Why is it in the News?

During the ongoing election campaign, there have been intense debates between the ruling government and the Opposition regarding wealth redistribution, while the SC has formed a nine-judge Bench to interpret the DPSP concerning ownership and control of material resources.

Context:

• Congress leader Rahul Gandhi during the Lok Sabha campaign said that there will be a financial survey to determine the distribution of wealth in the country for addressing the issue of inequality.
• The ruling BJP targeted Gandhi and alleged that Congress if elected, would bring back the "socialistic model" of economics and hinder India's growth as an economy.

What is Wealth Redistribution?

• The meaning of wealth redistribution is the transfer of wealth from one individual to another through a social mechanism such as taxation, charity, or public services.
  • One biggest example of wealth redistribution would be income tax wherein higher earnings pay a higher percentage of tax compared to lower-income earners.
• Proponents of this exercise note that wealth redistribution is necessary to bridge the inequality gap between members of society.
• And in India, the gap between the rich and the poor is only growing further.
• As per a recent study, the country’s richest one per cent of the population now owns 40 per cent of the country’s wealth.
• According to the report titled Income and Wealth Inequality in India: The Rise of The Billionaire Raj, and published by The World Inequality Lab, “the inequality gap widened after the economy’s opening up in the early 1990s, but “between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration”.
  • Based on figures from the World Inequality Database, India’s income inequality is among the very highest in the world, behind only Peru, Yemen and a few other small countries.

What Does India’s Constitution Say on Wealth Distribution?

• The Preamble to the Constitution aims to secure for all citizens social and economic justice, liberty and equality.
• Part III of the Constitution lists down the fundamental rights that guarantee liberty and equality while Part IV contains the DPSP.
• These are principles that the central and State governments should follow to achieve social and economic justice in our country.
• Unlike the fundamental rights in Part III, the DPSP is not enforceable in court.
• They are nevertheless fundamental in the governance of the country.
• Article 39(b) and (c) in Part IV contain principles that are aimed at securing economic justice.
• They provide that ownership and control of material resources of the society should be distributed to serve the common good and that the operation of the economic system does not result in the concentration of wealth to the common detriment.
• India’s Constitution-makers haven’t explicitly spoken of wealth redistribution.
• It’s noteworthy that when Article 39 (Draft Article 31) was being added to the Constitution, it was heavily debated.
• The economist KT Shah wanted the Constitution to outrightly prevent the creation of monopolies in industries.
• In agreement with him was Shibban Lal Saxena, who wanted it to be explicitly put down that the State shall control a few key industries.
• However, there were others Naziruddin Ahmad, who were not comfortable with the Constitution endorsing contested political and economic ideologies.

What is the Historical Context of the Redistribution of Wealth?

• The Constitution originally guaranteed the right to property as a fundamental right under Article 19(1)(f).
• It is provided under Article 31 that the state shall pay compensation in case of the acquisition of private property.
  • It is pertinent to note that at the time of independence, the main property rights related to agricultural and other land.
  • The government had to acquire the rights in such estates for carrying out land reforms and the construction of public assets.
• Considering the inadequate resources of the government and in order to provide greater flexibility in acquiring land for public welfare, various amendments were carried out curtailing the right to property.
• The Supreme Court in various cases has interpreted the relationship between fundamental rights and the DPSP.
  • Most of these cases were against constitutional amendments made by the state that curtailed the right to property which was then a fundamental right.
  • In the Golak Nath case (1967), the Supreme Court held that fundamental rights cannot be abridged or diluted to implement DPSP.
  • Finally, in the Kesavananda Bharati case (1973), a thirteen-judge Bench of the Supreme Court upheld the validity of Article 31C but made it subject to judicial review.
  • In the Minerva Mills case (1980), the Supreme Court ruled that the Constitution exists on a harmonious balance between fundamental rights and DPSP.
• In 1978, in order to avoid excessive litigation directly in the Supreme Court by the propertied class, the 44th Amendment Act omitted the right to property as a fundamental right and made it a constitutional right under Article 300A.
  • The right to private property continues to be an important constitutional cum legal right.
  • Any law to acquire private property by the state should be only for a public purpose and provide adequate compensation.

What is the Current Debate on the Redistribution of Wealth?

• The government of India in the first four decades after independence followed a “socialistic model” of economy.
• The economic policies resulted in the nationalisation of banking and insurance, extremely high rates of direct taxes (even up to 97%), estate duty on inheritance, tax on wealth etc.
• The rationale behind these measures during those times was to reduce inequality and redistribute wealth among the poorer sections that constituted the majority of the population.
• However, such measures stifled growth and also resulted in the concealment of income/wealth.
• Taxes like estate duty and wealth tax generated revenue that was much less than the cost incurred in administering them.
• The nineties saw the country move from a closed economy towards liberalisation, globalisation and privatisation.
• A new industrial policy was unveiled in 1991 with the objective of empowering market forces, improving efficiency and rectifying deficiencies in the country’s industrial structure.
• Estate duty was abolished in 1985 and wealth tax in 2016.
• The market-driven economy has resulted in additional resources for the government that has helped in bringing people out of abject poverty.
• Nonetheless, this economic system has also resulted in growing inequality.
• A report by the World Inequality Lab states that the top 10% of the country’s population have a share of 65% and 57% of the wealth and income respectively as of 2022-23.
• The bottom 50% on the other hand have a meagre share of 6.5% and 15% of the wealth and income respectively.
• The manifesto for the current Lok Sabha elections of the Congress promises that there will be a financial survey to ascertain the distribution of wealth among the people in the country and address the issue of inequality.
• The ruling party campaigners led by the PM have targeted the Opposition on this matter.
• The SC meanwhile has constituted a nine-judge Bench to interpret whether material resources under Article 39(b) include private resources as well.

Way Forward:

• Growing inequality is a worldwide problem of a liberalised open-market economic system.
• It is the responsibility of the government to protect the interest of the poorer classes who are most dependent on the state machinery for their livelihood.
• At the same time past policies of extremely high tax rates, estate duty, wealth tax etc., did not achieve their desired goals. Instead, they only led to the concealment of income and wealth.
• Innovation and growth should not be curtailed but the benefits of growth should reach all sections especially the marginalised.
• It's essential to design inclusive policies through informed debates, aligning with current economic models, to ensure that the benefits of growth reach marginalized sections, in line with the constitutional principle of economic justice for all.

Conclusion

The debate on wealth redistribution in India underscores the complex challenge of balancing economic growth with equitable resource allocation. While past policies have had mixed results, it remains essential for the government to protect vulnerable populations and promote inclusive growth. To achieve this, policymakers must foster innovation while ensuring the benefits reach marginalized communities. By designing policies aligned with current economic models and adhering to the constitutional principle of economic justice, India can work towards a future where growth and social equity coexist harmoniously.