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India's GDP may grow between - 0.9% and 1.5% in FY21: CII

Apr '20
Pic: Shutterstock
Pic: Shutterstock
India’s gross domestic product (GDP) growth is likely to grow between minus 0.9 per cent and 1.5 per cent in fiscal 2020-21, according to a paper titled ‘A plan for economic recovery’ by the Confederation of Indian Industry (CII) that forecasts growth under three scenarios: prolonged (-0.9 per cent), baseline (0.6 per cent) and optimistic (0.9 per cent).

In the baseline scenario, in which economic activity is expected to remain constrained due to continuing restrictions on the free movement of goods and people beyond the lockdown period, GDP is expected to grow annually at just 0.6 per cent.

This will lead to disruption in supply chains, slow pick-up in investment activity, labour shortages in the short run and muted consumption demand on account of reduced household incomes, the paper said.

In the optimistic scenario, which envisages a faster pick-up after the lockdown period, GDP is projected to register a growth of 1.5 per cent. In case of a more prolonged outbreak, where the restrictions in existing hot-spot regions get extended, while new regions are identified as ‘hot-spots’ leading to intermittent stop and start in economic activity, GDP is likely to see a growth of by minus 0.9 per cent.

Overall, India’s GDP growth in this fiscal is likely to be the lowest in many decades, said CII director general Chandrajit Banerjee in a press release. The situation requires immediate, across the board intervention from the government, he said.

Any significant revival in investment activity is unlikely as capacity utilisation levels may remain sub-optimal. Consumption demand is likely to remain lacklustre as people’s incomes have been affected, the paper said.

“There is no doubt that the economy is going through turbulent times, and India will have to spend, for navigating its way out of the current crisis. At this stage, the government must do whatever it takes to tide over the crisis,” said Banerjee.

The urgent fiscal interventions suggested by CII includes cash transfers amounting to ₹2 lakh crore to Jan Dhan-Aadhar-Mobile (JAM) account holders, in addition to the ₹1.7 lakh stimulus already announced. CII has also suggested additional working capital limits to be provided by banks, equivalent to April-June wage bill of the borrowers, backed by a government guarantee, at 4-5 per cent interest.

CII has also suggested the creation of a fund or a special purpose vehicle (SPV) with a corpus of ₹1.5 lakh crore that will subscribe to non-convertible debentures (NCDs) or bonds of companies rated A and above. The fund can be seeded by the government contributing a corpus of ₹10,000-20,000 crore, with further investments from banks and financial institutions. This will limit government exposure while providing adequate liquidity to industry.

For micro, small and medium enterprises (MSMEs), CII has suggested a credit protection scheme whereby 75-80 per cent of the loan should be guaranteed by the Reserve Bank of India (RBI), i.e. if the borrower defaults, RBI should buy the loan and repay the bank up to 75-80 per cent of the loan, so the risk to the lender is limited.

The Small Industries Development Bank of India (SIDBI) could provide the guarantee for loans to the industry and trade while the National Bank for Agriculture and Rural Developmen (NABARD) could provide the guarantee for loans to agro-processing sectors, the CII paper added.

Fibre2Fashion News Desk (DS)

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