It is highly unlikely that the coronavirus will be killed anytime soon. There is no vaccine in sight as yet, though several laboratories across the world are engaged in researching furiously for one. Meanwhile, some countries in the West which have suffered huge losses of life and economic output have begun to open up.
Large parts of the US, where the fatalities have crossed nearly 70,000, too, are slowly exiting the lockdown. The parts which are still not open have seen protests by people demanding that the lockdown be lifted. In short, it may well be time for us in India as well to consider an exit from one of the most severe lockdowns anywhere in the world. If rich nations with decent health systems in place are opening up despite suffering huge losses in life and economic activity, we do not see why we should persist with the lockdown, especially when we have no evidence of the virus disappearing from the country in the coming weeks and months. Besides, we can see that the partial relaxations have not helped to restart the economy. It is due to the dispersal of labour and the continuing restrictions on the movement of people in what are categorized as red zones. Also, it so happens that a good one-half of the productive economy is located in the red zones. All this leads to but one conclusion: There is no escape from a comprehensive exit from the lockdown.
Let us be clear. Restarting the economic engine is not going to be easy. It is not that once the lockdown is fully lifted, economy will come on stream on its own. No, it wouldn’t. For one, millions of workers who have with great difficulty and personal hardships have returned to the villages are not likely to be persuaded to return. They will need reassurance that they have work waiting for them in various cities and towns across the country. A minimum first step for returning to a semblance of normalcy will be the revival of the transport system. Both road and rail services will have to be working as before to carry people back to their previous stations of livelihoods. It is easier said than done. Because until the foreseeable future we will have to observe social distancing. Running trains and buses with social distancing norms in place will not only require cooperation of the travelling public, but, vitally, it may need governmental compensation for the loss of revenue due to partial load-carrying capacities of the public transport. Moreover, industries and businesses will depend on financial and other incentives to cover the losses due to the lockdown.
Contrary to the suggestions in a paper prepared by a group of serving Indian Revenue Service officers, people do not have further capacity to bear higher taxes. Hit by the lockdown, it will be a travesty to ask businesses to pay over and above the existing rates of personal and corporate taxes. The economy does not need a higher rate of taxation. What it needs is a full tax compliance by individuals and corporates. If the IRS concentrated on widening the tax net by bringing in those who earn sizable incomes and yet pay no taxes, it would help bolster the tax kitty. The proportion of Indians who pay taxes is woefully small for an economy of our size. This should be a priority for taxmen, instead of commending the easy way out of hiking the tax rate.
Above all, given the huge blow the economy has suffered due to the lockdown, and the huge additional burden on the finances of state and central governments, this may probably be the most appropriate time for the Prime Minister to shed his hesitation and carry out the necessary reforms. Three particular sectors, namely – labour, finance and land urgently require major reforms. All three need to be freed from the stringent clamps fastened on them by misguided governments.
Modi has an innate distrust of business, something not unwarranted given the corrupt and criminal methods big business has employed since the birth of the Republic to enrich itself at the cost of the public exchequer. But it is also true that without a vibrant private sector the nation cannot progress — and consequently poverty cannot be vanished from the land. Leaving aside his reservations, business needs to be given a free hand, of course with a strong regulatory system in place, so that the economy can attain double-digit growth in the next couple of years. What is required is boldness and determination. Modi’s challenge is to ensure that the economy attains its full potential. The lockdown crisis can yield a lasting gain if the pending economic reforms are implemented.