The emerging scenario in the light of COVID-19 pandemic affecting the entire world is fast changing. Even as we discuss how the post-COVID world will be, the world has already changed a lot from where it was and what we have seen just a couple of months ago. Human lifestyle, interaction in the society, our ideas of bare minimum requirements, our prejudices and preconceived notions about various things have undergone a great change.
Economy as such is not different. Economy is an important part of human life. Business models, workplaces, attitude towards long standing economic dispositions and the scale & means of transactions have changed all of a sudden. There was a meme being circulated on social media – it has 3 pictures: The CEO of the Company, the CTO of the Company and the picture of Coronavirus. The meme humorously asks as to who brought about the digital transformation in the company? Well, we have seen that many firms, companies and industries who never thought that they could carry all their work on internet, have witnessed that most of their operations are now seamlessly being carried online. “Work from Home” is the new normal. Even on the social aspect, the “Home Stay” (or the so-called Lockdown) has increased the interaction among family members through mobile applications and online platforms. People are moving less, yet more connected.
The ways of trade & commerce, the long-standing ideas of economy and established business stereotypes will all change in the coming days. Currently the major shift in the economy has been from the “needless or excess spending” to the more “conservative or need based spending”. People’s approach is “savings based” rather than “expense/consumption based”. Naturally, all those industries that sustained on “consumption based” economic model have seen a drastic decline in revenues. These industries will continue to see a slump even in the post-Covid economic scenario, as people will curtail unnecessary movement and expenditure. The classical example for this case is of the Malls and Multiplexes. People now prefer to buy local from the store across the street. Watching movies & serials online (Amazon, Netflix etc) and re-visiting the yesteryear hits in movies & serials on the television (through Door darshan and like channels) is the new normal. Therefore, technology has enabled a major change in our lifestyles and continue to play a pivotal role in shaping our economy and our lives.
There was notion in the 1990s (the era of globalisation) that high raised buildings, excess industrial production and creating millions of jobs in industries that banked on artificial consumption were means to economic prosperity. Then again, during the 2008-09 sub-prime economic crisis in the USA, the then Indian Government took some important measures which would dreadfully impact the India’s roadmap for the years to come. From 2008-2014, the then UPA Government encouraged banks to give away too many loans (beyond accepted levels) without proper scrutiny and accountability. In an interview to Economic Times on 14th October 2018, Late Shri Arun Jaitley, the former Finance Minister of India had said thus, “In the last 10 years, the banking sector has seen two distinct regimes of regulatory and legal framework. The first can be termed as a ‘lending regime without accountability’ that started in the last days of UPA-1 and was almost coterminous with UPA-2 (2008-14)”.
This unreasonable lending of loans led to the temporary patch up of the economy (post sub-prime crisis) by artificially induced demand. The excess production led to the increased industrial & GDP growth upto 2015. Since, 2016 when the artificially induced demand balloon blew up, all the excess production capacities and stock lying with the industries went waste. This is seen in the height of automobile demand in 2009-10 with a growth rate of 10% in the industry, to a very meek and low demand today.
Companies in such a scenario saw slump in revenues and could not repay the loans that they earlier borrowed from banks. Today, Indian banks are over-burdened with NPAs & bad loans.
The independence of India in 1947 was a golden opportunity to start a new beginning. Even in case of the economy – it was an opportunity to see something new. We failed in this sense that we never undertook to develop any economic model of our own. Initially we started off with a non-alignment movement which portrayed our inability to stand with anything. It had no vision of its own. After this, we adopted the soviet model of socialism. And all of sudden in 1990s (although we had no other option then as an immediate measure) we simply signed all the forced globalisation treaties (vide WTO). Till now, we have never ventured to develop our own economic model, more suitable for our land, our people and our society. This Coronavirus pandemic is an opportunity in disguise for us to start a new beginning in all walks of life including fostering a new Bharatiya model of Economics.
There are two problems our economy is facing right now. One is the liquidity crunch caused by the lockdown. This is a temporary problem and the Government is monitoring this situation from time to time. This will majorly wear out once the Lockdown eases. However, if the Government wants to print and pump in more money to the Banks, then the Banks will lend loans to Companies who will in turn make profits and hoard the money in their reserves. This is not desirable! Instead, if the Government prints money it must invest this money in :-
- Rural Infrastructure
- Social Forestry
Migrant labourers and unemployed youth in villages can be paid a monthly fixed salary or stipend and they can be used develop rural infrastructure and also revive lakes, rivers and to increase forest cover in villages. With majority of Indians now being part of the banking system though the JAM (Jandhan Aadhar Mobile) Yojana direct bank transfer will not cause any hindrance. This will have a threefold positive impact: –
- Migrant labourers will stay in their own villages and the problem of high population density in cities will be solved.
- Unemployed youth in villages are employed. Their spending through the income they earn will further strengthen the consumption in our economy.
- Our villages will become more dynamic with better infrastructure and also, we will be contributing in making our country cleaner & greener.
The second problem is the one discussed earlier in length – our approach being reactionary rather then being visionary. Here I try to propose a few of my thoughts and ideas that can have a path-breaking change in our economy in the medium and long term (say between 3-5 years).
How does a nation become wealthy or poor?
With the money in circulation being equal, no one can become rich beyond a point (unless there is transaction of import & export). We have too much inflow of foreign capital (money) into Indian markets and consequent outflow of profits. Further, too many Indians are travelling abroad for tourism and studies. An article published in economic times on 30th of January 2019, citing the UN World Tourism Organisation data suggests that a whopping 50 million (5 crores) Indians would travel in 2019 (2017 data recorded that nearly 3 crore Indians travelled abroad for tourism). The money that can be kept in Indian banks, if it is spent in Euros, Pounds, Dinars or Dollars, it becomes the money of that country. That much of money is cut off from circulation in our economy. The more money we deposit in Indian banks, the more money will the banks have to lend for Indian businesses and Indian infrastructure. Europe, Middle East, South East Asia and America is making a lot of money with Indians travelling and going abroad for studies. Billions & billions of rupees go into a dead investment in another currency.
If some country is becoming richer by the day, it means either it is printing money (artificial swelling) or becoming richer at the cost of excess spending of one or more other countries.
Solutions :
- We must invest hugely on domestic infrastructure in education sector. More and more institutions of eminence must be set up on priority. People from the respective villages can be used to set an infrastructure with a ‘Government, Corporate & Community funding’ concept (or say PPP – Public Private People Partnership). The idea must be to attract students to study in India with a world class infrastructure. Next step (10 years vision) must be to attract foreign students to Indian Universities.
Employability through Universities is another important factor. There is perceived notion among the youth that they will be employed in highly paid jobs after their admission & completion of courses in foreign Universities say in Europe or in USA. Their perception may be true to a great extent. In contrast to this established thought process, we must ensure that our Universities are in sink with the industry requirements. The overall course design and the networking of our universities must be such that one who graduates must be equipped with practical and life skills making him fit for the job market. Parallelly, universities must nurture the spirit of entrepreneurship among the students. With high emphasis on research & enterprise in our University courses, students will be encouraged to enrol in Indian Universities.
Quality of education, curriculum and pedagogy are other aspects that need to be addressed which I will not venture to address in this paper. - We must increase domestic tourism. Too much of importance has been given to a handful of monuments in India. The wonders of Bharatiya Shilpa shastra (architecture) and the rich & diverse natural beauty of Bharat needs more aggressive branding. Indians get a social satisfaction in posting selfies & family pictures in Rome, in Turkey, in Grand Canyon and where not? This social prestige must shift, and people must take pride in taking pictures with the scenic background of Himalayas or the western Ghats, or the beautiful temple architecture of the yesteryear’s etc. The lesser we (the people of India) spend in foreign tourism, the better it is for Indian economy.
Desi Economics
Grama Swarajya
Mahatma Gandhi Ji’s idea of Grama Swarajya – “Economic Independence of Villages” has long been ignored. It is now time to implement it. Agriculture, rural infrastructure and cottage industry (household businesses like textile, toy making, Agri-based home industries etc.) deserve much more attention than it is given today. Villages are not just the backbone of our economy, but also distinguishing identity of Bharatiya ethos – our culture. Focus must be directed towards developing rural infrastructure and economic empowerment of villages. Increased rural connectivity through roads (i.e. road within the villages and roads connecting villages with highways), a home for all in villages and supply of electricity and water to all homes – this is the need of the hour.
Going desi
Be Indian, buy Indian! We must instil a social prestige in buying Indian goods and a social stigma towards foreign goods. Although this idea may sound narrow at the outset, this is much needed at this juncture. Not only this, we must also aim to become net exporters across sectors. Indian rupee must stay in India and we must not buy foreign products, services or currency wherever possible. Our society must take up this challenge. Government must enable this movement by nurturing the right environment for an indigenous production, marketing and consumption system. From Farm to factory to our homes – the raw materials, capital goods, production techniques & process, products & services and the supply chain system – everything must be Indian. Further, quality of product or service is also of equal importance. People may not buy any product or service just because it is Indian without the required standards of quality, durability and usability. Pride in buying Indian goods & extremely high standards of quality must both go hand in hand.
Inter alia, one of the major imports we make are the capital goods. Capital Goods are used by industries in manufacturing. Can our business giants manufacture these capital goods in-house? This is a point to ponder!
Global Business of Bharat
This is yet another important step in boosting our economy – setting up Indian businesses outside India. We have done this in the past up to the 15th century (Angus Maddison’s book “World Economy: A millennium perspective confirms this with data & statistical study). Once again, we need to venture out, explore, take risk and set up businesses abroad. To start off, we must first become self-sustaining economy and then export our excess capacities and products. If we sell rupees and buy foreign currency, it must be invested in a business abroad and profits must be repatriated in Indian Rupees back to India. Foreign currency must not be spent abroad for any other purposes unless extremely necessary. This is a resolve that we Indians must take at least for the coming 10 years.
Our economy is experiencing a challenging phase since 2016. The Corona Virus pandemic is an added burden to our economy & our people. But we must take this challenge as an opportunity to turn tables and march ahead towards a bright future. Our economics must be more benevolent, it must not just benefit our people but also we must be in an advantageous position to help others (as we have done in many situations helping people come out of Yemen during the war times or sharing our HCQ stocks during this pandemic phase etc). We have seen nations that have leveraged their economic and/or military power to push their expansionist or exclusivist agendas. Bharat can be an illustrious example in showing the world that economic might can be used for the benefit of humanity at large.
The situation we are now facing is nothing but an opportunity in disguise!
CA Anup Vittal
