India’s ‘billionaire tax’ conundrum

The Indian government may have its own arguments to dismiss Thomas Piketty’s call for ‘billionaire tax’ but the real reason could be mundane – and hidden in plain sight. Consider this: Not just India, even the world’s most powerful group, the OECD-G20 (BEPS initiative), is unable to decide on a global minimum tax on MNCs to stop tax evasion and avoidance for more than a decade. Worse, India emerged as one of the three stumbling blocks to it; the other two being the US and China.

For the record, CEA Anantha V. Nageswaran argued that such a tax (a) posed capital flight risks and (b) India’s priority, at this stage of development, was poverty reduction, not inequality. The first one is new, the second is not (Nageswaran and Arvind Panagariyav had said so earlier).

Election funds from the rich, votes from the poor

Recall the old dictum of German-American author Oscar Ameringer: “Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.” This is especially true for the money-driven politics of the US, where the world’s richest billionaire Elon Musk (net worth $430 billion) now looms large over the Donald Trump’s administration.

As inequality reached “alarming heights” in the US after 2000, Joseph Stiglitz wrote in June 2019: “…economic inequality inevitably gets translated into political power, and those with political power use it to gain advantage for themselves." Elsewhere in the same book, he wrote, the US “seemed to be evolving into an economy and democracy of the 1% , for the 1%, and by the 1%.”

A few months later, in October 2019, a headline shook the world: “For the first time in history, U.S. billionaires paid a lower tax rate than the working-class last year” (also a few variations of it).

This was based on a new study, “The Triumph of Injustice”, by Emmanuel Saez and Gabriel Zucman (University of California), which showed that the top 400 American billionaires paid an effective tax of 23% in 2018 – against 24.2% by the bottom 50% income earners. This was a massive fall (for the top 400 billionaires), from 56% in 1960 and 47% in 1980. Saez-Zucman wrote elsewhere in 2019: “The regressivity of the tax system at the extreme top end in 2018 is striking – a direct consequence of the 2018 cut in corporate tax.”

The tax cut (from 35% to 21%) was Trump’s doing. The US Congress studied the consequences and said in its May 22, 2019 report: It led to (a) $40 billion loss in corporate tax in 2018, (b) It was used for investing in stock markets and stock buybacks (tool to manipulate stock prices), which touched historic high of $1 trillion, but (c) It didn’t bring the promised wage hike or investment.

What is true for the US is also true for India’s money-driven politics.

Count the number of ways billionaires and their businesses are privileged in India to know what must change.

Regressive tax and other policies 

1. India cut corporate tax in 2019 (from 18-32% to 15-22%), and the consequences were: (a) direct loss of ₹2.28 lakh crore in FY20 and FY21, (b) corporate tax collection fell below income tax in FY21, FY23, FY24, and so would be in FY25 (BE) – in contrast, corporate tax collection was 1.96 times higher in FY12 (graph below) and (c) dramatic rise in corporate profits (4X in four years, 15-year high profit-to-GDP ratio) since then but not in salaries and investments.

2. Tax regressivity at the top: The effective tax for maximum profit-making companies (PBT of over ₹500 crore) was 20.4% in FY22 (up to which data is available). It was maximum, 24%, for the least profitable (PBT of ₹0-1 crore). For all profit-making ones, it was 23.26% – far lower than the 30% for income tax above ₹15 lakh (minus rebates).

3. Tax evasion at the top: Fortune India had analysed tax data of FY18 to find that only 4.26 lakh individuals declared income above ₹50 lakh – while India had 7.25 lakh dollar millionaires in 2018 and 9.12 lakh in 2019. This calculation assumed annual income at 10% of net wealth. India doesn’t provide tax data of the top 100 billionaires (numbered 185 in 2024) – which Piketty has been asking for years.

4. Wrote-off corporate loan default (NPAs) of ₹16.3 lakh crore in 10 fiscals of FY15-FY24 (73.4% of it by public banks). Their identifies are protected.

5. Wilful corporate defaulters have progressively risen from 2,154 in FY20 to 2,664 in FY24, owing banks ₹1.96 lakh crore. Their loans are written also off, and 38 of them fled during 2015-2020 (the likes of Nirav Modi and Mehul Choksi). But the RBI did the unthinkable. Amidst rising banking frauds, rising wilful corporate defaulters, and 10 days after then RBI Governor Shakti Kanta Das red-flagged the “innovative ways” in which banks were concealing and evergreening NPAs, the RBI issued, on June 8, 2023, the “Framework for Compromise Settlements and Technical Write-offs” – empowering (i) all financial institutions to offer “compromise settlements” with fraudsters and wilful defaulters and (ii) to give fresh loans after 12 months.

6. Overall tax regressivity (more indirect than direct tax, graph below) is rising too – reflecting a shift in the tax burden to the poor, than the rich (ability to pay more). 

7. Licence raj is back through restrictions in trade (laptops/PCs, wheat, rice, sugar, pulses, onions, iron ore, steel, gold, coking coal, ferronickel, etc.).

8. Market concentration and crony capitalism are rising – provoking former RBI Deputy Governor Viral Acharya to seek the “dismantling” of the Big Five – Reliance, Tata, Birla, Adani and Bharti groups – for causing inflation and skewing policies to shield them from foreign competitions. Regulatory oversights and action against corporate malpractices are the obvious casualties. 

9. Quid pro quo deals with businesses were alleged in multiple investigating reports after political donations through the Electoral Bond were revealed in March 2024 – in awarding of PLI-DLI subsidies, government contracts, licences for imports, etc.

Consequently,

10. 1.6% population paid taxes in FY23; out of 74 million ITRs, 51.6 million, or 70% declared zero-taxable income.

11. Inequality is “among the very highest in the world” – with the income share of the top 1% surging from 21.3% in 2014 to 22.6% in 2022, and their wealth shares from 33.3% in 2014 to 39.5% in 2023.

12. Billionaires account for most GDP. As per Hurun India Rich List 2024, India has 1,539 individuals worth ₹1,000 crore or more in 2024 with “accumulated wealth” of ₹159 lakh crore or “more than half of India’s GDP” (53.8% of the GDP in FY24). As per Fortune India’s rich list of 2024, India has 185 dollar billionaires with “collective fortunes” of $1.19 trillion or ₹99.86 lakh crore, in 2024 – 33.8% of the GDP). The Economist’s article of September 12, 2024 said that India’s top 100 “family-business” groups owned $1,406 billion – 39.5% of the FY24 GDP.

Is India serious about jobs and poverty? 

Had the Indian government been serious, it wouldn’t be doing the following: 

13. RBI-KLEMS claimed that India created 46.7 million jobs in FY24 and 170.1 million jobs during FY18-FY24 – using a theoretical construct, not actual data. But the Prime Minister went to town to claim credit. In sharp contrast (a) the Economic Survey 2023-24 flagged job crisis and said it needs to create 7.8 million new jobs a year until 2030. On its part, the Centre (b) sent youth to war-hit Israel for work (G2G) in 2024 and has “signed agreements” with 20 more countries to supply labour (PMO, October 29, 2024) and (c) is also giving menial jobs at below statutory minimum wage to 97.2 million individuals every year under the MGNREGS (average of FY21-FY24); 67.6 million have already worked under this scheme in FY25 (up to December 22. 

14. NITI Aayog claimed on January 12, 2024, that 248 million escaped MPI poverty during 2013-14 and 2022-23. But this estimation didn’t use the 2022-23 MPCE/HCES data (which came in February 2024); and was based only on health survey data (NFHS-4 and NFHS-5) even for the other two parameters – ‘education’ and ‘living standards’ (all three carry equal weights). An investigating report accessed a “confidential” Aayog report to show its estimates were “preordained” to show “dramatic reduction in poverty”. But the Prime Minister went to town to claim credit again, forgetting that the Centre (i) is giving “free” ration to 813.5 million since April 2020 (to continue till December 2028) and (ii) cash to 103 million families each under the PM-Kisan and PM-UY (Ujjwala) schemes.

As Raghuram Rajan often argues, if India persists with its current policies (“business as usual”), a 6% growth will not deliver ‘Viksit Bharat @2047’ goal; the GDP would quadruple by 2047, but India would still be a “lower-middle-income” country – below China’s current per capita income.

Note: Inequality surged in developed countries after the 1980s’ neoliberal push – reversing the trend “between 1910 and 1950”; the same happened in India – reduction in inequality since 1950-51 reversed in the mid-1980s due to its neoliberal policies (Piketty).