INSUBCONTINENT EXCLUSIVE:
By Nikhil KamathThe world, as we know it, is fairly uncertain right now; we had an economy which was slowing before any of this coronavirus
happened over two generations ago.
In a country as densely populated as us, the vulnerability is exacerbated
Economies around the world are in a state of panic, the German chancellor estimated that 60 per cent of their country might get infected,
the magnitude of this pandemic cannot be taken lightly
We need to protect the lower strata of our ecosystems, people with no medical insurance, the daily wage workers, your cab driver, your
domestic help, our farmers.
The top-down method of helping corporates who might pay their employees who in turn will make this ecosystem
function is one solution, but something needs to be done to aid this populous directly as well.
Additionally, the best-case scenario for an
investor today is the example of China, a country with eighty thousand cases that managed to contain the spread of this virus and bring some
semblance to normalcy.
Closer to home, in India, an optimistic prediction is that we will contain the spread of Covid-19 within the next 3
months.
However, this in itself could mean a 15 to 20 percent drop in corporate earnings over the next year
In addition to that, the markets are already down 35 per cent.
The market correction we are witnessing worldwide will translate into
The impact of which while unprecedented, there is a multitude of steps the government can take in the form of fiscal action to mitigate
these risks.
So what can the government do to create some kind of an artificial floor under these circumstances? Targeted fiscal, monetary,
and financial market measures will be key to mitigate the economic impact of the virus.
Governments should use cash transfers, wage
subsidies and tax relief to help affected households and businesses to confront this temporary and sudden stop in production.
INHERITANCE
TAXThe disparity in wealth around the world is burgeoning, to a point where the top ten richest people have as much wealth as the bottom
fifty percent of the world, history has taught us that such disproportionate wealth is unsustainable
Five hundred years ago, when the king and his court accumulated ninety percent of the resources of the state; this resulted in coups, the
current ecosystem is driving people towards populists leaders.
We must remember populism is generally a precursor to socialism, we have been
The wealth disparity has to be contained, for the good of the rich and the poor.
A 10 percent inheritance tax right now can go a long way in
aiding the undeserved of our society today
Also, this has precedent in our western counterparts, where economies have been using this as a tool, and it seems to be working for
them.
Financial Stimulus: We had issues with our economy slowing down much before all the carnage this virus has created began, financial
markets and a robust secondary market are cardinal to the well-being of an economy
It deters foreign capital it would be prudent to scrap the tax.
Dividend distribution tax: It causes companies to hoard cash, especially in
this environment of uncertainty with slowing demand and zero CAPEX outlooks
To allow for dividends to be paid more freely the government could aid consumer sentiment and indirectly aid multiple industries.
FPI
(foreign portfolio investment): Reduction in the change in rules around how FPIs are taxed and make it easier for foreigners to allocate
money into India, things like indirect transfer tax etc are a huge operational deterrent for investors exploring the FPI route.
Especially
capital and not shun them with bureaucratic policy changes and red tape.
CAT 3 AIF taxation(Alternate investment funds): Cat 3 funds have
brought a whole host of sophisticated investors and large amounts of capital to our financial ecosystem, allow pass-through taxation, not
taxing at the fund level but allowing for people to pay tax at their tax bracket
Taxing AIFS at a fund level is making an entire industry fight for its survival, making it harder for sophisticated investors to access the
financial ecosystem in India with a great product where they can also hedge effectively during downturns.
Buyback tax: If a company or
promoters of a listed company want to buy back more of their stock, this aids sentiment significantly and goes a long way during downturns,
as promoters can step in to show confidence in their companies by allocating more of their own capital to their companies
This tax creates an additional obstacle and leads to more harm than good could be done away with especially with the circumstances we have
at hand.
In summary, while the priority is staying safe at the current juncture and doing all we can with isolation to aid the government,
we have to bear in mind we live in a fragile economy where everything is interconnected.
We need to pay heed to the economic uncertainty,
attracting new capital and nurturing a thriving economy might go a long way in aiding our fight against the crisis at hand.
(Nikhil Kamath
is CIO and Co-Founder True Beacon and Zerodha