JOIN USCOVID-19 effect: Growth to come down further, says CII
As fears of rapid spread of COVID-19 compounded, apex industry body Confederation of Indian Industry (CII) forecast growth falling down further and sought help from the government.
India has already been facing growth deceleration, with GDP growth falling to 4.7% in Q3 FY2020. The impact of COVID-19 is likely to pull it down further in the fourth quarter.
GDP growth could slide to below 5.0% in FY2021 if policy action is not taken urgently. "Fiscal and monetary stimulus measures need to be announced urgently,” said Chandrajit Banerjee, Director General, CII.
Global growth forecasts have been downgraded by several institutions. OECD is now forecasting 2.4% global GDP growth in 2020 compared to a forecast of 2.9% made in October 2019. Similarly, Goldman Sachs has downgraded its forecast from 3.4% to 1.3%, Morgan Stanley from 3.2% to 2.7% and Moody’s from 2.4% to 2.1%.
The CII stated that as done in many countries, the government may consider a strong fiscal stimulus to the extent of 1 percent of GDP amounting to Rs 2 lakh crore to be given in the hand of the needy citizens through Aadhar based Direct Benefit Transfer. An amount of Rs 10,000 for each individual, especially for the rural and urban poor, and Rs 10,000 for the most vulnerable section – the elderly. The PLFS data shows that there are about 20 crore casual labourers who could be the identified beneficiaries. This will help spur consumer demand.
Besides, to improve market sentiments, that is currently witnessing extreme volatility, the government may consider removing Long Term Capital Gains tax of 10% and fixing the total Dividend Distribution Tax at 25%.
Banerjee said GST payments should be on collection of bills than on raising of invoices. This will help avoid liquidity getting locked in case there are delays in payments.
Pending payments to the industry by the government should be cleared on a priority basis.
On the Monetary measures to be taken, an immediate Repo rate reduction of 50 basis points along with a 50 basis points reduction in Cash Reserve Ration (CRR) should be announced to ensure low cost of funds, he added.
The RBI may consider relaxing the NPA recognition norms from 90 days to 180 days till September 30, 2020 to provide relief to an industry faced with payment issues as well as pressure on banks to classify loans as NPAs.
He suggested the government could create a corpus for supporting MSMEs to tide over the crisis for wages payable during the temporary shut-down, cash flow disruptions, working capital requirements.