Amid a raging political debate on wealth inequality, re-distribution and inheritance tax, a new research paper co-authored by economist Thomas Piketty has suggested that India needs to impose a 2 per cent tax on net wealth exceeding ₹10 crore and a 33 per cent inheritance tax to deal with the problem of rising inequality in the country.

The paper titled ‘Proposals For a Wealth Tax Package to Tackle Extreme Inequalities in India’ suggests wealth tax and an inheritance tax for those with net wealth exceeding ₹10 crore and on estates exceeding the same value to tackle the massive concentration at the very top of the wealth distribution and create valuable fiscal space for crucial social sector investments.

tax net

The paper, authored by economists associated with World Inequality Lab, Thomas Piketty (EHESS, Paris School of Economics), Nitin Kumar Bharti (New York University, Abu Dhabi), Lucas Chancel (Sciences Po, Harvard Kennedy School) and Anmol Somanchi (Paris School of Economics), noted that 0.04 per cent of population or 3.7 lakh adults can be brought under this tax net.

“Raise phenomenally large tax revenues while leaving 99.96 per cent of the adults unaffected by the tax. In a baseline scenario, a 2 per cent annual tax on net wealth exceeding ₹10 crore and a 33 per cent inheritance tax on estates exceeding ₹10 crore in valuation would generate a massive 2.73 per cent of Gross Domestic Product (GDP) in revenues,” the paper advocated.

Pitroda pitch

The paper has been made public at a time when the issue of inheritance tax embroiled into huge political controversy after former Chief of Indian Overseas Congress Sam Pitroda pitched for taxing the assets and properties that individuals inherit from their deceased ancestors. Although the Congress has distanced itself from this remark, it did not cool down the debate and attacks from the BJP.

The debate reflected in the paper as well. According to Somanchi, the 2024 Lok Sabha election marks a critical juncture with heightened political and public focus on economic justice. “Despite sustained attempts from certain sections at derailing this much needed conversation, a vibrant public debate has emerged. It would, however, be a shame if after coming this far, this momentum is not translated into policy,” he said. Furthermore, progressive wealth taxation, effective redistribution and broad-based social sector investments are urgently needed to build an equitable and prosperous India.

Based on the nominal GDP number of ₹327.71 lakh crore for 2024-25, implementation of the proposal could result in revenue generation of around ₹9 lakh crore. This could wipe out over half of the fiscal deficit and can be used to fund many of Central Sector (fully funded by the Central Government) as well as Centrally Sponsored Scheme (part funded by States and remaining by Centre).

Upper caste club

Commenting on the paper, Somanchi highlighted that Indian billionaires are largely an upper caste club. “A progressive wealth tax package of the kind we propose is most likely to benefit lower castes and the middle classes at the detriment of only a tiny number of ultra-wealthy upper caste families. In that respect, besides addressing extreme wealth inequality, such taxes could also play a small role in weakening the rigid link between social and economic inequalities in India,” he said.

The paper suggested that such reforms need to be accompanied by explicit redistributive policies to support the poor, lower castes, and middle classes. For example, the baseline scenario would allow nearly doubling the current public spending on education, which has stagnated at 2.9 per cent of GDP over the past 15 years, well below – less than half – the 6 per cent target set by the government’s own National Education Policy 2020 (NEP 2020), it said.