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Home / Business News / India’s GDP likely to grow between -0.9% and 1.5% in FY21: CII

India’s GDP likely to grow between -0.9% and 1.5% in FY21: CII

The association sketched out the scenarios in a paper titled A plan for economic recovery, in which it called for urgent fiscal interventions to boost the sagging economy.

business Updated: Apr 23, 2020 18:22 IST
HT Correspondent
HT Correspondent
Hindustan Times, New Delhi
For micro, small and medium enterprises (MSMEs), CII suggested a credit protection scheme wherein 75-80% of a loan would be guaranteed by the Reserve bank of India (RBI).
For micro, small and medium enterprises (MSMEs), CII suggested a credit protection scheme wherein 75-80% of a loan would be guaranteed by the Reserve bank of India (RBI). (Abhijit Bhatlekar/Mint)

India’s gross domestic product (GDP) will like shrink by 0.9% in the current financial year in a worst-case scenario marked by a prolonged coronavirus crisis that results in an extension of restrictions placed in Covid-19 hotspots, and may grow by as much as 1.5% in a best-case framework, the Confederation of Indian Industry (CII) said on Thursday, calling for a big dose of government stimulus.

In a baseline scenario in which economic activity remains constrained and restrictions stay in place on the free movement of goods and people beyond the lockdown ending May 3, the economy could expand by just 0.6%, CII said.

“This will lead to disruption in supply chains, slow pick-up in investment activity, labour shortages in the short-run and muted consumption demand on account of reduced household incomes,” the industry association said in a statement

India’s economy, Asia’s third largest, had already been slowing because of a downturn in household consumption and private sector investment when the coronavirus pandemic and the subsequent 40-day lockdown hit, causing a downgrade of most growth forecasts as industrial production came to a halt and public revenue declined. The International Monetary Fund (IMF) has now forecast 1.9% growth for India in this fiscal, the slowest pace since 1991.

CII envisaged an extension of restrictions clamped on Covid-19 clusters and the addition of new hotspots in the worst-case scenario, which would entail stop-and-start economic activity In the optimistic scenario, it foresaw a faster pick-up after the lockdown.

The association sketched out the scenarios in a paper titled A plan for economic recovery, in which it called for urgent fiscal interventions to boost the sagging economy. It proposed cash transfers amounting to Rs 2 lakh crore to JAM [Jan Dhan, Aadhaar and mobile] account holders in addition to the Rs 1.7 lakh in relief measures the government has already announced.

CII suggested additional working capital o be provided by banks, equivalent to the April-June wage bill of the borrowers, backed by a government guarantee, at 4-5% interest rate.The association suggested the creation of a fund or a special purpose vehicle (SPV) with a corpus of Rs 1.5 lakh crore, which will subscribe to non-convertible debentures (NCDs) or bonds of corporate entities rated A and above.

“The fund can be seeded by the government contributing a corpus of Rs 10,000-20,000 crore, with further investments from banks and financial institutions such as LIC, PFC, EPF, NIIF, IIFCL et al. This will limit government exposure while providing adequate liquidity to industry,” it said.

LIC is short for Life Insurance Corporation of India, PFC stands for Power Finance Corporation Limited, EPF for Employees’ Provident Fund, NIIF for National Investment and Infrastructure Fund and IIFC for India Infrastructure Finance Company.

For micro, small and medium enterprises (MSMEs), CII suggested a credit protection scheme wherein 75-80% of a loan would be guaranteed by the Reserve bank of India (RBI). If the borrower defaults, the RBI would buy the loan and repay the bank up to 75-80% of the loan, limiting the risk to the lender.

“SIDBI {Small Industries Development Bank of India} could provide the guarantee for loans to industry and trade while NABARD {National Bank for Agricultural and Rural Development} could provide the guarantee for loans to agro-processing sectors,” it said.

Without an increase in government spending in the near-term to drive an economic recovery, public revenue will dwindle, and high deficits will pose a problem in the future, said CII director general Chandrajit Banerjee said.

“Given the extent of the damage to the economy from the disruption to business, the GDP growth in FY21 will likely be the lowest in many decades,” Banerjee said.

The economic costs of the lockdown are rising each passing day with the impact being felt across sectors. The situation requires immediate, across-the-board intervention from the government, he added.

Under the coronavirus lockdown that took effect on March 25, economic activity has slowed significantly. In manufacturing, only food processing, pharmaceuticals and medical equipment industries are operational; construction and mining have ground to a halt. Within services, transport and hospitality have been particularly badly hit; financial services, information technology and government services remain partially operational.

Any significant revival in investment activity is unlikely as capacity utilization levels may remain suboptimal. Consumption demand is likely to remain tepid because the crisis has eroded people’s incomes, CII said.

On the external front, as economies across the globe continue to struggle with the pandemic, international trade may decline by 13 to 32% in 2020, he World Trade Organization has estimated.

“Given the situation, government intervention becomes critical not only to sustain the economy but also to prevent any humanitarian crisis,” said Banerjee.

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