“Ask Mr. Piketty…”: Raghuram Rajan describes French economist’s plan to tax India’s rich as “pie in the sky”

The debate over wealth tax in India has taken center stage with former Reserve Bank of India Governor Raghuram Rajan rejecting French economist Thomas Piketty’s call to tax the wealthy.

At a recent event in Delhi, Piketty, author of Capital in the Twenty-First Century, argued that India must address widening inequality by imposing targeted taxes on wealth and inheritance. Piketty proposed an annual wealth tax of 2% on individuals with assets exceeding 100 million rupees ($1.18 million) and a 33% inheritance tax on estates of similar value.

He claimed that such measures could boost India’s revenues by nearly 2.73% of its GDP annually, and urged India to honor its G20 pledge to cooperate in taxing global wealth.

But Rajan rejected Piketty’s recommendations as “pie in the sky in economic terms.” In an interview with The Print newspaper, he questioned the utility of wealth taxes, saying: “Ask Mr Piketty where is there an example of a wealth tax that actually raised enough money to do anything meaningful?”

Rather than punishing success, Rajan emphasized the need to improve resource allocation because “the rich always have a way around this problem.”

Rajan cited India’s $25 billion support for chip foundries as an example. “Chip foundries will not give us national security. We are still dependent on foreign suppliers of machines, chips and rare earth minerals. Why not direct resources to areas where India has a competitive advantage, such as chip design?”

Rajan has called for promoting innovation in entrepreneurship instead of imposing wealth taxes. He highlighted India’s potential, pointing to its 300,000 chip designers, and called for the creation of Nvidia-like companies that focus on intellectual property rather than manufacturing.

For Rajan, capacity building is key. Echoing the words of economist Amartya Sen, he emphasized investment in education and research to stimulate innovation.

“High-quality universities play a crucial role in generating intellectual property. Once we invest in capabilities, everything opens up.”