By IRNA,
New Delhi : The global economic recession is having an impact on the Indian economy and the manufacturing sector is already under stress, said Srinivasan.
“Some signs are emerging that the economy is stabilizing but acknowledged that India faces many challenges”, said Venu Srinivasan (pictured), President, Confederation of Indian Industry (CII) at a press conference held in New Delhi.
He said that the level of uncertainty is currently high and CII’s priority will be to work with the government on the revival of the economy.
In particular, he said that the challenges of building infrastructure and addressing governance issues are key.
CII would like to highlight these areas in its policy work in the current year.
In 2009-10, the strength in rural income and the pay hikes for government employees will provide some stimulus to demand.
However, uncertainty continues to be high about the performance of more than 70 per cent of GDP that is contributed by industry (26 per cent of GDP) and non-government services (44 per cent of GDP), said the CII President.
A CII analysis of quarterly performance of 2661 companies clearly shows that the growth in their net profit has fallen sharply from 22 per cent growth in December 2007 to a decline of 25 per cent in December 2008.
Lack of demand and high interest and other costs including infrastructure costs have particularly put Indian manufacturing at about 15 per cent cost disadvantage compared to their peers in other emerging economies, Srinivasan said.
On monetary intervention, the CII President said that the current inflation situation creates a huge and rare opportunity for the RBI to cut rates further.
CII suggests that the RBI cut policy rates by 50 bps.
However, this would only be effective if bond yields start reflecting the actual health of the economy.
Currently, bond yields have increased because of the high level of borrowing announced by the government.
CII feels that monetizing the deficit is the best option in the current circumstances.
An announcement to this effect would ensure that private sector investments are not crowded out, Srinivasan said.
In order to improve productivity in agriculture, Srinivasan said that government policy should move from providing subsidies to increasing its investment in rural infrastructure.
Investments in rural infrastructure including irrigation, storage facilities, cold chains and rural roads would go a long way in addressing the structural deficiencies in the agriculture sector.
Agriculture needs to grow at 4 per cent on a sustained basis to support the livelihoods of the large number of people dependent on agriculture.
CII’s policy advocacy would stress the importance of rejuvenating growth in agriculture.
In the manufacturing sector, CII would stress the importance of achieving a higher share in GDP for this sector.
While manufacturing accounts for over 40 per cent of GDP in China, in India it is less than 20 per cent.
The manufacturing sector is key for providing jobs to the large number of semi-skilled persons entering the work force every year.
To achieve this, it is imperative to reduce the competitive disadvantages faced by Indian companies in relation to power and transportation infrastructure.
The Government also needs to look at acquiring land systematically and transfer the same to industry in a transparent manner, the CII President said.
Briefing on the other thrust area of CII this year – infrastructure, the CII President said that India faces a huge infrastructure deficit and requires a massive investment.
According to Srinivasan, the first and the most critical point is that the Government needs to ramp up investment in infrastructure, immediately to 7 per cent of the GDP and to 9 per cent in the next 1-2 years time.
To achieve this government requires to do two things: Increase public spending substantially and at the same time create an investment conducive environment to encourage greater private sector participation in creation of infrastructure.
The second aspect is improvement of delivery mechanism.
On the policy front, Srinivasan said that CII would support both the Government and the Regulator in framing policy issues.
CII would also represent for low cost of compliance since it is the cost of non-compliance which should be high so as to act as a deterrent.