Private sector investments are at an optimum level and a rethink on the economic agenda, apart from better incentives for industry such as a lower corporate tax rate, are required to revitalise the investment cycle, India Inc has told the government.
Spurred by slowing economic growth, fluctuating exports and low levels of job creation in the country, the government on Tuesday huddled with corporate leaders and industry bodies to find answers.
The meeting was chaired by Commerce and Industry Minister Suresh Prabhu and included Commerce Secretary Rita Teaotia, Department of Industrial Policy and Promotion (DIPP) Secretary Ramesh Abhishek, Textile Secretary Ajay Narayan Singh and the Chief Economic Advisor Arvind Subramanian, among other officials.
Dubbed as an “initiative to build teamwork with industry” by Prabhu, the meeting also saw the decision to formalise a mechanism through which such interactions with industry bodies could be held periodically, a senior commerce and industry ministry official said afterwards on condition of anonymity.
While the date for the next meeting was yet to be decided, the focus would be on small and medium scale enterprises, he added. Also, a regulatory review committee might be set up under the DIPP secretary whereby industry could suggest better ways for implanting ease of doing business norms, government sources said.
Relaxation of fiscal consolidation targets for the next year or two ranked high on the list of suggestions made by industry bodies. Industry body Confederation of Indian Industry (CII) said this should be done due to the current set of “exceptional circumstances”.
Similarly, state governments should also be discouraged from curtailing capital investments while the Centre ramped up its expenditure in highways, low-cost rural housing and rural and urban infrastructure among other sectors, CII said.
They have also suggested reducing interest rates by 100 basis points over the next year to spur consumption.
Latest GDP data showed a three-year plunge in economic growth at 5.7% in the first quarter of the current financial year, the lowest reading over the last three years of the Narendra Modi government.
“Apart from better ease of doing business, finance and cost of finance need to come down quickly, especially for SMEs,” Gopal Jiwarajka, president of industry body PHD Chamber, told Business Standard.
Debate had started over whether the incidence of low growth was a temporary blip on the economic map or whether it was due to deep structural issues, Jiwarajka added.
In July, the first month after the new goods and services tax (GST) regime was rolled out, industrial production rose by only 1.2% over the same month last year, recovering slightly from a contraction of 0.1% in June.
The fall in the Index of Industrial Production (IIP), which measures industrial growth, had been predicted because of pre-GST destocking. The July figures - the lowest in 20 months if the June figures are excluded — showed industrial recovery was still a far cry.
Capital goods output continued to contract in every month of the current financial year, showing weak investment in the country. However, the rate of decline fell to 1% in July from 6.8% in June and 1.38% in May.
The silver lining was that industrial recovery might gain momentum as the GST regime stabilised and incidence of restocking took off in August and September, Devendra Kumar Pant, chief economist at India Ratings, said.