Well, now for the economy!


Abolish income tax, let people spend surplus money so generated, focus on the demand side and bring on a slew of robust measures to boost Health and Education infrastructure to put the economy back on rails, argues Umesh Asaikar.

For the government of the day, it was a Hobson’s choice – saving lives or saving the economy. Two and half months into the lockdown and amidst a continuing debate, the country seems to be opening up. “Unlock India” has begun in fits and starts across various states from 8 June 2020.

Places that attract clusters like cinema halls, malls and restaurants will remain closed in most states for some more time. Schools, colleges and coaching classes will continue with e-learning. Restaurants in many states have been allowed to deliver food to homes. Some states have opened places of worship, some not. Offices, private and public have been allowed to operate in many states. Inter-state movement has been allowed albeit with the calculated risk of COVID-19 transmissions.

It was jarring to see the educated class undoing the good intentions behind the lock-down by going out in hordes as if they had been assigned to bring herd immunity. On the other side, the approach of the states to unlocking was incongruous and incohesive. With people throwing social distancing to the winds and the slipshod manner in which public places were sanitised, it will not be altogether surprising if a second wave of infection is upon us in July. The death rate in the country in that case could jump from the current 200+ to 500 per day end July. The economy has taken a severe beating as was only expected. FII (Foreign Institutional Investors) money is shoring up the markets as they have money and India seems to be the best bait despite a weakening Rupee. I see a straight 10% drop in GDP (Gross Domestic Product) in the April-June 2020 quarter – quarter on quarter basis. The impact on the share markets in the coming month is anybody’s guess.

The measures taken on supply side of economy depend on the trickle-down effect and are not very cogent. In any case, these measures deal more with postponement of loan repayment and interest-cost related cash outflows of business entities. They will have no impact on increasing manufacturing capacity utilisation of businesses anywhichways since the demand side remains unaddressed. The benefits of these measures have not reached the 10 crore migrant population which is in a complete disarray since the last two months.

Fifty percent of India’s population is in the farm sector. Structural reforms announced recently as regards One India One Market will not benefit the farmer fraternity immediately. By all accounts, issues like fair price for farm produce, money lenders taking over their farms and homes; will remain unresolved this year too. The need of the hour is the Government quickly addresses the demand side of the economy. It needs to draw people out to spend by making them feel financially secure. This can be addressed in two ways –serving both short-term and long term impetuses to the economy.

True to the dictum well begun is half done; begin by abolishing personal income tax. Let people spend this surplus money so generated. It will generate additional revenue on account of GST. Let India move away completely from an individual income tax regime to expenditure tax regime. This will result in spurt in demand, increase in manufacturing capacity utilisation and businesses going in for capacity expansions not undertaken in the last three years. It will give boost to capital goods industry besides cement, steel and other metals. Secondly, the Government should seize this opportunity through deficit financing and take concrete steps in building up India’s health and education infrastructure. The Central Government can utilise its own land in every major district to set up an education complex of the standard of AIMS, IIT, paramedical, paraengineering colleges, hospitals etc. Let an allocation of up to ₹ Two lakh crore be made to build at least 300 such institutes in the next three years. This will raise our education and health standards besides generating employment at local level and bring down substantially the persisting problem of migrant work-force.

We cannot escape a fair share of blame for this situation. People have not given a sensible account of themselves and the entire approach to the crisis – from lock-down to unlock-down – shows ad hocism – haphazard coordination and planning. Our woes have also been compounded by Mother Nature which has started giving mankind a piece of its seething mind. It is not as if the cause is completely lost. Mitigation is still possible with a more cohesive and sensitive approach to lockdown-unlockdown management. However, even as efforts are directed towards this end, the focus on economy revival should not be lost.

Umesh Asaikar

Umesh Asaikar, a mechanical engineer from IIT, Bombay and an MMS from Jamnalal Bajaj Institute of Management Studies, Mumbai, is also an associate member of Cost Accountants of India. He has over 41 years of corporate experience, 30 of them in leadership positions. He retired recently and now focuses on social work, business consultancy and corporate coaching.