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Industry body submits economic road map to govt, seeks additional support
The Covid-19 outbreak and the three-week nationwide lockdown enforced to promote social distancing and prevent its spread is expected to take a heavy toll on Asia’s third-largest economy, which had already been in the midst of a slowdown when the pandemic hit.
The Confederation of Indian Industry (CII) has called for a fiscal support package equivalent to 2-3% of gross domestic product (GDP), or around Rs 4-4.5 lakh crore for industry in addition to the Rs 1.7 lakh crore the government has earmarked to ease economic distress caused to the poor by the coronavirus (Covid-19) pandemic. The industry grouping asked the government not to expend its firepower all at once given the likelihood that the crisis will not go away anytime soon.
CII, which also addressed ways to restart the economy after the national lockdown imposed to check the spread of the pandemic ends, urged the government to set up an empowered group of ministers to plan, review and address implementation challenges. Inter-departmental task forces led by the chief secretaries should be formed at the state level too for the same job, it said in recommendations submitted to the government.
“Since we are not going to see the end of the crisis soon, the government should not spend all its firepower at once. The coronavirus pandemic has been the biggest disruption to the world economy ever since the 2008-09 global financial crisis,” CII director-general Chandrajit Banerjee said.
“While India entered the 2008 crisis coming off years of strong growth, the story is different this time around, with the economy going through a slowdown pre Covid. It is our considered judgement that the impact is severely adverse and the best estimates of GDP growth for the current fiscal would be no more than about 2% with a downward bias,” Banerjee said.
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Banejree said the government should extend additional support to “people at the bottom of the pyramid” thorough cash transfers. Support to industry could come through the banking system, he said.
The Covid-19 outbreak and the three-week nationwide lockdown enforced to promote social distancing and prevent its spread is expected to take a heavy toll on Asia’s third-largest economy, which had already been in the midst of a slowdown when the pandemic hit. In the annual budget presented on February 1, the government estimated that economic growth in the year to March 2020 would slow to 5%, the slowest pace in 11 years, from 6.8% the previous year
The economic crisis will affect the lowest strata and the informal sector in the economic pyramid disproportionately, the CII said in its report to the government. The industry grouping asked the government to provide cash transfer amounting to Rs 2 lakh crore to Jan Dhan account holders.
“Considering the size of the population and very little social security for the unorganised sector, the impetus required will be much larger than 2% of GDP,” said Sandeep Shah, partner, NA Shah Associates LLP,. “Countries like the UK are talking about +10% of GDP impetus. The impetus will have to be in areas of making goods and services cheaper in the hands of consumers by substantially reducing the GST {Goods and Services Tax}, excise duty on petroleum/ electricity. The state governments will also have to chip in by reducing the stamp duty and fees for real estate.”
“The impetus cannot be incremental but something which will allow all round economic activities. Any lopsided growth will accentuate the problem of unemployment,” he added.
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To address the immediate economic distress in the wake of the lockdown, and ensure food and cash reaches the marginalised segments of society, the government announced Rs 1.7 lakh crore package last month,under a new scheme called the Pradhan Mantri Gareeb Kalyan Yojana (PMGKBY).
Finance minister Nirmala Sitharaman announced a series of measures, which focused on additional food transfers at no cost, additional cash for vulnerable segments, concessions on government schemes aimed at helping households reduce their expenditure, and support those in the frontline of the battle against the pandemic. The primary beneficiaries of these measures include those below the poverty line, farmers, women, elderly citizens, the physically challenged, and workers in both the unorganised and organised sectors.
The CII has undertaken a contact programme with over 8,000 member-companies, directly and indirectly, to assess the issues faced by them and the overall economic impact of the pandemic and the consequent shutdown that started on March 25.
“Our estimates are that the economy would need a credit expansion of 14-15 %. Additionally, support through banks would allow the government a leverage of 5-6 times, mitigating the fiscal impact,” Banerjee said.
The support should include working capital enhancement and support for payment of wages to all industry and special reconstruction terms loans for micro, small and medium enterprises(MSMEs) and stressed sectors.
The CII has also asked the government to ensure safeguard measures for the migrant workforce to return to work. For the re-start to be organized, safe and sustainable, various issues related to health and safety, logistics, migrant workers and coordination between various agencies of the government also need to be addressed, it said.
To get the migrant workers, who have left the cities and gone back to their homes in the countryside, back to their places of work, the government should undertake an aggressive messaging campaign on the preparedness of the official machinery and industry for the restart, the CII said. It should facilitate their return through issue of e-passes and by arranging special transport.
It has also recommended a Covid-19 insurance scheme for migrant workers for three months, saying a part of the cost for it could be borne by the government and part by industry.
For addressing supply hurdles, the CII said that the government needs to facilitate the seamless movement of goods and services across the country and key interventions need to be taken. Seamless transportation of goods and material across the country is a prerequisite for a smooth restart, it said. This is also harvest time and the logistics sector has a key role in transporting farm produce across India.
“Drivers and other workers engaged in the sector should be issued e-passes by local authorities, those with e-passes should be allowed to travel to their place of work. Special transport could be arranged from clusters from where large number of workers come, to clusters where they come to work, with all the safety protocols in place. Dhabas on highways should be allowed to open, so that the required basic amenities are available to the truck drivers en route,” it said.
Hindustan Times reported that nearly 600,000 truck drivers transporting supplies had been stranded en route since the first week of the lockdown.
Separately, in a recommendation letter to finance minister Sitharaman on Wednesday, Associated Chambers of Commerce and Industry of India (ASSOCHAM), too, recommended a 16-point agenda and a stimulus package of at least $200-$300 billion to support the economy.
“Keeping up with most economies of the world to institute stimulus measures with 10% of the Gross Domestic Product (GDP), the Indian economy would need a transfusion of over $200 billion with an ability to go up to $300 billion, over the next 12-18 months. Out of the corpus, $50-100 billion cash needs to be infused in the system over the next three months, to arrest the loss of jobs and compensate for loss of income,” Deepak Sood, ASSOCHAM secretary-general, said.
