A tectonic shift is taking place in the country, concerning rich individuals’ aspirations and their view of the wealth they own. Unlike in the past when a certain amount of guilt was associated with having large sums of money and “conspicuous consumption”, now the ethic is to flaunt your wealth, especially in the face of the poverty that continues to surround all of us.

The number of the ultra-rich is growing by leaps and bounds. A report, “Top of the Pyramid”, brought out by two companies which cater to such clients, states that despite the economic slowdown the number of Indian ultra-high net worth families (or those with investible resources exceeding $30 million (Rs 150 crore) “is estimated to have grown by 30 per cent, to around 81,000, in 2011-12, and is expected to triple to around 286,000 over the next five years. Consequently, the net worth of such families is estimated to surge five-fold from an estimated Rs 65 lakh crore in 2011-12, to Rs 318 lakh crore by 2016-17.” By way of comparison, the total budgeted expenditure of the government in 2012-2013 is just under Rs 15 lakh crore.
This is not all. The Forbes’ list of dollar billionaires in India has increased from just three in 1996, with total wealth of Rs 21,200 crore, to 48 in 2011-12, with total wealth of Rs 9.1 lakh crore. Whether the number of poor people free from hunger has gone down or not, the fat cats have certainly grown fatter. There is a fast growing (at over 20 per cent a year) “luxury” market of shoes, bags, clothing, artifacts and electronics — Louis Vuitton, Jimmy Choo, Gucci, Prada, Versace, etc — which is currently worth over $5 billion. The luxury market includes the demand for expensive cars such as Mercedes, RollsRoyce, Jaguar, BMW, Ferrari, Lamborghini, which are finding a growing market in India. This does not include the money spent on property, art or exotic holidays abroad.
It also does not include gold whose imports last year were over $60 billion (as per the Budget papers), more than even capital goods imported to build industrial and infrastructural capacity, and next only to petroleum imports in value. Gold was allowed to be imported at a ridiculously low import duty of just two per cent, when much-needed machinery has a minimum duty of 10 per cent.
One justification for the economic policies that go under the name of reform is that the poor gain by a trickle-down effect, that several people have to make a fortune in the process of economic growth before the effects of growth reach the people at the bottom of the pyramid. But the effects do not always trickle down.
The Asian Development Outlook 2012, brought out by the Asian Development Bank (ADB), maintains, “Technological progress, globalisation and market-oriented reform — the primary drivers of the region’s growth — are the key forces behind the rise in inequality… Together, these drivers explain not only the increase in overall inequality, but also the sharply rising incomes of the very rich in some countries.” It goes on to say that “from the early 1990s to the late 2000s, the Gini coefficient — a common measure of inequality; the higher the number, greater the inequality — worsened from 32 to 43 in China, from 33 to 37 in India, and from 29 to 39 in Indonesia… If inequality had remained stable in the Asian economies where it increased, the same growth in 1990-2010 would have taken about 240 million more people out of poverty.” In India, the poverty headcount would have been reduced to 29.5 per cent in 2008, instead of the current 32.7 per cent of the population, had inequalities remained at 1990 levels.
In the licence-permit raj of the pre-1991 era, businessmen made money by paying slush money to get a licence either to set up an industry or to import. This was a big blockade to growth since it generated inefficiencies in the production cycle and kept costs high.
In the present phase the scale of the loot is much larger. Valuable national assets such as airways, agricultural or urban land, mineral resources for coal, iron ore and bauxite, and forests and rivers, are up for grabs. Businessmen and politicians think they can get away with grabbing the commons, and they often do.
There is another factor — the rich pay much less tax than the middle classes. Today the highest tax bracket is for yearly income of over Rs 8 lakh. This puts much of the middle class in the highest tax bracket but the rich pay far less tax because of the way the incentives are structured. For instance, dividends are tax free. This may give the middle class some relief, but think of the super-rich who may earn several crores or hundreds of crores from dividend declared by the companies they control, that too tax free. Companies’ treasury departments are also expert in reducing tax paid in every legal way.
The government also gives attractive tax breaks to companies. A document released along with the Budget papers in March, “Revenue Forgone Under the Central Tax System: Financial Years 2010-11 and 2011-12”, makes some interesting revelations. The benefit to companies from deductions in customs duties is an amazing Rs 2.7 lakh crore, which is nearly twice the actual customs duty collected of Rs 1.53 lakh crore. Similarly, the excise duty forgone is Rs 2.12 lakh crore, some 50 per cent more than the Rs 1.46 lakh crore collected. In direct taxes paid by companies and individuals, the revenue forgone is Rs 93,600 crore, while corporate tax payable was Rs 2.28 lakh crore. The total revenue forgone is Rs 5.8 lakh crore by these deductions, more than the fiscal deficit of Rs 5.13 lakh crore.
Does the government need to continue giving these tax breaks to those already rich when it is short of funds and has a huge fiscal deficit?
Accumulation of wealth comes naturally to man. But flaunting it can sometimes take extreme forms. The richest man in the country has built a 550-feet high tower with 400,000 sq. ft. of living space for his family at a cost of Rs 8,000 crore, employing hundreds of servants, consuming electricity worth over Rs 70 lakh every month, all paid for by the company he controls.

The writer is a Mumbai-based freelance journalist