Billionaire tax would lead to flight of capital: CEA

There was a time when the 'Hindu rate of growth', implying a sluggish growth rate of 2-3% of the Indian economy, was attributed to the extreme socialist policies of Indira Gandhi in whose regime taxes went up to over 90% of a citizen's income, which made the rich hide their real earnings and invest the money overseas. The subject has assumed importance again, thanks to economist Thomas Piketty's recommendation. Chief Economic Adviser V Anantha Nageswaran expressed concerns on Friday about a proposed "billionaire tax", stating that such measures could potentially deter capital from entering the country and adversely affect investment levels.

"Effects of public policy are often asymmetric. Taxing capital less may not make them invest, but taxing capital more will drive away capital. It's easy to drive capital out, but it is much harder to bring back in" the CEA said at an event, further questioning some of the findings of the studies by economist Thomas Piketty. According to Nageswaran, India has successfully extricated many people out of extreme poverty through the mix of capitalist and welfare measures.

"Equality of access and opportunities matter more for public policy than equality of outcomes, relatively. Individual skills, attitudes and efforts matter," Nageswaran said, warning against enforcing equality through regulation, which hurts small businesses, as had been seen in the pre-liberalisation period.

Where the idea of a billionaire tax came from

The CEA indicated that a portion of Piketty's calculations relied on wealth generated in stock markets; however, recent data indicated that investments in equities had significantly spread to smaller towns and cities. He also noted that there was evidence pointing to a reduction in the disparity between the top 20 companies and their counterparts.

While Piketty advocated for a global tax on the ultra-wealthy and proposed utilizing taxes from various nations to combat climate change, Nageswaran responded by asserting that there was no assurance that affluent countries would allocate the necessary funds.

Shamika Ravi, a member of the economic advisory council to the Prime Minister, remarked that lower tax rates had enhanced compliance, as reflected in the statistics from the tax department. She suggested that during periods of elevated taxation in India, there may have been increased tax evasion. She presented data to support her claim that extreme poverty was declining, noting that recent statistics indicated even the most impoverished households were consuming more milk, eggs, and fruits, as well as owning vehicles. "The inequality in consumption is diminishing," she concluded.