Preserving the core of the economy

Published: April 7, 2020 3:40:05 AM

India must evolve a new social contract for a robust, equitable, and flexible transition path to ensure that post-crisis revival is not predicated on a bloodbath

It is imminently urgent and desirable that the governance mechanism, the business world, and civil society, together toward ensuring the survival of these contracts during this period of unprecedented lockdown. It is imminently urgent and desirable that the governance mechanism, the business world, and civil society, together toward ensuring the survival of these contracts during this period of unprecedented lockdown.

By Amit Kapur

In the novel coronavirus pandemic, we are battling the most daunting challenge faced by human civilisation. We have no precedents or playbook to go by. The authorities, businesses, and civil society are engaged in a battle to survive an unprecedented lockdown where the Disaster Management Act, 2005 has been invoked, and a nation-wide curfew imposed. At the end of this tunnel, our struggle to revive will begin. Aspects of how we live and transact business, and of trade and commerce are bound to change irretrievably. Yet, during this phase, we must preserve the “core” of our economy to be able to stabilise, rehabilitate, and revive later. This core, amongst other things, comprises the global and national web of contracts that is fast coming unstuck, risking a ruinous destruction of the rule of law, and commercial and social relationships.

Preserving the economy and contracts is not purely commercial. We often do not notice the silent omnipresence of contractual relationships underlying the mundane elements of our daily lives, until one of them comes unstuck or requires our attention! Contracts underpin many things we take for granted—from the daily newspaper to marriage (for several), residence, basic amenities, food, education, healthcare, livelihood, et al. Imagine that the mutual promises underlying all these lose value, reliability, and predictability. Say, you cannot rely upon the delivery of any of these services/products, or the supplier cannot be sure that you will pay for what they have supplied. Consider a scenario when you cannot rely upon your employer to pay your promised wages, or there is a complete loss of job security.

Sadly, this is no longer a hypothetical scenario. Some public and private sector companies have started terminating contracts which they considered non-essential.

They refuse to honour committed expenses, like payment of rents, salaries, and other dues to suppliers, claiming supervening impossibility, frustration of contract, or force majeure. The resultant stress is building up in unrest. It will culminate in widespread collapse of trade, commerce, and relationships. A deluge of conflicting claims and disputes will overwhelm the already burdened judicial system!

Are we doing enough, devoting our collective consciousness and energies at this hour, to safeguard the core of our society to survive, and revive in the days ahead? Where do we begin? Can we afford to first take care of the physical survival before addressing these seemingly mercantile concerns? These are some of the questions that face us.

It is imminently urgent and desirable that the governance mechanism, the business world, and civil society, together toward ensuring the survival of these contracts during this period of unprecedented lockdown. We do not have the luxury to wait for better times before dealing with this issue. We need to confront the threat of irretrievable mutilation of the underlying web of contracts that will culminate in bankruptcies, and widespread unemployment. Today, faced with shortages and competing claims on limited resources, we are driven to knee-jerk reactions seeking to preserve individual well-being and wealth at the cost of others—pushing shortages and risk to others.

This could perhaps be avoided if a legally binding transition period is established, preserving the contractual rights, with a promise to realise the dues/deferred entitlements over a defined period of time after the transition, while ensuring that the minimum required to preserve the assets and properties.

Such a status quo will help parties be more accommodating without putting their property, legal rights, and claims at risk.

During the transition, we are bound to make demands on public finances and facilities, which have their limitations, as also on private resources. We need a national consensus, built on a bipartisan basis, defining our transition path. Individually and institutionally, we must prioritise our consumption, conserving our resources by deferring non-essentials to meet the challenge during the crisis, while securing a baseline of amenities for all to survive. A safe passage must be predicated on a rational and equitable national transition plan, built and implemented transparently and carrying all stakeholders along.

Our institutions and politicians need to rise above partisan considerations, and engage in evolving and implementing this national solution keeping the citizen in focus. The task forces constituted by the central government must focus on this transition path immediately. The PMO and Niti Aayog need to take the lead here, engaging all chief ministers, chambers of commerce, and representatives of civil society.

We need to evolve a new social contract for a resilient, robust, equitable, and flexible transition path—governed by salutary principles, and a credible, trusted bipartisan institution. This path must establish a shared safety net for all citizens, sharing the shortages equitably and conserving resources for the future. Any hope of rebuilding a credible future must be based upon preserving the economic substratum, else revival will be predicated on an ugly bloodbath!

The author is Joint Managing Partner, J Sagar Associates. Views are personal

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