Perceptions on Alternative Sources of Financing Covid Crisis in India

Mayank Goel & Professor M.M. Goel

(The Asian Independent)

– Mayank Goel* & Professor M.M. Goel**

Being needonomist, we believe that the management of covid crisis by the three tier governments in India calls for alternative sources of financing  for the  defined functions under central list, state list and local governments including Panchayats in rural areas and municipalities in the  urban areas. We have to understand Chakravyuha Challenges in the Indian economy making efforts in removing fear of covid crisis with full sense of responsibility.

Some economists have suggested that the simplest way to finance natural and human made calamities is to print money or borrow from the banking system (deficit financing) and ask for donations from the public as alternatives.

There is a lesson from   covid crisis that we have to learn to behave as consumer, producer, distributor, trader, policy makers, bureaucratic innovators and the three tier governments    in my beloved nation Bharat called India in English as Independent Nation Declared In August.

To prove Goods and Services Tax (GST) as biggest taxation reform in the history of Indian economy, we need three rates of 5, 10 and 15 percent along with Direct Tax Code (DTC) deserving attention for implementing Fiscal Responsibility Budget Management (FRBM) Act with commitment and not half hearted approach. The socio-economic inequalities are inbuilt in exempted goods and services from GST and calls for pruning the list for its proper implementation.

We need not to impose any other tax, if petroleum products and alcoholic drinks brought under GST. The hike in prices of petrol and diesel in June 2020 many times has increased worries of the people whose life have already derailed due to covid crisis. It cannot be justified by any right thinking person to hike the prices in such a manner by the oil companies. It is pertinent to mention that the diesel prices use to be always lower by 10-15 rupees than petrol because there is direct relationship of diesel with inflation. The costly diesel will enhance the   transportation cost of goods by the trucks. This will lead to increase the prices of the essential goods. The costly diesel also increases the expenditure of the agricultural inputs which is adding worries to the farmers. The responsibility of controlling the prices of diesel if not petrol lies on the government as the international prices have fallen considerably due to covid created crisis. Under these circumstances, it is not difficult for the government to control and stabilise the prices of diesel and petrol. I wish to draw the attention of the government to look into the issue with empathy as the discontent of the people will turn into agitations and should be avoided during the period of crisis.

GST can prove to be a panacea for reducing the gap between WPI and CPI based inflation rate by making India unified common market.

To say no to corruption GST is necessary but to make it sufficient, we need to be street smart in strict sense of the concept. To implement GST effectively, we need coordination between bureaucrats and the politicians in power who should learn to say no to certain things for decision making and the bureaucratic innovators should learn to say yes instead of saying no and delaying the things due to their ego and complex of superiority.

We believe that inflation is also a form of taxation. It is really a tax on cash balances, since those individuals and organisations in the economy that hold cash balances see their purchasing power eroded by inflation. “There is, thus, a transfer of wealth from those who hold money in the form of cash balances to those who obtain the resources (in this case the government) through money creation. The government borrows heavily to finance spending, including that for achieving sustainable development goals (SDGs) 2030.

Inflation as tax can be an easier way of taxing people than direct taxes which affects   millions of people, though very few realise it. The most of the people value their investment and income without adjusting it for inflation. This is called money illusion in economics.

The inflationary (deficit) financing of the programmes for ameliorating the covid crisis  in the hope that a rising price level will in itself provide incentive for private investment in development projects is unlikely to be successful.

The large scale measures taken by the government will lead to fiscal deficit of the central government as well as state governments. It must be noted that the level of deficit financing is in itself inflationary and mops up increases in income through tax policy, monetary policy and direct controls, then mild inflation can have a positive impact on the revival of the economy.

To attract Public Private Partnership (PPP) in various sectors which is necessary to accelerate infrastructure development, the efforts are required to be strengthened more than resource allocations with reducing bureaucratic hurdles being observed time and again.

To meet the aspirations of Indians in tune with Atamnirbhar Bharat Abhiyan in post covid era, we need resources which are certainly limited and required to be spent judiciously confining to needs. This falls in the domain of ‘Needonomics’ which is spiritual, nonviolent and ethical in nature and is capable of saying no to inward foreign direct investment (FDI) and takes care of the minimum needs of the weaker sections of the society(  practising the art of giving with living in minimalism). We believe that the problems including violence, terrorism, exploitation and corruption of all kinds are caused by ‘Greedonomics’ ( economics of greed) and can be reduced if not removed by ‘Needonomics’ which deserve to be understood, analysed, interpreted and adopted by all the stakeholders including politicians ( both in power and opposition) as an idea of India. The future requirement in post covid era based on ‘Needonomics’ deserve priority over and above ‘greedonomics’.

There is a need for policy implication oriented research and not only t – value significance at 95 percent level of significance with many disconnections between covid crisis and sustainable development of the Indian economy with built in capacities of India .The research should provide policy implications which make the nation capable for facing the covid created challenges and revive the economy.

To face covid created challenges, we have to adopt common sense approach. We believe that common sense is to have sound judgment without specialized knowledge. One being street smart understands and assesses the situation and adopts common sense approach for understanding. There is a strong case for identifying alternative financial resources which can be generated by proper pricing policy of issuing birth certificate, marriage certificate and death certificates with at least 10 percent of the income of the working couple. This is a source which can be shared by local government with state and central government and can reverse the trend of top to bottom in financing three tier governments. There is a strong case for linking public utility services and fee structure with inflation rate.

The corporate sector should be asked to use the CSR funds for meeting the requirements of covid crisis management.

We need to allocate the financial resources in best possible manner without prejudice based on the cannons of public expenditure given by Dr. B.R. Ambedkar who said that every Government should spend the resources garnered from the public not only according to rules, laws and regulations, but should also see that ‘faithfulness, wisdom and Economy’ are adhered to in the acts of expenditure by public authorities. The remarkable thing about Ambedkar’s canons of public expenditure is that they are ism-neutral and can be followed by large or small public sector and yet the principles behind these canons are applicable., analysing, interpreting and adopting the solutions of the problems at hand.

We have to be alert, aware and awake of the ‘Cobra Effect’ which occurs when an attempted solution to a problem makes the problem worse, as a type of unintended consequence of unhappiness. We, the people of India need to become ‘Trustees’   not owners of the wealth and properties for enhancing the shock bearing capacity if not becoming shock proof  for the  covid crisis  making history of its own. We have to replace fear with fearlessness and work without worries (www)- the real www in the virtual world wide web (www) for speedy revival of the economy,

* The first writer is a researcher on “ Measurement of Inflation in India: A Study of Middle Income Group of Delhi NCR and working as Corporate Banker in Kotak Mohindra, Delhi.

** The second writer is Former Vice Chancellor and Needonomist Professor retired from Kurukshetra University, Kurukshetra.