Mooting ‘urgent’ fiscal support to shore up the economy, industry body CII on Thursday said the government has room to provide a ₹3-lakh crore stimulus and advocated a reduction in fuel taxes and enhancement in cash transfers to households to revive demand.
Stressing that livelihoods had taken a severe hit due to the COVID-19 pandemic, Confederation of Indian Industry (CII) president T.V. Narendran called for employment generation to be the central focus of policy measures and an expansion of the central bank’s balance sheet to accommodate a fiscal push of 1.3% of GDP.
“The ongoing second wave has had a significant impact on economic activity in this quarter and a large part of the labour force faced health issues, either themselves or in their families,” Mr. Narendran said, stressing that health exigencies and job losses had squeezed spending ability.
Terming the demand shock as a big area of concern for India’s consumption-led economy, the CII president said the cumulative impact of two waves on incomes, livelihoods and consumer sentiment, coupled with increase in household medical expenses, are likely to impact consumer demand for some time.
“There is always a temptation to raise resources through higher taxation to fund higher spending. But we believe it’s not a good idea at the time when the economy is in recession, and instead some tax reductions could incentivise spending,” he said, calling for a reduction in excise duties on fuel, some temporary GST rate cuts and inclusion of Aviation Turbine Fuel (ATF) under the GST regime.
High fuel prices are impacting businesses as well, he said, especially in sectors such as aviation where ATF costs are 60% of total costs.
“We will recommend that the Centre takes a balanced view on the need to manage inflation and push growth, and the way they deal with oil prices is one part of the puzzle that needs to be fixed,” said Mr. Narendran, who is the global chief executive officer and managing director of Tata Steel.
While vaccination will hold the key to demand revival, especially if a significant portion of the population can be inoculated before the festive season, CII estimated that India needed to vaccinate a minimum of 71.2 lakh people daily, to cover the entire population by December as committed to by the government.
CII Director General Chandrajit Banerjee also urged the government to urgently notify the rates under the Remission of Taxes and Duties on Export Products scheme, as it would encourage investments focussed on exports, especially under the new production-linked incentive schemes for several sectors.
“Sectors such as tourism, hospitality, education and retail that have been huge job creators have obviously been under stress over the last couple of years… where a lot of the job losses have also happened. So you need to support these sectors too,” Mr. Narendran pointed out.