India’s tax system is soft on the country’s super-rich with the wealthiest class of people paying far lesser levies than they ought to, economist and MIT Professor Abhijit Banerjee has said.
Banerjee’s comments, made during a free-wheeling chat with HT journalists, comes ahead of the NDA government’s second full budget next month amid demands from business leaders to lower corporate income tax rates and continue with the layers of exemptions that reduces the effective taxes that companies pay.
“Nobody talks of wealth taxation, death duties,” Banerjee, the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology, said. “We don’t talk of taxing the rich in any form, it’s all about lower taxes…we are still talking about cutting corporate taxes. Our corporate taxes are not high, they are low”.
Reserve Bank of India governor Raghuram Rajan also made similar comments over the weekend asking the central bank employees to show no leniency towards rich “wrong-doers”.
“No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop,” Rajan, known for not mincing words, said in a message to the RBI employees.
Banerjee, author of the highly acclaimed book Poor Economics, said it was absolutely essential to bring down the high levels of bad loans in Indian banks.
“One area where we absolutely need to do something is the banking sector,” Banerjee said, cautioning against rising default rates among big corporations.
“It is like giving large gifts to large people,” Banerjee, who was named one of Foreign Policy magazine’s top 100 global thinkers in 2011, said.
The Indian banking sector has been beset with non-performing assets, loans that have turned bad, which have risen due to slow growth and delays in project implementation. For 39 listed banks, gross non-performing assets rose 26.87% to Rs 3.4 lakh crore for the quarter-ended September 2015 from Rs 2.68 lakh crore in the same quarter last year.
The MIT Professor said the world now agreed about the role of redistributive policies, which pro-market policy-makers often slam as mere doles for freeloaders.
Banerjee, who has done pioneering work in the area of poverty, said he did not worry about welfare falling off the political map. There is a consensus for “redistribution at the bottom end”, he said. He was rather “worried” about the inadequately taxed “rich” and growing inequality.