‘Wealth accumulates in a narrow section’: Economist Ajit Ranade backs wealth tax

Economist Ajit Ranade reiterated his arguments for a wealth tax, saying the increasing concentration of wealth between generations creates barriers to economic mobility and, beyond a certain point, poses risks to growth and stability.

“Wealth accumulates over several generations and takes root in a narrow section of society,” he said in an interview with Outlook Business. According to him, this model does not produce sufficient mobility. “The accumulation of wealth does not lead to any social upheaval. Rags-to-riches stories are exceptions; such cases are very rare.”

Ranade said the broader effect is a concentration of economic power. “Overall, wealth continues to accumulate over generations, leading to a concentration of monetary power with barriers to entry into the circle of wealth.”

He warned that worsening inequality, if left unchecked, could begin to harm the economy itself. “This growing concentration of wealth, which translates into worsening wealth inequality, beyond a certain point, is harmful to the economy,” he said. “When inequality, whether in wealth or income, becomes too high, it leads to social instability, investor nervousness, capital flight and, ultimately, stagnant growth.”

At the same time, the economist said that inequality is not inherently negative. “Of course, some inequality is inevitable and might even be welcome,” he said, pointing to sectors such as IT and startups where incomes often grow faster than average. “This growing gap is what we call inequality.”

The problem, he says, is where society chooses to draw the line. “But there comes a point when these inequalities become excessive. There is no precise answer in economics textbooks: it’s too much, it’s a societal choice,” Ranade said, citing arguments by Thomas Piketty and others that inequalities become unhealthy from one country to another.

On policy responses, the noted economist said the first step should be to rationalize income tax. “One solution is to aim for fair and efficient taxation of income, ideally grouping all income, whether from agriculture or dividends, into a single framework.”

The wealth tax, he said, should be seen as an additional measure, while recognizing its challenges. “Another additional option is wealth taxation. This is difficult because people can find clever ways to hide their wealth in land, gold, benami properties or reserves abroad.”

To make the idea feasible, Ranade proposed narrowing its scope. “One solution is to focus only on financial wealth, which is already reported and well documented,” he said, listing stocks, mutual funds, bonds, bank deposits, private equity and sovereign gold bonds. “Using market values ​​or a six- or 12-month average, a modest tax could be designed.”

He responded to criticism that such a tax would be easily avoided. “There is strong opposition to this idea, some argue it is unworkable,” Ranade said, highlighting concerns that wealth could be funneled through tax-exempt trusts. “But my suggestion was precisely to make this workable by excluding real estate and other forms of wealth, and to focus only on financial assets to begin with, and to look at the taxation of trusts that hold immense wealth.”