Editorial: Create Wealth, Don’t Distribute Poverty

The election was turning out to be dull. Most probably the reason behind the low turn-out in the first two phases of polling. Thanks to Sam Pitroda, Rajiv Gandhi’s old friend and his son, Rahul’s mentor and escort when the latter is on overseas visits, the poll scene has livened up. A combative Prime Minister has accused the Congress Party of wanting to seize the property of Indians for distribution to others. The sheer ferocity of Modi’s attack forced the main Opposition on the defensive. Using the tag-line of LIC’s advertising ditty, he mocked the Congress, saying it wanted to pick the pockets of Indians “jindgi ke saath bhi, jindgi ke baad bhi”. The reference was to Pitroda’s suggestion for an inheritance tax. The Congress failed to put a lid on the controversy since Rahul Gandhi himself talked about “an x-ray” of peoples’ wealth, a socio-economic survey, a caste survey, etc. No doubt, the Congress manifesto had hinted at steps to check “growing inequality of wealth and income through suitable changes in policies”. This could well justify speculation over an inheritance tax. Both Pitroda and Rahul did not appreciate the fact that there was an inheritance or estate tax in India which was abolished in 1985 by none other than the Rajiv Gandhi government. The estate or property of the deceased included both movable and immovable assets. The responsibility to pay the tax, which at the peak was 85% of the estate, was on the bona-fide inheritors. In no other lower-income country has inheritance tax succeeded in lowering disparities in wealth. It is important to remember that in the initial years of Indira Gandhi the income and wealth taxes together exceeded one hundred percent. Yes, more than one hundred percent. Such expropriatory taxation was one of the main reasons for the creation of black money, with the wealthy stashing it away in secret Swiss accounts.

When high taxation, including wealth tax and inheritance tax, failed to either boost the revenues of the government or remove income inequalities, when the license-quota-permit raj failed to remove poverty, only then did we feel obliged to take a U-turn and introduce market reforms. The immediate cause was the foreign exchange crisis which had forced India to pawn its reserved gold with the Bank of England. The resulting economic liberalisation put the country on the path to faster growth, with the number of poor pulled out of poverty rising every year as the economy grew at 7-8 percent annually. Therefore, the suggestion of the Pitroda-Rahul duo is a sure-fire recipe for economic disaster. Moving the clock back of economic progress, just when foreign investment in projects and equity markets is on the rise, just when the entrepreneurship of Indians is finding expression in new start-ups, just when world renowned brands such Apple phones and Tesla electric cars and smart phone chip-makers are expanding their footprint in India. Such retrograde ideas do a great disservice to the country.

Meanwhile, if Rahul believes that by talking of inheritance tax and wealth re-distribution he can get the votes of the poor, he is living in a fool’s world. Poor are no longer gullible. They got disillusioned with the promise of “garibi hatao” and “Samajwad”. Their fathers and grandfathers had put their faith in these slogans in the early decades after independence only for them to be disillusioned. In the heyday of “samajwad” the rich did get richer while the poor got poorer. In 2024, the poor also aspire to a good life in an open market economy which offers equal opportunity to all who can exploit it. Under a liberalised economy, their basic needs like food, housing, drinking water, basic healthcare, free education at school-level etc. are being met by various welfare schemes of central and state governments. Socialism did not offer even a quarter of the welfare goodies which an open market economy has enabled governments to do, thanks to the country leaving far behind the Hindu rate of growth of 3.5 - 4 percent and embracing a 7-plus percent growth. Faster growth, and not inheritance tax and poverty-distribution, is the way forward for India.