India Inc sees quick action to allow foreign direct investments in key sectors such as civil aviation and multi-brand retail, and ushering in the Goods and Services Tax regime will boost the economy's sagging growth rate.
Spooked by the sharp dip in fourth quarter GDP growth to 5.3 per cent, India Inc has asked for strong and decisive action on reforms from the Government to regain the growth momentum. The CII President, Mr Adi Godrej, said the reforms process needs to be urgently revived.
“Opening up foreign direct investment in critical sectors such as civil aviation and Defence, and allowing FDI in multi-brand retail will go a long way in improving sentiments. GST alone will add 2 percentage points to GDP. This particular reform has been delayed for three years now,” he said, adding that although single brand has opened up, the norm of 25 per cent sourcing from small and medium enterprise should be tweaked to accommodate any Indian manufacturer.
Warning that the country could slip back into a “1991-type crisis”, Dr Rajiv Kumar, Secretary-General, FICCI, said: “Urgent and bold steps are immediately needed to prevent the economy from descending into a crisis.”
Pointing to the decline in the growth of Gross Capital Formation, he said, “This shows a grave crisis of investor confidence.”
The rupee depreciated by 16 per cent since February 2012. In 2011-12, while GDP growth stood at 6.5 per cent, industrial output has grown at a meagre 2.8 per cent.
Foreign capital
“We have to work to improve the perception of India, to encourage flow of foreign capital. Retrospective amendment and sharp depreciation of the rupee have tarnished the image. The Government should react strongly to this slowdown,” Mr Godrej said. In the capacity of CII President, Mr Godrej asked the Reserve Bank of India for a monetary stimulus, and to cut the CRR (cash reserve ratio) and repo rate by 100 basis points through the fiscal year.
“Monetary policy should be based on inflationary expectation and not inflationary history. It is expected that global commodity prices will cool down and, hence, the case for rate cut,” Mr Godrej said.
The fiscal deficit, he said, has to be reduced not by increasing taxes but by reducing subsidies. “Lowered tax rates will encourage spending which, in turn, will fuel growth and lead to better tax collections,” he reasoned.
Tax cuts were also demanded by Assocham President, Mr Rajkumar Dhoot, who said the situation called for “review of tax proposals and further relaxation of FDI norms.”
Spiralling costs
Dr S. P Sharma, Chief Economist, PHD Chamber Research Bureau, said, “The major impediment to the industry has been the spiralling input, energy and manpower costs. The Government should focus on structural problems like easing supply-side constraints, financing of infrastructure expenditure, lowering the costs of doing business, simplification of the tax structure, and achieving fiscal consolidation.