers in this note are to make sense, the presumption must be that the wealth tax, in some minimal form, will be introduced at least as a one-off, emergency measure.

Second, what do we know about the distribution of household wealth in India? We have survey data on the distribution of both assets and debt across asset-classes at ten-yearly intervals from the National Statistical Office’s All-India Debt and Investment Surveys, going back at least to 1961-’62. The last year for which we have data is 2012-’13, which displays a very considerable degree of inequality in asset-distribution.

But for those familiar with wealth surveys across countries, it is a known fact that survey data typically understate inequality because of under-reporting of wealth by the very wealthy, and the failure of surveys to deliberately over-sample the ultra-rich. Ernest Hemingway suggested that the very rich are different from you and me by virtue of their possessing more wealth. Just how much more, as we have just seen, is not easily discernible from official wealth surveys. To get a more realistic picture in this regard, there is no option but to turn to journalistic sources.

One such major “non-official” source for India is the annual report of the IIFL Wealth Hurun India Rich List. From 2012, this List has been providing, every year, information on the net worth (assets less debt) of all entities with a wealth (net worth) holding of Rs 1,000 crore or more.

This is what the press release for the Hurun India Rich List 2019 says:

      “… IIFL Wealth Hurun India Rich List 2019 is the list of 953 individuals ranked by their net worth, empirically qualifying as the most comprehensive rich list aimed at tracking private wealth in India…The average wealth in the list is around INR 5,278 crore….” 

In very rough terms, assuming an average household size of five, the number of households in India for an estimated population of around 130 crore individuals would be 26 crore households. The Hurun Rich List of 953 families would be just 0.00037% – say 0.0004%, rounding off – of all households: a minuscule proportion. The total wealth of this tiny population of 953 families, given an average wealth-holding of Rs 5,278 crore, works out to around Rs 50.3 lakh crore (= 953 X 5,278 crore).

India’s present GDP, at current prices, is of the order of Rs 190.5 lakh crore. It turns out therefore that the Hurun Rich List, which accounts for just 0.0004% of all housholds, also has a wealth-holding that accounts for 26.4% of the country’s GDP (Rs 50.3 lakh crore ÷ Rs 190.5 lakh crore).

Therefore, a flat marginal tax rate of 4% imposed on the wealth of the members of the Rich List (which has a threshold of Rs 1,000 crore) should be an eminently reasonable levy. More detailed data available in the Hurun Report suggest that the threshold for the top ten is an astronomical Rs 71,500 crore (see Table 2, based on Table 1 of the Report).

Table 2

The figures in Table 1 suggest that there may be a case for a progressive tax structure, say a marginal tax rate of 6% on the wealth of the top 10 and of 3% on the wealth of the remaining 943 families. This will complicate the arithmetic somewhat, so for a quick reckoning, let us keep things simple, and work with a uniform marginal tax rate of 4% on the wealth of the Rich List.

The quantum of this wealth, as we have seen, is of the order of 26.4% of GDP. So 4% of 26.4%, which works out to a little more than 1% of GDP, is what would be available from this scheme of wealth taxation.

The “financial package” announced by the government to combat the epidemic is less than 1% of GDP, and this outlay is padded up with components such as PM Kisan and the Mahatma Gandhi National Rural Employment Guarantee that which have already been budgeted. In this time of mass human misery for the overwhelming bulk of a 130 crore population, can the state, in conscience, fail to consider a minor redistributive policy that would easily double the present “Covid package”?

In a matter of just seven years, from 2012 to 2019, the size of the Hurun Rich List has grown from 100 to 953. India lags behind only two other countries in the number of dollar billionaires it has. We are speaking of low-hanging fruit, just waiting to be plucked – if only the government would even begin to countenance such a thought.

What we have, instead, is (a) an abolition of the wealth tax (b) a reduction in corporate tax and (c) a mandatory deduction of one day’s salary from the staff of the All India Institute of Medical Sciences, and its diversion to the “PM-CARES” fund.

It is a fair way from the absurd to the grotesque. We have got accustomed to the former and are now required to make a quick and easy passage to the latter.

(S. Subramanian is an economist who lives and works in Chennai.)

[Editorial note: And a 2% wealth tax on the richest 1% will give the government additional revenues to the tune of Rs 9 lakh crore.]