Charity won't solve inequality

India celebrates 26 November as Constitution Day. On this day in 1949, the Constituent Assembly adopted the final draft of the constitution, which was formally adopted two months later, on 26 January 1950.  The Assembly was formed in 1946 with 389 elected members (later reduced to 299 in 1947), and deliberated for almost three years, fiercely debating every detail that would be enshrined in the constitution. Those debates are amazingly comprehensive, covering most, if not all controversies of modern India, even to this day. The fact is that the debates ended, and a consensus was reached. Many leaders believed that the Constitution was well crafted, but would nevertheless need to be modified.

In the last seventy years, it has been amended more than 100 times. To some it may point to the imperfectness, and to others it points to it being a live document, amenable to change. One of the most remarkable features of India’s constitution is its granting of voting right to every adult from the very beginning of the republic. In this respect, India is a unique, modern, large democracy. On this aspect, the chief of the drafting committee, and later India’s first Law Minister gave a historic speech on 25 November 1949. The relevant para from Dr. Ambedkar’s last speech to the Constituent Assembly, is worth reproducing in full. He said:

On the 26th of January 1950, we are going to enter into a life of contradictions. In politics we will have equality and in social and economic life we will have              inequality. In politics we will be recognising the principle of one man one vote and one vote one value. In our social and economic life, we shall, by reason of our social and economic structure, continue to deny the principle of one man one value. How long shall we continue to live this life of contradictions? How long shall we continue to deny equality in our social and economic life? If we continue to deny it for long, we will do so only by putting our political democracy in peril. We must remove this contradiction at the earliest possible moment or else those who suffer from inequality will blow up the structure of political democracy which this Assembly has laboriously built up.

This prophetic speech was uttered 20 years before the onset of the Naxal movement. In the present context of worsening inequality, its prescience is hard hitting. Of course, Dr. Ambedkar was no Marxist, and he was not fomenting a class conflict. He was merely cautioning that political equality cannot coexist with worsening social and economic inequality. It is for every nation and society to decide how much inequality they can tolerate. Inequality can eventually hurt economic growth, social stability and lead to the breakdown of political systems.

The subject of inequality is now in focus again, thanks to two major philanthropy announcements. Nandan Nilekani, Chairman of Infosys, and his wife Rohini Nilekani, announced that they were joining The Giving Pledge, an elite network of the world’s wealthiest, committed to giving away half their wealth to philanthropy. The network was founded by Bill and Melinda Gates and Warren Buffet in 2010. This same week, billionaire Sunil Mittal, announced that his family would give away Rs.7000 crore in philanthropy. Many other Indians, including Azim Premji, Kiran Muzumdar Shaw and PNC Menon are already a part of The Giving Pledge. Of course, the list of wealthy Indian industrialists known for their great charity is long, beginning historically with the Tatas and the Birlas, and includes many more. This is not the place to recount all of them. But a public announcement of giving away half their wealth is certainly a new benchmark, and testimony to the persuasive power of Gates and Buffet.

In 1894, an itinerant monk was the guest at the estate of John D. Rockefeller, then possibly the richest man on earth. Their chance encounter and conversation, perhaps influenced Rockefeller deeply, who went on to set up great charitable activity through the Rockefeller Foundation. That same monk also had a momentous meeting aboard a ship, with Jamsetji Tata, with the latter then sufficiently impressed and motivated toward philanthropy in later life. That monk was Swami Vivekananda. These incidents underscore the moral force behind philanthropy.

In an interview, Rohini Nilekani says that society has become very unequal and modern democracies were not supposed to become so. Even though the ethos is to do philanthropy quietly and secretly, the giving by the super-rich has a signalling value. Philanthropy, she says, is not merely about giving, but starting conversations about deep seated societal issues such as inequality. As she put it, “The super-rich also have to be super-generous!” Many philanthropists are beginning to say that the rich should be taxed more.

That’s where we need to bring in public policy. Inequality cannot be remedied merely by depending on the goodwill and moral compulsions of the very rich. We have to acknowledge that India has one of the lowest direct tax-to-GDP ratios. We do not have inheritance tax. We have exemptions, which enable large capital gains to go tax free. And in the meantime, the widening of the tax net through Goods and Services Tax increases the incidence of indirect tax. High indirect tax hurts the poor more than the rich and worsens inequality. Having a compulsory Corporate Social Responsibility (CSR) obligation from post-tax profits is an imperfect attack on inequality. We need a more progressive direct tax system, with very few exemptions and lower tax slabs. The formation of a new tax force is a welcome step, and hopefully it will address the issue of progressivity, simplicity and compliance. We also need to substantially raise the quality and quantity of provision of public goods, in primary health and education, in public transportation and access to quick justice. Thus encouraging philanthropy is useful, but ultimately, addressing Dr. Ambedkar’s prophetic warning will need huge public policy action.