The economy is flailing. The government is well aware. Amidst talks of India's GDP dipping even lower than that of Bangladesh, and warnings of an all-time low slump, something needs to be done. But where to begin?
Well factually speaking, the government recognises a demand gap. People are not buying as much as they did before. And this behaviour is detrimental to the Indian economy. Because the less people buy, the less companies invest. The less spending there is, higher is the risk of a recession. The government then needs to take charge and assure businesses and individuals. But how? The answer lies in getting people to spend. Which is why the government is encouraging all employees to take a vacation.
Wait what? Yes! See the state offers employees paid leaves and compensates them for any additional travel expenditure they might incur. This is called a Leave Travel Concession or the LTC. So what's new about that, you ask? Well, thanks to COVID 19, people can't really travel even if they want to. So the government has an exciting proposal for all the employees who haven’t been able to go on those vacations. If you have leaves left, which you won’t be able to put to good use, then you can ask the government to be paid in cash. But, and this is the interesting part, employees must spend actual money before they can claim and encash their LTC. And they can only spend it on items that attract a GST of 12% or more. Also, it will have to be a digital transaction and they’ll be expected to provide an invoice. Huh! Wonder how that will go down?!
Why is this useful to you, the MBA student?
Well no matter what domain or subject you plan to major in, this is a matter of policy that's pretty interesting. First, it shows a very smart, corporate approach to a real problem - bridging the demand gap. Let's face it, the demand gap is truly not a sign of a healthy economy today. Additionally, India is not a self-sufficient economy with demand and supply controlled by the state. In our current capitalist economy, there are many different power players who ensure the inflow and outflow of money. If the demand gap is not bridged, the supply of capital from a foreign investment may also dry up. All of this can be controlled in a simple manner by the improved version of the LTC.
Basically, forcing people to spend by subtly altering human behaviour. Students of psychology, behavioural economics, and marketing, take note. Here's an incentive that'll encourage people to behave in a certain way. But is this really going to help revive the economy? Maybe, this is just a first step. Meanwhile, let's talk about employee benefits and policy. Corporations too have leave allowances. They too are facing an issue where employees can't take a vacation due to this pandemic. So they're resorting to pushing employees to take mandatory days off in a month. Or else, they'll have to encash all those leaves! Or accept multiple employees taking time off at once! If you're an avid HR student, take a minute to think. How would you handle such a situation? Finally the employees themselves. Do you think employees will be satisfied with this version of the LTC? We're speaking of a country where people regularly create paperwork to avail tax benefits. Don't you think smart government employees will find ways to get the LTC without actually traveling or spending?
So we come to the main question. Is this version of the Leave Travel Concession really going to achieve its goal of getting employees to actually spend? What do you think? Share your thoughts.and answers in the comments section below!
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