As we are set to usher in the New Year, there are nascent signs that the economy is on a better footing than what it was in the year gone by. With the proactive measures taken by the government and the Reserve Bank of India (RBI), industry believes that the slowdown will be overcome, and a gradual recovery will soon be in place.
“The results are fast percolating through and becoming increasingly evident on the ground. Nascent signs of recovery are noted in the form of improved PMIs of manufacturing & services, jump in passenger air traffic, sharp moderation in the decline in sales of passenger cars among others”, highlighted Vikram Kirloskar, president, CII. Though we may continue to see a subdued GDP print in the third quarter as well, but the quarters thereafter are likely to see a rebound, Kirloskar added.
With the initial difficulties associated with the structurally positive measures of GST and the IBC getting gradually ironed out, the industry is hopeful that this will result in the accrual of substantial benefits for the economy. The year 2019 will be remembered as one where the systemic clean-up of the financial sector picked up pace, which might have resulted in short-term pain for the economy. However, this tidying up will have extensive positive ramifications for the economy in the short to medium term.
“On balance, all these factors will have a significant bearing on growth in the next fiscal. Add to this the easing of global trade tensions along with lagged impact of monetary easing coupled with improved transmission, and we are in for a gradual recovery getting firmly entrenched by the next fiscal,” Kirloskar commented.
CII has actively partnered with the government by providing constructive recommendations from the industry to kick-start growth in the year gone by. We will continue to engage with the relevant stakeholders in order to make sure that our economic growth moves to a higher trajectory. A critical issue that industry has highlighted in the past year is that of pending payments from government departments and CPSEs. All outstanding payments need to be released at the earliest to vendors in the private sector. This would boost liquidity in the hands of the private sector which would reduce the need to borrow for meeting working capital requirements. CII has suggested the creation of an e-portal where invoices can be uploaded, and delayed payments can be tracked. In addition, arbitration awards and cases under tax litigation need to be settled quickly and government receivables should not be treated as NPAs.
CII feels that with the sharp moderation in growth, the time has come to adopt an expansionary fiscal policy. “Just like our medium-term inflation target range, we can have a Flexible Fiscal Policy target which will set a central target for the fiscal deficit with a range of around 0.5 to 0.75%. The additional availability of funds may be spent on key infrastructure projects which can be implemented quickly. This is likely to have a significant multiplier effect on the economy”, said Uday Kotak, president-designate, CII. In the subsequent years, there can be a glide path to converge to the FRBM trajectory over a 2-3-year timeframe, he added.
In order to increase the tax base and ensure higher compliance, it is necessary to simplify and reduce the number of GST rates and increase its coverage. Once it is converged, the practice of reviewing rates at every meeting of the Council must be discontinued. Similarly, a rational structure of customs duty needs to be in place. The principle of higher customs duty on final products with lower duty on intermediate goods and lowest on raw materials needs to be followed, without exception. This can plug loopholes and increase compliance.
In order to boost rural demand, CII has recommended that the payments under PM-KISAN scheme be expedited. The scheme may also be extended to include non-farmers engaged in allied activities such as livestock and fisheries. In addition, the government could also consider phasing out of agri-input subsidies, the funds from which could be used to enhance direct cash transfers to the farmers.
To incentivise investment demand, Kotak highlighted that the cost of equity capital could be brought down by reducing the long-term capital gains taxation to 10% across all asset classes, with 12 months being considered as ‘long term’. However, the best option would be to do away with Long Term Capital Gains Tax altogether. In addition, the reduction in the corporate tax rate has been a welcome move, as it has helped companies tide over a difficult period. Businesses should now use the extra money in their hands to step up spending in under-invested areas such as R&D and skills training. This will help the long-term sustainability of their businesses and help build a stronger economy. CII would engage with its membership, especially those in the small and medium scale sector, to help boost their competitiveness. “For the economy to revive, it is critical for India’s exports to increase their market share,” he said.
He further suggested that to revive the NBFC sector, the Government could consider setting up a Refinancing Agency for well governed NBFCs on the same lines as the Mudra scheme for MSMEs and National Housing Bank for mortgages.
CII has also highlighted the need to build business confidence through policy stability. T V Narendran, VP, CII said that “strengthening mutual trust and building a climate of business confidence by reassuring entrepreneurs, in the true spirit of ‘Sabka Saath, SabkaVikas and Sabka Vishwas’ can foster the growth process”. Decriminalisation of business laws, on the lines of what is being done for the Companies Act, would be a concrete step to address this trust deficit, Narendran added. Further, the policy measures espoused by the government must instill confidence in the stakeholders that they will be carried out. “To paint an ideal scenario, the acquisition of land should be simplified, the tax regime should be made stable, wages should be determined in accordance with the productivity levels, and there should be lowest possible deterrents to timely completion of projects”, he said.