The vaccine is not in place. The economy cannot take the strain of zero activity. In this situation only 5-10 per cent of the population has the means to survive another six months to one year before the vaccine becomes available. Thankfully, the lockdown has enabled the government to do some degree of preparation at the ground level.
The question comes to mind, What would the author of Arthashtra, the strategist Acharya Chanakya, do in this situation? Before we come to the answers let us start by defining the challenges.
Our Company did an individual level polling and a LinkedIn polling. This was taken by a cross-section of industry stakeholders, — a mix of seasoned entrepreneurs and experienced professionals.
The one done for entrepreneurs and independent professionals showed this result:
1. Covid mgmt and employment generation: 36%
2. Demand Creation: 44 %
3. Liquidity crisis: 12%
4. Demand creation leading to employment: 8 %
The one done for professionals on LinkedIn showed this result
1. Covid Mgmt: 18%
2. Unemployment: 25%
3. Liquidity crisis: 21%
4. Demand Creation: 36%
What are the solutions which the master strategist offers in the Arthashastra, a treatise on economic and political relationships.
1. Demand Creation leading to employment
“In the happiness of his subjects lies his own happiness.” (pg 70, The Arthashastra)
If we look at the flywheel, growth happens when the economic pain begins to come down and confidence to spend freely begins in right earnest. Employment creates purchasing power, and it seems to be a chicken and egg situation. The usual tool for spending by the government does not seem to work as for usual obligations like GST also the government would need to expand the pie.
If we look at the economy dispassionately Agriculture is a segment which seems to be working at the Old Normal. What would Acharya suggest?
As per the Arthashastra, in those days even agriculture was taxed, if not in cash then in kind. The government can look at the option of having a tax on agriculture — the holiest cow in the room. This can be designed on the lines of the personal income tax system. A key pointer to look at would be the cost of collection.
For a certain set of farmers who do not pay by cash, a certain percentage of essential grains can be deposited to the Food Corporation of India and be used for times like this. This way the government spending would not be impacted and the multiplier effect by way of building the country’s infrastructure would not be impacted as grains would be available and government spending would not need to be diverted. For this payment of tax, the government can offer enhancements through an upgraded medical infrastructure and the option of withdrawing a certain portion in crisis times for the farmer’s family when famine/flood hits the nation.
This would reduce our dependence on borrowing from the markets or a pressure to sell economic assets (family silver) at a discount at a policy level.
2. Build Medical Infrastructure
Small countries in Latin America like Cuba have invested in building the medical systems to face any extreme situation. Building this capability is crucial for the future to ensure that the human asset is preserved. Right now the doctor-patient ratio for the population is ridiculously high at 1,456 per doctor as compared to 1,000 patients per doctor overseas as per the World Health Organization.
3. Being Judicious in Levying Taxes
As per the Arthashastra, the tax collection process needs to be like BEE collecting nectar from the flower. Solutions in the past have hinted at a transaction tax to build on the digital momentum. The wealth of the state should be large enough to enable the country to withstand a calamity, even of long duration during which there is no income. (6.1.10: Kautilya Arthashastra)
It is critical to have two levels of taxes in GST — one at 5 per cent and one at 10 per cent. A high rate of taxation deters in terms of reinvesting as margins fall on account of increasing compliances. An economy where a business executive/businessperson is spending a disproportionate amount of time on compliances is not a creative economy. To the government’s credit, some procedural easing is happening gradually, however it is still a long way to go. A reasonable tax structure also ensures greater compliance as reasonable business people do not like unnecessary hassles for a limited tax gain.
A stable long term tax regime and policy environment helps businesses to invest and innovate and truly look at real possibilities of growth for the large market India is. This also has the potential for us to emerge as a strong innovative player in world trade where one reason we are not able to dent those markets is our goods are not of sufficient International quality. We are 15 per cent of the world’s population and have a world trade of less than a third of it does not do justice to us as a country.
4. Focus on Employment Creation Sectors
“The root of wealth is economic activity and lack of it brings material distress. In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. (1, 19, 35, 36: Kautilya Arthashashtra)
As a nation we have been blessed with adequate sunlight, good brain power, infrastructure which is getting connected across the country, a digital infrastructure which is already in place for most government services, and a rich legacy of culture. If we get our act together as a country there is enough space for a one million jobs per annum in the inbound and internal tourism sector.
India is poised to and has the potential to be the AI Capital of the world. The World Economic Forum has AI on top of its Agenda at the India Office. Recently the chairman of the Tata Group also gave credence to our potential to excel in AI and related activities.
There are sectors in the services space wherein the government can look at changing some rules on the pricing side and employment would follow. Example is our business of mutual fund distribution. At least five lakh additional jobs can be generated in a year if the pricing model is an upfront plus trail model as compared to an all trail as it is now. There would be similar sectors where with some change of rules, job growth can also happen without bad loans coming up.
This is likely to ensure that over the longer term our potential as a country is maximised.
5. A Specialised bureaucracy
The word adhyaksha is used by Kautilya primarily in the specialised sense of someone responsible for a clearly delimited field of government activity. (pg 275 Arthashashtra, Penguin Classics). Most of us agree a specialist does a better job than a generalist. Therefore a bureaucracy with specialists is not only desirable but also feasible. This would ensure that the specialist understands the problem well and solutions are likely to be more realistic. This would be one of the enabling factors to ensure stability of policy at the ground level.
6. Fast Disposal of Cases
“A King who administers justice in accordance with dharma, evidence, custom and written law will be able to conquer the entire world.” There was a fast orientation of disposal of cases based on the four above pillars in the era which Acharya Chanakya lived. The laws were enforced swiftly and judiciously.
If we intend to be a developed nation someday then we need to have a defined system in practice for clearance of cases. There are many instances where civil cases /property disputes go on for years if not decades as experienced by many. No case should ideally cross a threshold of a year. With the help of AI China has been able to reduce the cases backlog by one-third. This should be looked at on a serious note to ensure that we remain attractive as a business destination not only externally, but also internally. As an observer from another country observed at a Chamber of Commerce “We invest in the country only when we see the local business investing”. This would also increase the Business Confidence in the country.
As per most economic observers, we would face population decline from 2040. This is attributed to different reasons; however principal one seems to be the rising divorce rates. One out of three couples as per legal practitioners, files for divorce within a year of marriage. If this situation stays and belief in the institution of marriage sways then as a country over a decade we are no longer a growth story as population decline is likely and we will become like Japan in the global scheme of things. The laws need to have a timeline of maximum one year for cases to be settled and need to be fair to all sides during the process.
That said, it depends on us to create institutions which have strong roots and policy support which gives us wings.