By Dr. Gyan Pathak
Union Budget 2023-24 needs to address the rising inequality in India that has acquired an alarming trend at a time when economic growth of the country is projected to decelerate during the next fiscal.
The World Economic Forum in Davos 2023 (January 16-20) is in progress that has also brought the global inequality in focus. Oxfam has published the global “Survival of the Richest” report on the opening day, and the India Supplement has brought this alarming India Story.
The State of Inequality in India Report released in 2022 by the Economic Advisory Council to the Prime minister had already confirmed this and said that inequalities in health, education, household characteristics and the labour market make the population more vulnerable and trigger a descent into multidimensional poverty.
“India is among the most unequal countries in the world, with rising poverty and an ‘affluent elite’,” laments the World Inequality Report, 2022. The country still has the world’s highest number of poor. Wealth inequality has stripped 70 per cent of Indians from as basic a necessity as a healthy diet leading to the yearly deaths of 1.7 million owing to diseases resulting from a poor diet, the Oxfam report has highlighted.
By 2020, the income share of the bottom half of the Indian population was estimated to have fallen to only 13 per cent of the national income and own less than 3 per cent of the wealth.
The median wage of the country is just enough to provide for the most basic of sustenance and losing a week’s income would push them to the brink of starvation. It is particularly concerning because a majority of the employed are informal workers engaged in precarious forms of work with no security of tenure, fixed salary and legal or social protection.
Of the most vulnerable of the informal workers are daily wage workers. The NCRB reports that on an average 115 daily wage workers died by suicide every day in 2021. Moreover, the pandemic has brought financial stress and high inflation has led to an increase in household debt. RBI reported that personal debt climbed to Rs35.2 trillion at the end of June 2022. Higher interest rate and inflation has made the situation worse for the poor.
On the other hand, the rich are getting richer. The number of billionaires increased from 102 in 2020 to 166 in 2022 and the combined wealth of India’s 100 richest has touched Rs 54.12 lakh crore. The Wealth of the top 10 richest stands at Rs 27.52 lakh crore – a 32.8 per cent rise from 2021. The top 30 per cent who own more than 90 per cent of the total national wealth, among them, the top 10 per cent own more than 80 per cent.
Over the last two years, under the new taxation policy, total tax loss was of Rs 1.84 lakh crore. The Centre had reduced the corporate tax slabs in 2019 from 30 per cent to 22 per cent, with newly incorporated companies paying a lower percentage (15 per cent). These tax cuts resulted in corporate tax collections declining by approximately 16 per cent in their first year. The burden of taxation has gradually shifted away from the corporates towards the individual income taxpayer.
The policies of the government resulted into record profits for corporates – a 70 per cent increase in 2021-22 compared to the previous year, while 84 per cent of household saw a decline in their income.
To increase government revenue the Centre has adopted a policy of hiking GST rates while simultaneously cutting down on exemption. The indirect nature of both the GST and fuel taxes make them regressive, which invariably burdens the most marginalized.
Inflation more adversely impacts the poor than the rich. Due to financial pressures exerted by food inflation, the poor will be impelled to reduce their already low expenditure on health, education, clothing, and shelter.
Rising rates of interest to control inflation has additionally impacted the people, especially the middle class. Amidst the rising rates of interests for the average consumer, banks have written-off a massive Rs11 lakh crore in non-performing assets (bad loans) over the previous six years.
The rising inequality could be corrected through progressive taxation, on which the Budget 2023-24 must include some provisions. Imposing a tax on the wealth of the richest has been advocated by Oxfam for years. The rationale behind this has been that the wealth accumulation by the creamiest layer of the country is massive and taxing it can generate huge revenue, which can then be redirected to the development of social sectors of the country.
However, in place of taxing the rich more, the Centre has adopted the policy to tax them less, such as reduction of corporate tax, while since 2020-21, the share of indirect taxes in the state exchequer has risen by 50 per cent. Moreover, under the GST regime, there is a decline in the proportion of corporate taxes in the total revenues of the government, which is likely to increase the inequality in the future.
Indirect taxes are impacting the poor the most, since 6 out of 10 Indians live on less than Rs 262.4 per day. Taxes are major source of revenue for the government that is estimated for 2022-23 at Rs 19.34 crore, which is 88 per cent of the total revenue.
In 2020-21, the projected revenue foregone in the form of incentives and tax exemptions to corporates is Rs 1.03 lakh crore. Revenue from corporate taxes as a percentage of gross tax revenue declined by 8 per cent, indicating that reliance on indirect taxes has increased.
The system of indirect taxes is regressive. Estimates suggest that the bottom 50 per cent spends 6.7 per cent of their income on taxes for select food and non-food items. Middle 40 per cent spends half of that at 3.3 per cent. However, the top 10 per cent wealth group spends a mere 0.4 per cent of their income on these items.
The bottom 50 per cent income group spends a higher percentage of their income on indirect taxes than the middle 40 per cent and the top 10 per cent combined.
The bottom 50 per cent of the population at an all-India level pays 6 times more on indirect taxation as a percentage of income compared to top 10 per cent.
Of the total taxes collected from these food and non-food items, 64.3 per cent of the total tax is coming from the bottom 50 per cent.
Hence there is a case of taxing the rich for the public good. Oxfam report says that 3 per cent of wealth tax on total wealth of Indian billionaires can fund the National Health Mission, the largest healthcare scheme in India, with a current allocation of Rs 37,000 crore for 5 years. Taxing 2 per cent would support the requirement of Rs 42,033 crore for the nutrition of malnourished in the country for 3 years.
To raise the expenditure to 3 per cent of GDP, a total expenditure of Rs 1.06 lakh crore would be required. This money can be raised by taxing the top 100 billionaire at 2 per cent.
Funds for Samagra Shiksha in 2022-23 were much lower at Rs 37,383 crore as against Rs 58,585 crore demanded. Taxing the wealthiest 10 billionaires at 1 per cent would be enough to cover this shortfall for 1.3 years. Taxing the same 10 at 4 per cent would cover the entire amount of funds required for two years.
If one calculates, the Oxfam report says, the resource required to serve the students in government schools with breakfast, government would require Rs 31,151 crore. Taxing the wealthiest 100 India billionaires at 2 per cent would cover the cost of running this scheme for nearly 3.5 years.
The report recommends taxing the wealth of the richest 1 per cent, easing the tax burden on the poor and marginalized, improving access to public services like health and education, and strengthening safety nets and bargaining power of labour. (IPA Service)