India Economy

Automation, natural way to progress

Rakesh Nangia | Updated on March 10, 2018 Published on December 03, 2017

Its application in the real world is the stuff of every business owner’s dreams

Today’s hottest sector are robotics, automation and artificial intelligence. Mind you, it’s much more than just a buzzword. Our day-to-day life is undergoing an overhauling.

In healthcare, which is a basic necessity, robot-assisted surgeries take place every day in operating rooms across the country. Unmanned tractors and mobile robots are changing agriculture as we know it. Energy companies rely on robots to perform delicate, knowledge-based work, from assembling underwater pipelines to performing safety checks to keep human workers safe. And 3D printing has the potential to transform everything from how precision tools are manufactured to how buildings are constructed.

In other words, while automation immediately conjures up fantastical futuristic images, its application in the real world is the stuff of every business owner’s dreams. The swift adoption of robotics and automation is evident in the stunning growth of the companies focused on robotics, automation, and enabling technologies. The growth is definitely based on the efficiencies and economies achieved from reduced human resource cost.

India in the picture

India is a highly populated young economy and its human resources are one of its biggest asset which is an important aspect of India’s prospective growth story that everyone is eyeing.

India is at a globally advantageous position owing to its low labour cost. With automation becoming the “way of doing business”, demand for labour will go down and the cost of producing a thing in India or any other country will be practically the same. The need for human resources is bound to go down drastically, thereby hitting India’s pain point, unemployment.

Trying to fit India in this automated way of doing business, the existing inequalities may stand exacerbated. Unskilled labour will find it hard to land a job and the higher-ups will have a better deal in hand, owing to their expertise. This will also lead to a lower tax collection for the government owing to the reduced number of taxpayers in the tax bracket.

One may argue that it will be compensated by higher tax collection from the companies paying higher taxes on higher profits resulting from reduced human cost.

Government’s role

If the government seeks to compensate labour for the loss of jobs, how will it fund it? The government’s kitty has to be pumped in with more revenue, which should ideally be channelised from companies achieving efficiencies through the use of automation, robots and artificial intelligence.

So will robots be asked to pay the taxes for taking away the human jobs? What will this tax look like and how will it be levied? Will it be a direct tax or an indirect tax? Will the new direct tax law under discussion provide for this new tax? What will be the mechanism of taxing these companies?

We saw a new kind of tax “Google Tax” when it came to taxing online advertisement revenue, which was going untaxed owing to litigation around its characterisation as fees for technical services or royalty or business income. So, should we expect a “robot tax” or “automation tax” or “artificial intelligence tax” to tax these companies/robots? But will a flat rate of tax be equitable for all the kinds of industries using automation to economise business operations?

One way of resolving this is to withdraw the tax incentives provided to companies making capital investment in automation equipment. Further, since the tax laws are under revision by the committee formed to redraft the direct tax laws, the same should be drafted keeping in mind the global technological revolution.

Automation is bound to proliferate across all sectors eventually, impacting the way of doing business for each and all. Hence, the government should follow a consultative approach in this regard, by engaging in a dialogue with the trade associations.

There are many questions and even more speculative answers, but only time will give us the precise answers.

The writer is Managing Partner, Nangia & Co

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