Amid a furore over leaked ‘Panama Papers’ showing Indians with alleged offshore tax haven holdings, RBI Governor Raghuram Rajan today warned against a “dangerous” trend of questions being raised about legitimacy of even the ‘entrepreneurial wealth of self-made people’.
Stating that the debate on illegitimacy of wealth has varied from crony capitalism and the illegal acts of bankers to that about passive and inherited wealth, Rajan said, “Now increasingly there is a talk about whether entrepreneurial wealth is illegitimate, whether self-made people should have what they have and whether that’s something a fair game.
“I think this is dangerous. And the fact that there are occasions when people are found to be hiding their wealth as in the Panama allegations, essentially contributes to this process of de-legitimisation,” he added.
The so-called ‘Panama Papers’, presumably leaked documents of a Panamanian law firm detailing offshore tax-haven entities set up by people from across the world including Indians, have triggered a worldwide debate and probes have been announced in several countries, including in India.
RBI itself is part of the multi-agency group announced by the Indian government to monitor such holdings and take appropriate action.
Speaking here at an industry event, Rajan said there is need for providing ample opportunities to people to sustain legitimacy of wealth.
“Improving the opportunities across the board is extremely important to sustain the legitimacy of wealth. If a whole horde of people, whole sections of society don’t feel they have the opportunities, then the focus is going to be on those who have it and who have made it and say that is illegitimate,” Rajan said.
“I think that is something very important and it is something that we have seen elements of in our own society but certainly it is full fledged in industrial countries. It is certainly we need to worry about at the global level,” he added.
The RBI chief said one of the most important sources of concern, “which you have seen with some of these Panama reports and so on, it’s in-built into this notion of illegitimacy of wealth”.
“Let us not minimise the forces that are travelling around the world… Earlier, the crisis built up the idea that the bankers were illegitimate, that crony capitalism was illegitimate… all of which makes sense. But that’s moved on to passive wealth holding are illegitimate.
“That if you’re a coupon clipper who is clipping what your parents gave you as inheritance, perhaps you shouldn’t have so much and it should be re-distributed,” he added.
Speaking further, Rajan said the “answer has to be increase the opportunity across the board… The focus on job creation is extremely important.
“When you think about finance it has to be with a purpose. It has to be as handmaiden to entrepreneurship. Finance can’t create entrepreneurship but financial can help the entrepreneur finance enterprise, can help the house holders manage risks and so on.
“So with that in the mind helping the enterprise, helping the house holder and also the government raise money, we have to figure out the appropriate markets, the appropriate institutions,” he added.
He was speaking at an interactive session with Singapore deputy Prime Minister Tharman Shanmugaratnam at a CII organised event.