Authored by Harshita Sharma and Ali Shah, 2nd-year law students at Law Centre-II, Faculty of Law, University of Delhi
Introduction
India, having gained independence in 1947, has emerged as one of the fastest-growing economies in the world, surpassing countries like the United Kingdom and France. However, this economic growth accompanied a widening gap between the rich and the poor. The top 1% of the population holds over 40% of the country's wealth, reflecting a trend that starkly contrasts with the socialist ideals enshrined in the Constitution.
Through the examination of landmark cases, including D. S. Nakara v. Union of India (1983), Mafatlal Industries Ltd vs. Union of India (1996), Sanjeev Coke Manufacturing Company vs. Bharat Coking Coal (1983), and State of Karnataka vs. Shri Ranganatha Reddy (1977), this article explores the legal and socio-economic dimensions of wealth concentration. It revisits the judiciary expression of socialism and the government's role in reducing this inequality. The article insists that the idea of socialism, which the legislature built and engraved in our preamble, is petering out, and a need has come where we introspect our policy framing.
Burgeoning Billionaires & Tax Disparity
A report by the World Inequality Lab titled: ‘Income and Wealth Inequality In India, 1922-2023, The Rise Of Billionaire Raj’ underscores the disturbing wealth inequality in the country, with the top 10% of the population capturing 65% and 58% of the wealth and income, respectively, as of the end of 2023. Contrastingly, the bottom 50% controls a measly 6.5% and 15% of the wealth and income, respectively. This criticality exacerbates with the top 1% of the population holding 39.5% and the top 0.1% capturing 29% of the nation's wealth.
A report by Oxfam India, published in 2023, titled 'Survival of the Richest: The India Story', foregrounded the sordid underbelly of the poor's life in India. It revealed the bottom 50 percent of the population at the pan-India level pays six times more on indirect taxation as a percentage of income than the top 10 percent. Less than two-thirds of the total GST is collected from the bottom 50 percent, one-third from the middle 40 percent, while the top 10 percent contribute three to four percent only.
In the post-pandemic year 2019, the Central Government slashed the corporate tax slabs from 30 percent to 22 percent, with newly incorporated companies shelling out a lower tax percentage at 15. The revised tax policy gave rise to a loss of INR 1.84 lakh crore and played an indispensable role in the 10 percent downward revision of tax revenue estimates in 2019-20.
The report said India is home to the world’s largest population of people reeling in poverty at 228.9 million or about 23 crores, citing data from the World Inequality Report, 2022. Correspondingly, the number of billionaires burgeoned from 102 in 2020 to 166 billionaires in 2022. The deep pockets of India’s 100 richest people had a cumulative wealth of Rs 54.12 lakh crore in 2022 that could even fund the entire Union budget of India; the purse of the top 10 richest had a staggering INR 27.52 lakh crore in 2022 – up 32.8 percent from 2021. World Inequality Report 2022, which presents data points elucidating global wealth inequality, bemoaned, “India is among the most unequal countries in the world, with rising poverty and an affluent elite”.The pandemic was a blessing in disguise for Business tycoon and Indian mogul Gautam Adani, Chairman of the Adani Group, whose wealth increased eightfold and nearly doubled to INR 10.96 lakh crore by October 2022, notching him up at the top-ranked rich Indian, said the Oxfam report. Cyrus Poonawalla, Chairman and Managing Director of the Cyrus Poonawalla Group, saw a 91% rise in his wealth from 2021. Similarly, billionaires like Shiv Nadar, Radhakrishnan Damani, and Kumar Birla experienced over 20% increases in their wealth during this period. This increasing hoarding of wealth rings a bell of a forgettable memory of the Indian legislature and policymakers of the socialist fabric that clothes the constitutional edifice.
The Indian Constitution, through its socialist framework, envisioned a society where resources are distributed equitably. Article 39(b), introduced via the 25th Amendment in 1971, accentuates the State's responsibility to strive for an egalitarian society that must distribute resources to serve the common good. This constitutional mandate aims to prevent the concentration of wealth and ensure economic justice. The dictionary meaning of “socialism” explained by Merriam Webster is “any of various egalitarian economic and political theories or movements advocating collective or governmental ownership and administration of the means of production and distribution of goods.” A layman often construes it as taking money from the rich and giving it to the poor. But it is a balancing act where the rich and poor should have equitable chances to prosper, not one at the cost of the other. In recent years, however, policies favouring large corporate entities, such as those led by prominent business figures like Gautam Adani, have raised concerns about the erosion of these socialist principles. Handing over public sector units to private players, including airports, airlines, and ports, has allowed a few individuals to amass significant wealth and control over essential infrastructure. This shift towards crony capitalism diverges from the constitutional vision of equitable resource distribution.
Socialism: Not Just an Embellishment but An Inherent Character of Constitution
Not found originally and explicitly in the preamble of the constitution of independent India, the word 'socialist' found its way to the preamble through the 42nd Amendment Act of 1976. The word 'socialism' is a reminder to the Indian State to direct itself toward the rising downtrodden sinking in the abyss of lack of educational, economic, social, and political opportunities. Dr. BR Ambedkar, during the Constituent Assembly discussion, on adding the word 'Socialist' in the Preamble of the Constitution, emphasized that the purpose of the preamble is creating "a new society in India based on justice, liberty, and equality." Ambedkar, disagreeing with Mahavir Tyagi, Professor K. T. Shah, and Dr. Saxena believed that the decision of the social and economic framework of society must vest upon the people of India, not on the constitution. He stressed that not merely mentioning the word “socialist” does not harm the socialist principles encapsulated in Directive Principles and the Fundamental Rights given in Chapter III. Dr. Ambedkar, answering to the constituent assembly during the debate on Article 38, underlined that India has not only conferred itself parliamentary democracy but economic democracy as well. Dinesh Singh, Former Minister of External Affairs, Industrial Development and Internal Trade, in his scholarly article 'Author and Guide of Parliamentary Democracy in India' reflected on Pt. Jawaharlal Nehru’s idea of socialism. He described that Nehru envisaged a country where the millions of teeming Indians equally enjoy the nectar of freedom and development, where the distribution of wealth is in a manner in which the people had confidence in the system and a feeling that they equally have a stake in the country. However, Nehru rejected scientific socialism that advocated abolishing private ownership of the means of production and put his belief in the mixed economy, where public and private players work in tandem.
Former Supreme Court Judge Justice P. B. Sawant, in his book "Socialism under the Indian Constitution", conveyed that socialism in the present society has shaped itself in particular social and economic arrangements. In a socialist economy, the State is the owner of the resources, which uses them for the benefit of its people to secure basic human rights -- economic, political, social, and cultural. The State works for every member of society, not favouring a few. He called such society a guarantor of human dignity, stability, peace, and progress.
In the case of the State of Karnataka And Anr Etc. vs Shri Ranganatha Reddy & Anr. Etc. (1977), upon the interpretation of Article 39 (a), (b), Justice Chandrachud struck a "middle note," indicating that while the valuation inputs prescribed by the statute should not be irrelevant or unconnected with social good, it’s a significant leap to conclude that the 25th Amendment, leaves untouched the ratio in R.C. Cooper v. Union of India (Cooper) (1970). He emphasised the necessity of the nexus between Article 39(b) and (c) and the object of the acquisition, suggesting that the purpose of nationalization or acquisition should serve the common good, which aligns with the principles of equitable distribution of wealth.
Justice Krishna Iyer emphasised that this Article encompasses all material resources of the community, including private and public assets. He strongly advocated for an expansive interpretation of Article 39(b) to include the redistribution of private property and wealth, aligning with the socialist objectives of dismantling feudal and capitalist structures and promoting social justice.
In Sanjeev Coke Manufacturing Company vs Bharat Coking Coal Ltd. (1982), the court examined the nationalization of coke oven plants and its implications under Articles 14, 31C, and 39(b) of the Indian Constitution. Justice Chinnappa Reddy emphasizes that the nationalization of coke oven plants aims at ensuring "the ownership and control of the material resources of the community are so distributed as to best subserve the common good" per Article 39(b) of the Constitution. He sees the nationalization as a means to reorganize and reconstruct the coal mining industry to protect, conserve, and scientifically develop coking coal resources crucial for the iron and steel industry. Justice Bhagwati concurs with Justice Reddy and upon careful consideration, concludes the nationalization does not infringe upon Article 14, and even if there were a violation of Article 14, Article 31C would protect the legislation, given its purpose aligns with state policy towards equitable distribution of resources. The bench reiterated that the objective of the legislation is to ensure the scientific development and equitable distribution of critical resources, thereby serving the broader public interest.
In D. S. Nakara vs Union of India (1983), the Constitution Bench, casting light upon the word “socialist” added in the preamble through the Constitution (42nd Amendment) Act 1976, canvassed that the basic framework of socialism is to provide a decent standard of life to the people and a sense of security. The disadvantaged must get a decent minimum standard of life, and any form of exploitation against them must be eschewed. The idea of a socialist society lies in the equitable distribution of national cake and empowering those at the last rung of the social ladder. The bench stressed upon the socialist State that the preamble intended the centres of power --Legislative, Executive, and Judiciary- to strive to establish. It said the State must take every action to take society from a wholly feudal exploited slave society to a vibrant, throbbing socialist welfare society.
The court echoed a similar view in the judgment of Minerva Mills Ltd. & Ors. vs Union of India & Ors. (1980), where speaking for the majority, Chandrachud, C.J. observed as under:
"This is not mere semantics. The edifice of our Constitution is built upon the concepts crystallized in the Preamble. We resolved to constitute ourselves into a Socialist State which carried with it the obligation to secure to our people justice-social, economic and political. We, therefore, put Part IV into our Constitution containing directive principles of State policy which specify the socialistic goal to be achieved."
In Akadasi Padhan vs State of Orissa, [1963], Justice Gajendragadkar, considering the issue of the creation of State monopoly introduced in Article 19(6) after the First Amendment 1951, dissected the doctrinaire approach to the problem of socialism from that of the pragmatic one. He said that for the socialist, nationalization or State ownership is a matter of principle, which is doctrinaire; to the rationalist, it is a matter of expediency factoring in economic efficiency and increased production output, a pragmatic approach.
The court said the contentious Amendment follows a doctrinaire approach and indicates that State monopoly in respect of any trade or business must be presumed to be reasonable and in the interests of the general public. The Amendment made in Art.19 (6) shows that the State can enter as a monopolist either for administrative reasons or with the object of taking the edge off of evils springing from competition or to regulate prices, or improving the quality of goods, or even to solicit profits to enrich the State exchequer. The apex court, however, did not outrightly reject private ownership but called for a balance in the fulcrum where the interests of private enterprises are equally protected.
In the case of Excel Wear Etc. vs Union of India (1978), notably, the bench said the courts irresistibly construe the term “socialist” in favour of nationalization and State ownership of industry.
“But so long as the private ownership of an industry is recognized governs an overwhelmingly large proportion of our economic structure, it is not possible to say that principles of socialism and social justice can be pushed to such an extreme to ignore completely or to a very large extent the interests of another section of the public namely the private owners of the undertakings.”
Forget Not the India’s Poor: A Way Forward
Under a mixed economy, where both State and private enterprises work together and embody the character of free-market and socialist elements, the policies must be designed bearing the Gandhian Talisman in mind. The matter of Income inequality must be tackled by putting the capitalists who lobby with the government at the dock, not the poor or disadvantaged who ask for basic amenities for sustenance.
Renowned economist and Professor Jayati Ghosh, as quoted in the Oxfam report, emphasizes that the concentration of wealth among a few limits the resources available for public investment and spending, which is crucial for broad-based economic development and social welfare. The growing wealth inequality has come at a considerable cost to public welfare. The rapid increase in the number of billionaires and their growing wealth in India highlights a significant trend of wealth concentration. The insights Ghosh underscores the need for policies that envision a more equitable wealth distribution to foster inclusive economic growth and social stability.
The government must implement progressive taxation policies, ensuring the wealthy contribute a fair share of public resources. It should not hesitate to study the economic model of the world’s exemplary States and implement similar policies in India after adjusting them to the Indian socio-economic conditions. Investing in social welfare programs, healthcare, and education is essential to uplift marginalized communities and bridge the gap between the rich and the poor. Policies that encourage fair wages, support small and medium enterprises and provide social security to foster a more inclusive economy, as envisaged in the Directive Principles.
Bolstering the regulatory frameworks to prevent monopolistic practices and ensure fair competition paves the way for a better future. Additionally, by fostering an environment where businesses can thrive without unfair advantages, the government can create a more level playing field. Squarely, the judiciary must strive to uphold the principles of justice and equality. Judicial consciousness can help curb the illegal accumulation of wealth and ensure that public assets are protected and utilized for the common good. Moreover, the judiciary can advocate for legal reforms that promote transparency and accountability in both the public and private sectors. By ensuring that laws are fair and just, the judiciary can impact the lives of many, providing them a chance to get out of poverty.