Grow the pie-Rising Inequality per se isn’t a problem if economic growth raises income over all


Oxfam International and its India unit have recently brought out reports on inequality.  

However, the are some apprehensions regarding this report. 

What are the issues with the Oxfam report? 

Problem with measure of inequality-Oxfam has used wealth, not income, as the parameter. 

The problem with this approach is that it is heavily dependent on the market value of financial assets, which fluctuate almost every minute.  

Issues linked to some of its suggestion-Although its suggestion for need of good quality statistics is appropriate, it’s another suggestion on wealth tax is problematic. 

Report suggests a temporary 1% surcharge on the richest 10%. 

What has been India’s experience with wealth tax? 

India used to levy a wealth tax but it was abolished in the 2015 Union Budget. It had no or very little impact, for example, in 2015, GoI could raise only Rs 1,079 crore as wealth tax.  

That is, just Rs 1.4 for every Rs 1,000 that accrued through direct taxes. Also, there are practical difficulties in taxing wealth. 

What is a better alternative to reduce inequality? 

India should focus on economic growth and economic mobility, instead of messy taxation laws. 

This confirms well with the saying that a rising tide lifts all boat up. India should focus on increasing economic growth to reduce inequality. For example, Post-1991, the rise in India’s economic growth lifted millions out of poverty even as inequality widened.  

SourceThis post is based on the article “Grow the pie-Rising Inequality per se isn’t a problem if economic growth raises income over all” published in Times of India on 19th Jan 2022.  

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