Ex-CEA Kaushik Basu says, 'level of inequality unacceptably high, needs correction'

Former Chief Economic Advisor Kaushik Basu, who recently made the case for inheritance tax, on Thursday said the level of inequality is unacceptably high in India and needs correction. He said some inequality is understandable as it acts as an incentive and promotes efficiency. "But the level of inequality we see today is way beyond that & unacceptably high. It is also damaging democracy & needs correction," he said in a tweet on Thursday. 

"If you take the ratio of income of the nation’s richest individuals to the nation’s average income, India is now among the highest in the world. This was not the case earlier," Basu, who served as CEA from 2009 to 2012, said in another post. 

Last month, days after Indian Congress Overseas chief Sam Pitroda suggested India needed an inheritance tax to address inequality, Basu backed the idea and said the wealth tax is a must in the country.

The former CEA said the biggest inequalities in life occur at birth. "Some are born abysmally poor, some rich beyond imagination. This has nothing to do with their hard work and has no moral justification. This is the reason why an inheritance tax to curb inequality is a must in any civilised society."

Pitroda's comments triggered massive outrage, with the BJP claiming that Congress wanted to distribute people's half of the wealth after their death. The grand old party, however, quickly distanced itself from Pitroda's remarks and said there were no such things in its manifesto. The BJP doubled down its claim, saying former Congress chief Rahul Gandhi has been talking about 'financial survey' and wealth redistribution.

Noted economist Sanjeev Sanyal objected to the wealth tax idea, saying the Left loves death duties not because it redistributes wealth but because it feeds its ecosystem. Sanyal said the US has had very high death duties for a long time, but those people who back wealth tax still say that America is an unequal society. Sweden and Norway do not have an inheritance tax, he said, but they are called "equality heaven"

Sanyal said the death duties are the tool used by the rich to keep out middle-class aspirants who may climb in through multigenerational wealth accumulation. 

Recently, former RBI Governor Raghuram Rajan was asked about his position on wealth distribution idea. "We need to try and elevate rather than bringing the successful down," Rajan said while speaking at an event at the Kellogg School of Management. "I think we need to figure out how we get the people who are not doing well to actually do better and that will increase growth. Having inclusive growth will increase the pace of growth. And I'm not saying we should, you know, tax the wealthy to a huge extent or anything of that sort," he said.