Immediate steps needed to revive economy: CII

Hyderabad, June 5 (INN): Expressing deep concern over the current state of Indian economy, the Confederation of Indian Industry has urged the government to take immediate steps to revive the economic growth.

"There was a unanimous call for fiscal, monetary and administrative actions that could be game changing for the Indian Economy.

One such measure that could be game changing is fast tracking implementation of GST, which by itself could add up to 1.5 per cent additional growth to GDP', said Adi B Godrej, President, CII.

He was interacting with the media after more than 75 senior leaders of Indian Industry met at the National Council of CII here today.

Commenting on the state of the economy and industry, the issues highlighted were low investment rate due to high interest rates, depreciating rupee affecting input costs, high inflation affecting input costs and demand, deteriorating global economic conditions affecting export markets and lack of availability of credit and decline in credit flow to industry.

In addition, the CEOs also raised their concern on issues such as infrastructure bottlenecks, land acquisition issues, environmental and procedural delays affecting implementation of projects.

The CII ASCON Monitor that surveys more than 35,000 companies through their respective sectoral associations affiliated to CII also revealed similar issues impacting GDP growth.

'The CII ASCON Survey, for the period April-June 2012, which represents more than 35000 companies in 114 sectors paints a grim picture of the economy.

With a very few exceptions, practically all sectors have a very poor outlook for the first half of the current fiscal.

Government of India, the State Governments and the RBI must take coordinated action to stimulate the economy and accelerate growth.

Options and levers are available to do this and some of the solutions like implementation of GST have been pending for some time.

Perception may be worse than reality, but the current negative sentiment will only make matters worse. Positive action may change the sentiment to positive' said S Gopalakrishnan, President Designate, CII.

Commenting on the demand compression strategy for controlling inflation, the CEOs felt that instead of demand compression, removal of supply bottlenecks is also important to reap the objective of controlling prices.

It was opined that agriculture did not witness any major reform to improve productivity and link farms to markets.

'The recent slowdown in the economy can be attributed to a number of factors. While the global situation - particularly the difficulties in the advanced economies ' are influencing the Indian economy to some extent, I believe that India's problems are being exacerbated owing to lack of necessary reforms and decisions internally.

For example, our efforts at containing inflation have not been very successful since we have been squeezing out demand in a situation where the supply side needs intervention.

In my view structural reforms in agriculture is the most important area that needs all our attention, otherwise India would never be able to sustain a high growth trajectory since supply constraints would come in the way sooner or later', said Ajay Shriram, Vice President, CII.

Given the high interest rate regime and liquidity crunch, the investment rate in the economy had declined.

Since GDP growth in India is investment led, it was opined that government must take actions to revive the investment cycle and put the economy back on high growth trajectory.

'CII believes that a comprehensive 'Economic Revival Package' is necessary at the present juncture to ensure that growth is brought back.

Immediate measures that are required include reduction in Repo and CRR rates, accelerated Depreciation for investments in plant and machinery at 25 percent with immediate effect, 25 percent weighted tax deduction on expenditure incurred by companies on 'going green', rationalization of petroleum prices and taxes among others.

The swiftness of Government's action in this matter is also of great importance since sentiments need a set of positive measures for the investment cycle to kick in', said CII Director General Chandrajit Banerjee.

One of the key areas of focus for the Government is on reducing the fiscal deficit. With Government's market borrowing plans at high levels acts as a natural barrier for interest rates to come down even though repo rates are reduced and eventually lead to higher cost of funds for private sector investments.

The CEOs felt that fiscal consolidation was of utmost importance for the Government to bring down the effective rates of interest.

'Cost and availability of funds is an issue: At the present moment, one of the most important issues that is affecting investor sentiment is the status of India's fiscal deficit.

With the current slowdown, the fear is that meeting the budget projection of 5.9 percent would be difficult and therefore, even more Government borrowing would crowd out private sector investments.

We need to see a revised and clear plan from the government on how fiscal consolidation would be achieved this year.

A quick statement on this from Government would help confidence levels of investors', said Sunil Kant Munjal, Past President and Chairman, National Committee on Economic Policy, CII.

Another important issue that came up during the discussions at the CII National Council meeting was the general lack of confidence and low business sentiments.

With many projects held up and due to lack of decision making has stall many large projects from taking off. This in turn has not allowed investments to pick-up.

The administrative functioning of the Government needs to act fast on a priority basis both in terms of co-ordination as well as in clearing projects to provide a fillip to investments which would add to both GDP growth and employment.

'In 2008 ' 09, in spite of the fact that there were elections and there was a period when political decisions were difficult, the interventions from the Government of India and the RBI were swift and effective.

In many ways India demonstrated at that time how timely stimulus ' though modest- could be more effective than larger stimulus that were given in other countries.

We are in a similar situation today and I would expect the same alacrity and decisiveness from the Government and the RBI', said Venu Srinivasan, Past President, CII.

In addition to the economic revival measures for the immediate, the senior leaders of Indian Industry also raised issues that are of developmental importance for long term growth and development of Indian industry and economy.

With 68 amendments bills pending in the Parliament, it was unanimously opined that the reforms agenda needs to be fast tracked, which would not only improve the business sentiments but also pave way for the next high growth trajectory.

'While it is imperative for the Government to announce some short term measures to check the slide in the economy, it is very important that issues like Land Acquisition are properly addressed keeping in mind the industrialization needs of the country.

Similarly, the way mineral resources in the country are going to be allotted and utilized needs strategic thinking so that supply of minerals and coal do not become bottlenecks to the development of India's infrastructure and industry', said B Muthuraman, Immediate Past President, CII.

Godrej highlighted the CII theme for the year 2012-13 as Economic Revival: Reforms and Governance.

Alluding to the current economic conditions, Mr Godrej said that the Government needs to take swift action on pushing structural reforms, taxation reforms and state level reforms.

He added that the current wave of has declined for lack of forward movement in reforms and governance and the next growth trajectory would be determined next wave of growth would be determined by the Government's efforts to get legislative action on 68 amendment bills that have both direct and indirect effects on growth and development of Indian economy.