GS Paper II & III

News Excerpt:

During the election campaign, the ruling government and opposition engaged in heated discussions about wealth redistribution, and the Supreme Court formed a nine-judge bench to interpret the Directive Principles of State Policy (DPSP) regarding resource ownership and control.

Constitutional structure and principles:

• The Preamble to the Constitution aims to secure social and economic justice, liberty, and equality for all citizens. Part III of the Constitution lists down the fundamental rights that guarantee liberty and equality, while Part IV contains the DPSP.
• DPSP are the 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 but is nevertheless fundamental to the country's governance.
• 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.

Historical context:

Right to property as a fundamental right -

• 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.
• Notably, at the time of independence, the main property rights were related to agriculture and other land. The government had to acquire the rights in such estates to carry out land reforms and construct 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.

Judicial interventions -

• The Supreme Court has interpreted the relationship between fundamental rights and the DPSP in various cases. 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.
• 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.

Repositioning of the Right to property -

• In 1978, 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. It made it a constitutional right under Article 300A.
• The right to private property continues to be an important constitutional cum legal right. Any law by the state to acquire private property should be only for a public purpose and provide adequate compensation.

Economic trajectory of India following independence -

• Indian governments in the first four decades after independence followed a “socialistic model” of economy. The Centre and States made many laws to acquire land from zamindars and big landlords for public purposes.
• 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.
• Regulations, such as the Monopolies and Restrictive Trade Practices Act 1969 (MRTP Act), also restricted the growth of private enterprises.
• The rationale behind these measures at that time was to reduce inequality and redistribute wealth among the poorer sections 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 much less revenue 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 July 1991 to empower market forces, improve efficiency and rectify deficiencies in the country’s industrial structure.
• The MRTP Act was repealed and replaced with the Competition Act 2002, and income tax rates were reduced considerably. Estate duty was abolished in 1985, and wealth tax was abolished in 2016.
• The market-driven economy has resulted in additional government resources that have helped bring 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 had 65% and 57% of the wealth and income, respectively, as of 2022-23. The bottom 50%, on the other hand, had a meagre share of 6.5% and 15% of the wealth and income, respectively.

Current debate:

• The principal opposition party's manifesto for the current Lok Sabha elections promises various measures for the poorer sections, including the payment of ₹1 lakh per annum to a woman from every poor family.
• The top leader of the principal Opposition party also mentioned in his campaign that a financial survey would be conducted to ascertain the distribution of wealth among the country's people and address inequality.
• The ruling party campaigners, led by the Prime Minister, have targeted the opposition on this matter. They claim that the opposition would bring back inheritance tax laws that would tax even the poorer sections if voted to power.
• The Supreme Court, meanwhile, has constituted a nine-judge Bench to interpret whether material resources under Article 39(b) include private resources as well.

Arguments in favour of wealth redistribution:

• It contributes to even out wealth and income in a society.
• When social unrest or the rise of populist governments poses a threat to sustained economic development, income redistribution can help close the wealth gap in countries with high levels of inequality.
• Instead of only affecting a small number of people, it has an effect on the economy as a whole.
• Through income redistribution, everyone can find a way to support themselves sufficiently to exist, even if they are unable or unwilling to work.

Arguments against wealth redistribution:

• Even if the impoverished have easier access to money, they nevertheless lack the motivation and abilities needed to compete effectively in the market.
• State and local taxes are usually regressive. Those with lower incomes ultimately contribute a bigger percentage of their income than do people with higher incomes.
• Poor people lose out on a significant portion of their redistribution of money or cash since they must pay greater taxes if they work. Consequently, this "penalises" them for working and increases their reliance on the donated income.
• Wealth redistribution can decrease market competition over time. As resources are shifted away from certain industries or individuals, this can potentially lead to a lack of innovation and economic growth.

Way forward:

• It is not just in India; growing inequality is a worldwide problem of a liberalised open-market economic system. However, 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. Policies may vary and need to be framed after adequate debate in line with current economic models. Nevertheless, the underlying principle to be achieved remains the same—economic justice for all as enshrined in our Constitution.