GS Analyst: Daily Current Affairs

Context:

A recent study led by scientists at the Indian Institute of Tropical Meteorology warns of significant warming of the Indian Ocean and its dire consequences, including marine heatwaves, cyclones, coral bleaching, and impacts on the fisheries sector.

Impact of Warming Indian Ocean:

• Oceanic Changes and Implications: The study highlights the alarming increase in temperature of the Indian Ocean, projecting a rise of 1.7°C to 3.8°C by 2100. This warming trend is expected to lead to a tenfold increase in marine heatwaves, potentially pushing the tropical Indian Ocean into a "near-permanent heatwave state" with adverse effects on marine ecosystems and cyclone formation.
• Consequences for Mainland India: The warming of the Indian Ocean has far-reaching implications for mainland India, including a rise in the frequency of severe cyclones and erratic monsoon patterns. These phenomena, linked to global warming and anthropogenic activities like fossil fuel burning, pose significant challenges for infrastructure development and disaster management in coastal regions.
• Need for Collaborative Action: Given the slow response of oceans to changes in greenhouse gas emissions, current global commitments may not suffice to mitigate the impacts of ocean warming. Therefore, the study emphasizes the importance of collaborative efforts among Indian Ocean bordering countries to invest in data gathering, research, and infrastructure development to adapt to and mitigate the impacts of climate change on coastal communities.

Context:

French economist Thomas Piketty and other economists have released findings on economic inequality trends in India, highlighting alarming levels of wealth and income disparity, and advocating for a wealth tax on the rich.

Analysis of Economic Inequality Trends:

• Trends in Income and Wealth Inequality:There are stark disparities in income and wealth distribution in India, with the top 1% owning a significant portion of total wealth and earning a disproportionate share of national income. However, the bottom 50% also face considerable challenges, owning minimal wealth and earning a small fraction of total income.
• Impact of Economic Growth and Market Liberalization: While economic growth has accelerated since the 1990s, benefiting the overall economy, the benefits have not been evenly distributed, exacerbating inequality.
• Arguments Against Wealth Redistribution:Measures such as wealth redistribution through measures like a wealth tax may have unintended consequences, affecting economic growth and exacerbating the plight of lower-income groups.

Debunking Myths and Proposing Solutions:

• Misconceptions: Economists challenges the notion that free market dynamics alone can address income and wealth disparities, highlighting systemic barriers that limit economic mobility for lower-income groups.
• Critique of Wealth Tax Proposals: The government should focus on reforms focused on dismantling special privileges enjoyed by the wealthy and promoting competition in the economy.
• Empowerment: Empowering the poor with access to capital and opportunities for skill development is essential for fostering inclusive economic growth.

Context

The concept of inheritance tax has re-entered public discourse in India recently. This has sparked significant debate and discussion regarding its potential implications for the country's economic and social landscape 

Why a US model does not work for India:

• Global Variations in Inheritance Tax: Inheritance tax, prevalent in countries like South Africa, Brazil, and the US, is absent in emerging economies like India and China. The disparities in wealth distribution and the structure of economies across these nations make the application of a uniform inheritance tax model challenging.
• Challenges in Implementation: Wealthy individuals can easily circumvent inheritance tax through asset utilisation and wealth transfer strategies, making effective implementation problematic.
• Impact on Middle-Class Aspirations: Implementing inheritance tax could hinder wealth accumulation and investment, discouraging entrepreneurship and capital formation.

Threat to Middle-Class Aspirations:

• Disincentives for Wealth Accumulation: Such tax creates disincentives for wealth accumulation and investment, potentially hindering economic growth and entrepreneurship.
• Challenges of Inheritance Tax: Implementation of inheritance tax may lead to forced asset liquidation, resistance from taxpayers, and potential capital flight, undermining efforts to promote economic growth and social stability.
• Impact on Wealth Redistribution: Despite its aim to redistribute wealth, inheritance tax may not effectively reduce wealth inequality due to tax avoidance strategies employed by the wealthy, leaving the middle class more vulnerable to taxation.