Rescuing an economy in throes of COVID-19

Various countries have quickly announced measures to help with the economic havoc that the virus has caused. India has also done quite a bit. What I don’t like is that the burden is still on the citizen and organisations. For example, the government wants all organisations to pay salaries during this lockdown. But, does it give a tax break to the organisations? No. So, the government is not putting its money where its mouth is.

In fact, we are now paying more. The excise duty on diesel and petrol went up by Rs 3/litre. This means, Rs 3/litre equivalent of price decrease was not passed on to us. Further, the repo rate was reduced by RBI. Instead of bringing down the lending rates for borrowers (whether it is time to reset the interest rate or not), banks have reduced their FD rates. So, banks are not passing on the benefits in the lower repo rates but also reducing earnings of citizens.

Organisations will choose to survive and thrive. Banks have already made their choice by not passing on the interest rates benefits and, on the contrary, reduced FD rates. Jamie Dimon, CEO of JP Morgan Chase, has said that there will be like a 2008 kind of recession in the US.

This means our IT/ITES industry will go into a turmoil to some extent at least, initially. There will be some retrenchment, salary cuts, no salary increases, significant reduction in bonuses and some of the smaller firms may even shut down.

India will get hit hard initially but as the world wakes up to the fact that it is better to diversify its supply chain, manufacturing will start moving away from China to other countries.

China is not just a lower cost manufacturing base anymore. Its manufacturing is also at a scale that no other country can match and it has invested so heavily in technology that most countries will struggle to compete with them in the near future.

So, whilst manufacturing will move away from China, India may not get a large part of it if it does not invest in scale, ease of doing business and technology.

a) Go in to a 1991 mode: Bring in drastic changes to Labour Laws, Land Reforms and its uses, make India amongst the top 10 countries to start and do business in;

b) Cut individual and corporate taxes down to 15% and push very heavily on compliance with significant penalties for evaders;

c) Rationalise GST to just 3 or 4 rates;

d) Allow corporate agriculture and significant land holdings by individuals and corporates;

e) Incentivise investment into technology – in all industries so that organisations can compete effectively 

It is indeed time to move to a 1991 war-like response to the economic issue today rather than tinkering with giving time to file tax and corporate returns.