India's wealth tax debate took center stage when former Reserve Bank of India governor Raghuram Rajan pushed back on French economist Thomas Piketty's call to tax the super-rich.
Piketty, author of Capital in the 21st Century, argued at a recent event in Delhi that India should address its widening inequality by imposing targeted wealth and inheritance taxes. Piketty has proposed a 2% annual wealth tax on people with assets exceeding 100 million rupees ($1.18 million) and a 33% inheritance tax on assets of equal value.
Such measures could raise India's revenue by around 2.73% of GDP annually, he said, urging India to honor the G20 pledge to cooperate on global wealth taxation.
Rajan, however, dismissed Piketty's recommendations as “pie in the sky economics”. In an interview with The Print, he questioned the viability of wealth taxes, “Ask Mr. Piketty where is an example of a wealth tax that has raised enough money to do something meaningful?”
Instead of punishing success, Rajan emphasized the need to optimize resource allocation because “the rich always have a way around it.”
Rajan cited India's $25 billion subsidy for chip foundries as an example. “Chip foundries do not give us national security. We still depend on foreign suppliers for machinery, wafers and rare earth minerals. Why not focus resources on areas where India has a competitive edge, such as chip design?”
Rather than imposing wealth taxes, Rajan advocated fostering entrepreneurial innovation. He highlighted India's potential, citing its 300,000 chip designers, and called for companies like Nvidia to focus on intellectual property rather than manufacturing.
For Rajan, capacity building is key. Echoing economist Amartya Sen, he emphasized investment in education and research to spur innovation.
High-quality universities are crucial for generating intellectual property. Once we invest in capabilities, everything opens up,” he said.