Covid-19: The economy, where to?

Will it be business as usual once Covid-19 disappears and the man has been cured of this demon? The world is still trying to find out as how and who the culprit is in spreading this virus. The world that emerges from this pain may not see business as usual.

New Delhi: What kind of world will emerge post Covid-19? Never in the history of mankind has our planet suffered such pain. No country has been spared and over four billion people are under lockdown.

Will it be business as usual once Covid-19 disappears and the man has been cured of this demon? The world is still trying to find out as how and who the culprit is in spreading this virus. The world that emerges from this pain may not see business as usual.

World Trade Organisation (WTO), already weakened by the continuous attacks by the Trump Presidency, may finally become almost redundant. Nations would then evolve their own strategic trade policies and partnerships around the world.

At present India has 15 countries as its major trading partners- leading the pack are the United States and China. Agreeing on country-to-country trade pacts not only requires economic considerations but is influenced equally by the foreign policy strategies.

India is lucky at this crucial moment that it has a prime minister, well supported by his Foreign Minister Jaishankar, a career diplomat, who has excellent relationship with heads of both USA and China. The Prime Minister has also made sure that he visited each of these 15 countries (India's major trading partners) to develop excellent rapport with their leadership.

And their leaders have been invited and well received in India. The end of World War 2 saw the influence of Great Britain diminish completely in the world affairs. Prior to the war, it was an empire over which the sun never set. Could we expect some similar major change in post Covid-19 world?

The influence of the US in the world has slumped while China continues to rise. Could we see China emerge as the major power post Covid-19 despite it being under attack for its management of the Coronavirus? One can only believe that China could well be a major global player in the World after Covid-19.

Indian economy had been on the downward slide even before the outbreak of Coronavirus. As a matter of fact this downturn began soon after demonetisation. That one act totally wiped out the cash economy of the country, a dominating sector of India's overall economy. The country has yet to recover from that shock.

With hardly any follow up measures, the economy took further beating because of the continuation of the policies followed by earlier UPA government and continuing with NDA. India is a resilient country. Our people are innovative, hard working, they have huge patience and meet a challenge everytime they are faced with.

How well we met the terrible food shortage of the 1960s and defeated what could have been a major famine in Bihar in 1966. Our granaries are bulging today. We feed 130 crore people today, whereas the population in 1966 was just 50 crore. Isn't this something amazing that we should be proud of?

A similar challenge now faces India's economy if it is not to crash post Covid-19. There is no reason as to why such a catastrophe should happen! The fundamentals of India business and industry are very sound. The government now needs to come up with a bold package to undo the Covid-19 damage to the economy and get it going at a fast pace.

It is good to see something has been done at least for the poor and the farmers. To get the economy going at a quick speed after the Covid-19 the government must consider bold fiscal reforms among other things. The government needs to come up with a package that kickstarts and increases the demand side to be met by the supply side.

To do so there must be money in the hands of the people to spend. There is no way that government can put cash from its coffers in the hands of the people to spend! This is the way some developed countries are going. The package to get the economy going should start by exempting incomes upto Rs 6.00 lakhs from Income Tax from the current Rs 2.5 lakhs. Income Tax should be cut down to 15% all inclusive- no cess or other charges on this 15%.

The fact is that the current 30% rate of income tax in fact goes above 40% when you include all the cess and other charges the government makes over the income tax. There is going to be hardly any loss of revenue but it may help increase revenues.

If these changes are made to put money in the hands of the tax payers, any loss would be more than made up in collections from indirect tax on the purchases by the people, as well as direct and indirect tax from the suppliers and manufacturers.

A bounced economy would generate revenues. Be bold! The government should also consider exempting from income tax and GST all the small units involved in handicrafts making. The government makes enough money when these handicrafts get sold in the retail market.

These units really belong to the self-employed and offer great employment in the villages and small towns. Apart from increasing the demand for goods in the country the government should consider in the package a lower rate of interest on lending from the banks to the industries.

It should be restricted to around 9%, if not less. After all the banks pay the depositor only around six percent and that too has been reduced by a recent directive of the Reserve Bank. It is time that the infrastructure projects, building the highways, roads to the villages, new airports etc got going at a much faster speed to ensure employment.

The simple truth is that that the government would need to come up with a package that is not prepared by the "socialist" thinking Finance Ministry bureaucrats. Their approach is restrictive. If India succeeds in kick-starting its economy post Covid-19, it could well meet the challenge of slow down. The country would need to further get closer to its major trading partners.

The country should not hesitate in encouraging Chinese investments in the country. Similarly US companies should be encouraged to Make in India.

The total approach post Covid-19 should be business-like and not dictated by Fabian socialist approach. Post Covid-19 is going to see a world dominated by nationalism. And it is in that world that our economic policies should be such that India finds its rightful place in the global economy.

Our business men and industrialists should then be able to compete well. There is no reason why India too can not become a factory to the world, the way China is today.

The aim of the government should not only be to stave off the impending economic crash, but come up with a bold pacakge that takes the Indian economy into global field. The memories of pain, unemployent, hardship faced during the lockdowns and suffering would all be forgotten if Indian economy gets going at a fast pace.

It is not difficult. Excellent relations that we have with our fifteen major trading partners can be expanded with many more. India can do it.

(The author of this Opinion piece is the Chairman of ANI, Mr Prem Prakash.)