Historically, there have been times when nations stood at crossroads in taking decisions for their advancements. In the pandemic situation, many countries including India have been in a similar state. The rising economic inequality, unemployment, extraordinary uncertainty over different aspects of lives including personal affairs, have been some of the inevitable factors that govern almost everybody’s life and livelihood in the present situation. The Covid-19 pandemic has been a major global disruptor. So, what may be the way forward? Some of the most important areas which need to be developed are universal health and education facilities. Development of rural, agricultural and MSME sectors must also be focus upon.
Universal healthcare and food facilities
The implementation of universal health care and food availability policy is not very old - less than a century. It started in England on the eve of the Second World War, that is, in the late 1930s. Gradually, it was followed by some other European countries and then it spread throughout the continent. The perspective of this policy implementation is important for India and many other developing countries. Professor Amartya Sen, a Laureate in Economics has recently discussed the matter in an interview (Anandabazaar Patrika, June 8, 2021).
Sen said that in a critical situation, development can only occur when a new policy for social development which includes everybody in that country is implemented. On the eve of the Second World War, there was severe apprehension regarding a food crisis in England. In that situation, the British government took to a universal food rationing system so that no one would die of hunger. At that time, in Bengal, about 30 lakh people died in the Great Bengal Famine (1941-43). It was much later that the British Indian government implemented food rationing in only the city of Calcutta (now Kolkata) to check social unrest. But in the rest of the Bengal Presidency, there was no similar provision. The situation was not similar in Britain. A similar policy that had been possible in Bengal could not be implemented in their own country but the British government protected every citizen from hunger. The decision was taken in their Cabinet. There the policy was supported by the Conservative Party under the leadership of Churchill and also by the left liberals under the leadership of people like Stafford Cripps.
During the War when food availability was lowest, poor people also got ration cards for food. This was for the first time they got the opportunity to get adequate food. It improved a lot of health indicators for the common people in England. In the decade just before the War the average life expectancy increased only by one to one and half years but during the War and in the decade after, it rose by six to seven years. The fact was an eye opener for social scientists. They observed that with the help of universal rationing and control a very high level of improvement of health was possible. From this experience, the National Health Service came into being in England in 1948. England went on towards becoming a welfare state. Then France, Italy and Germany followed the path and later many other countries of Europe also followed. But in the US, there is no such policy till date but people are also getting free Covid-19 vaccinations there.
Emphasis on rural and agricultural sector
Indian agriculture sector was able to withstand all attacks faced by the economy in the last FY. It is not only a sector that ensures the livelihood of about 50% of the country’s population but is also a supplier of food for the people and many raw materials for Indian industries. In the pandemic, the agricultural sector grew by 3.4% while all other sectors grew negatively. The sector is still mostly dependent on rainfall. So, it is expected that agriculture will maintain its performance in this FY. The good news is that India’s meteorological department has predicted more than normal rainfall this year.
Is agriculture neglected?
In the last Annual Budget in 2019, 3.34 lakh crore was allocated for agriculture and allied activities. Out of that only 2.35 crore was spent. There has been a long-standing view that agriculture has been neglected. But the sector has saved the economy and its people many times. The export of agricultural commodities rose by 22.62% in the last FY and its value was `3.05 lakh crore. At the same time, one should know that the exports of commodities of other sectors fell by 7.3% in the same FY (2020-21). Many economists suggest various agricultural policies which are fully market oriented. The policy advice for the US or Israel, for example, cannot be similar when it is suggested for Indian agriculture. In India, about 45% of the population is involved in the sector which for the US and Israel is much lesser. In this situation, infrastructure in rural areas should be developed with intensive care. The developed infrastructure in the rural sector needs to check the large scale migration to urban areas. Also, promotion of agro based, export-oriented industries is needed in India because these are employment enhancing and growth-oriented sectors.
MSME should be the real backbone
There have been a lot of studies regarding how the MSME sector can be developed. But in the present pandemic context, one aspect may be of big relief for the small businesses which includes MSMEs. This is related to taxation. Devendra Saksena, the former Chief Commissioner of Income Tax, Government of India, has pointed out (The Statesman, 20th June, 2021) that to rejuvenate the economy the first thing is to reduce focus from the big business to small business and to promote small enterprises. The foremost area is the reduction of the burden of taxation. Suksena mentioned, “As of now, the taxation favours the rich, the rate of taxation of firms and individuals is almost double the corporate tax rate. Given the heavy statutory compliance burden on corporations, most small businesses are organised as firms, the smallest ones being proprietary concerns, which results in a higher tax burden for small businesses.”
So Suksena considers that by giving relief to firms by bringing income tax rates for firms at par with those of corporations would not cost much to the exchequer. He shows on the basis of the assessment year 2018-19, that the aggregate tax liability for 12,69, 736 firms was `42, 993 crore. But the aggregate tax liability of 8,41,942 companies was `4,31,041 crore. He suggests that halving the tax rate of firms would result in an outgo of less than `20,000 crore. Macroeconomic theory suggests that fiscal policy is a time taking process but if implemented it acts on the economy quickly. Tax rationalization, as discussed above, may give immediate relief to the economy by increasing employment and the GDP of India.