The pandemic of COVID is a watershed moment in the way we look at the world. Truly, the future vocabularies will consist of ‘Pre COVID world’ and ‘Post COVID world’. Undoubtedly, the economic system shall be deeply affected by the COVID wave. The focus of this article is to redesign our economy through new 7 golden rules in the aftermath of Covid-19. As we read these ideas we also come across the faults that lie at the bottom of the present system. This is our opportunity to design a resilient and just system. So, what is the way forward to achieve this? Read to know!

• When complex systems come to catastrophes, they re-emerge in distinctly new forms.
• The COVID-19 global pandemic is a catastrophe, both for human lives and our complex
• Economists cannot predict in what form the economy will emerge from it. But we can develop principles for what lies ahead.

7 Radical ideas to build back economy

The COVID-19 catastrophe has challenged the tenets of economics that have dominated public policy for the past 50 years.

Here are seven radical ideas emerging as pathways to build a more resilient economy and a more just society.

1. Time to rethink GDP as a measure of growth

• The obsession with GDP as the measure of progress has been challenged often, but its challengers were dismissed.
• Now, Nobel laureates in economics-Joseph Stiglitz, Amartya Sen, Abhijit Banerjee, Esther Duflo and others-are calling upon to rethink the fundamentals of economics, especially the purpose of GDP.
• A five-point ‘de-growth’ manifesto by 170 Dutch academics has gone viral amidst the heightened Internet buzz during the lockdown.
• Goals for human progress must be reset.

2. Opening boundaries is not always good

• Boundary-lessness is a mantra for hyper-globalisers. Boundaries, they say, impede flows of trade, finance, and people.
• However, since countries are at different stages of economic development, and have different compositions of resources, they must follow different paths to progress.
• According to systems’ theory, sub-systems within complex systems must have boundaries around them, be permeable ones, so that the sub-systems can maintain their own integrity and evolve.
• This is the explanation from systems science for the breakdown of the World Trade Organization (WTO).
• In WTO system, all countries were expected to open their borders.
• Opening borders caused harm to countries at different stages of development.
• Now COVID-19 has given another reason to maintain sufficient boundaries.

3. Role of the government is indispensable

• Ronald Reagan’s dictum, “Government is not the solution… Government is the problem”, has been upended by COVID-19.
• Even capitalist corporations who wanted governments out of the way to make it easy for them to do business are lining up for government bailouts.

4. Problems caused by marketization

• The “market” is not the best solution.
• Money is a convenient currency for managing markets and for conducting transactions.
• Whenever goods and services are left to markets, those who do not have money to obtain what they need are at loss.
• Moreover, by a process of “cumulative causation”, those who have money and power can acquire even more in markets.
• The “marketization” of economies has contributed to the increasing inequalities in wealth over the last 50 years, which Thomas Piketty and others have documented.

5. Focus on citizen welfare, not consumer welfare

• In economies, human beings are consumers and producers. In societies, they are citizens.
• Citizens have a broader set of needs than consumers.
• Citizens’ needs cannot be fulfilled merely by enabling them to consume more goods and services.
• They value justice, dignity, and societal harmony too.
• Economists’ evaluations of the benefits of free trade, and competition policy too, which are based on consumer welfare alone.
• Such evaluations fail to account for negative impacts on what citizens value.

6. Competition Vs. Collaboration

• Competition must be restrained: Collaboration is essential for progress.
• Faith in “Darwinian competition”, with the survival of only the fittest, underlies many problems of modern societies and economies.
• Blind faith in competition misses the reality that human capabilities have advanced more than other species’ have, by evolving institutions for collective action.
• Further progress, to achieve the Sustainable Development Goals will require collaboration among scientists in different disciplines and among diverse stakeholders, and collaboration among sovereign countries.
• Improvement in abilities to share and govern common resources have become essential for human survival in the 21st century.

7. Public ownership of technologies

• We are living in an era of knowledge.
• Just as those who owned more land used to have more power before, now those who own knowledge have more power and wealth than the rest.
• Intellectual property monopolies are producing enormous wealth for their owners, though many were developed on the back of huge public investments.
• Moreover, powerful technologies can be used for benign or malign purposes.
• It is imperative to evolve new institutions for public ownership of technologies and for the regulation of their use.

How to walk the talk?

• COVID-19 has revealed structural weaknesses in the global economy. Putting more liquidity in the system as was done in case of 2008 crisis will not be sufficient.
• The system is in the need of paradigm change.
• 1. Coordination among experts
• Experts need to work together with keeping in mind the larger picture.
• The economic system cannot be redesigned by domain experts devising solutions within their silos.
• 2. Focus on innovation
• Innovations are required at many levels to create a more resilient and just world.
• Innovations will be required in business models too, not just for business survival but also to move businesses out of the 20th-century paradigm that “the business of business must be only business”. 

The UPSC can ask a question based on the issues discussed here. Consider this question- “COVID has upended the global economy in such a way that it would need an overhaul. The basic tenets of the global economic order would undergo a revaluation. In light of the above statements examine the factors that contributed to the vulnerability of the Indian economy. Suggest the ways to make it more resilient and just.”

Conclusion

The redesign of economies, of businesses, and our lives, must begin with questions about purpose. What is the purpose of economic growth? What is the purpose of businesses and other institutions? What is the purpose of our lives? What needs, and whose needs, do institutions, and each of us, fulfil by our existence?

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Following the ease of restrictions in the third phase of the nationwide lockdown, some of the most striking images showed long queues outside liquor stores around the country. The Delhi government announced a 70% hike in the price of liquor across categories in the capital.

Aspirants must note:

1. Purview of Excise duty (i.e. Petroleum and Liquor)

2. Excise duty before and after GST regime

3. Sources of state revenue etc.

4. Argument relating to inclusion of Liquor in GST

Why liquor matters?

• Delhi’s “special corona fee” on alcohol underlines the importance of liquor to the economy of the states.
• Manufacture and sale of liquor is one of the major sources of their revenue, and the reopening comes at a time when the states have been struggling to fill their coffers amid the disruption on account of the lockdown.

How do states earn from liquor?

• Liquor contributes a considerable amount to the exchequers of all states and UTs except Gujarat and Bihar, both of which have enforced prohibition.
• Generally, states levy excise duty on manufacture and sale of liquor.
• Some states, for example, Tamil Nadu, also impose VAT (value-added tax).
• States also charge special fees on imported foreign liquor; transport fee; and label & brand registration charges.
• A few states, such as UP, have imposed a “special duty on liquor” to collect funds for special purposes, such as maintenance of stray cattle.

Share in revenue

• A report published by the RBI last year shows that state excise duty on alcohol accounts for around 10-15 per cent of Own Tax Revenue of a majority of states.
• In fact, the state excise duty on liquor is the second or third largest contributor to the category State’s Own Tax revenue; sales tax (now GST) is the largest.
• This is the reason states have always wanted liquor kept out of the purview of GST.

What exactly is State Excise?

• Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called “State Excise” duty.
• For most of the states, excise duty is the second largest tax revenue after sales taxes (state VAT).
• Besides, a substantial amount comes from licences, fines and confiscation of alcohol products.

What has changed with the State Excise after the GST regime?

• At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
• However, the Goods and Services Tax (GST), introduction in July 2017, subsumed many types of excise duty. Today, excise duty applies only on petroleum and liquor.
• Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.
• Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
• States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
• After GST was introduced, central excise duty was replaced by Central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.

What are the other sources of revenue for the states?

• The states’ revenues comprise broadly two categories — Tax Revenue and Non-Tax Revenue.
• Tax revenue is divided into two further categories: State’s Own Tax Revenue, and Share in Central Taxes.
• Again, Own Tax Revenue comprises three principal sources:

1) Taxes on Income (agricultural income tax and taxes on professions, trades, callings and employment);

2) Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax); and

3) Taxes on Commodities and Services (sales tax, state sales tax/VAT, central sales tax, a surcharge on sales tax, receipts of turnover tax, other receipts, state excise, taxes on vehicles, taxes on goods and passengers, taxes and duties on electricity, entertainment tax, state GST, and “other taxes and duties”).

Back2Basics: What is Excise Duty?

• Excise duty is a form of tax imposed on goods for their production, licensing and sale.
• It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
• At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
• Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

Purview of excise duty

• The GST introduction in July 2017 subsumed many types of excise duty.
• Today, excise duty applies only on petroleum and liquor.
• Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
• States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
• After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.

Types of excise duty in India

Before GST kicked in, there were three kinds of excise duties in India.

1) Basic Excise Duty

• Basic excise duty is also known as the Central Value Added Tax (CENVAT). This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
• This duty was levied under Section 3 (1) (a) of the Central Excise Act, 1944. This duty applied on all goods except salt.

2) Additional Excise Duty

• Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
• This duty was levied on some special category of goods.

3) Special Excise Duty

• This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
• Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

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