Opinion | Is India ready for a new social compact to deal with this crisis?4 min read . Updated: 25 May 2020, 10:22 PM IST
Perhaps the rich could pledge a part of their wealth to provide relief to those who urgently need it
The India office of YouGov had published a report stating that urban India was of the view that the covid crisis in the country was getting worse rather than better, and that more than 70% of those surveyed were worried about the impact it would have on society and their individual finances. This is sobering. Of course, the survey was based on a sample of only 1,066 people polled between 6 May and 14 May. The same organisation had reported at the end of March, based on a poll conducted late that month, that urban India’s middle- and upper-income classes overwhelmingly supported the lockdown. Their views on the lockdown are logically consistent with the worry of urban Indians over the fallout of the crisis.
Professor Sunetra Gupta of Oxford University told unherd.com in an interview that, in reality, the lockdown was a luxury that the middle class was enjoying at the expense of the poor. Day in and day out, visuals and harrowing reports of women, children and men walking hundreds of kilometres, often barefoot in this scorching heat with unbending personal dignity, remind us of the enormous costs that the lockdown has extracted from the poor and continues to do so.
Despite impressive strides made in poverty alleviation over recent decades, millions of Indians live on the edge of the poverty line, even if technically above it, since they do not have adequate insurance against health calamities and consequent loss of earnings. There is a risk that as workers who made a living in cities trudge their way back to the countryside, they would be returning to a world of relative destitution and deprivation that they had sought to leave behind when they migrated to urban zones. We can prevent such outcomes from turning into a reality. In the coming decade, India may have to pay as much attention to redistribution as it has been paying to growing the pie. The former appears especially urgent in the short-term. In fact, its neglect might come in the way of economic growth, semi-permanently or even permanently.
This is where we have to dig deeper into the reserves of our retained earnings and empathy. A friend shared with me on Saturday morning a story from thewire.in on the solidarity tax that Peru was contemplating. The author notes that about nine countries in Latin America started discussing a tax on the rich back in March itself. In India, Arvind Subramanian, former chief economic advisor, and Devesh Kapur, professor at the Johns Hopkins University, wrote for Business Standard in April that India needed solidarity now and a new social compact later. Among the five revenue-raising proposals that they had outlined, one was to impose a tax on the wealthy. It is noteworthy that they did not propose an increase in the top marginal income tax rate or a surcharge on income tax. The government had imposed precisely such a surcharge in the Union budget for 2019-20, with barely any revenue generation to show for it.
A group of enthusiastic officers from the Indian Revenue Service had proposed a temporary increase in the top marginal tax rate to 40%, or a re-introduction of the wealth tax for those with a net worth of ₹5 crore or more. India had abandoned its wealth tax in 2016 and replaced it with a surcharge. After the revenue service officers proposed it alternative as a temporary measure, the rest of the country did not react well to the idea. Some commentators used it as an opportunity to embarrass the government as though it was becoming usurious. The government moved quickly to dissociate itself from the report. However, it had many worthwhile and practical suggestions. Critics of the proposal choose to ignore the fact that the revenue officers were merely echoing the views of a former economic advisor to the government and a distinguished academic.
This brings us to the real question that India faces. Is it ready for a new social compact? There is no dearth of requests asking the government for relief to all segments of society. Businesses built over decades may be facing an existential crisis, and if they go down, so would their workers, their families and livelihoods. But, there are businesses and people who are better-off than others and they can take the lead in giving shape to a new social compact.
Just as they question the need for and the length of the lockdown in public, and correctly so, can they also publicly pledge to volunteer and pay a one-time tax on their wealth? It is not impossible to imagine the impact it would have on the psyche of the nation if, let us say, the 50 most wealthy individuals of the country were to write a joint letter pledging to place a very small proportion of their wealth at the service of those who need it more.
As Subramanian and Kapur wrote, a tax contribution that is a tiny fraction of their wealth could help restore the economy, boost the value of their financial assets, and hence their wealth itself. Solidarity will also be self-serving.
Ironically, those who think the government might have underestimated the severity of the pandemic’s impact on the economy should not make the same mistake.
V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister. These are the author’s personal views