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FICCI suggests monetary related measures to cure malady

21
Nov '08
Brief note by Mr. Rajeev Chandrasekhar, MP and President, FICCI for the meeting with Mr. L K Advani, Leader of Opposition, Lok Sabha, India.

The recent stream of macroeconomic data brought out by the government confirms that Indian economy is slowing down. While on one hand industrial growth slumped to a measly 4.8% in September 2008 (as against 7% growth in September 2007), on the other hand exports shrunk by 15% in the month of October 2008. The recent dip in inflation to 8.98% from 10.72% the week earlier is also to some extent a fallout of the reduction in demand in the economy.

With industrial growth decelerating and the services sector also exhibiting signs of a moderation in growth, the near term outlook for the Indian economy does not appear bright. In fact, growth in the year 2008-09 is likely to be in the range of 7% to 7.5% according to most estimates available. The year 2009-10 is not likely to be different with growth likely to stand around the 7% mark as per current estimates.

Firm level outlook – Capacity addition, hiring etc.
Moving away from the macro data to firm level indicators, we again see that members of corporate India are in the midst of a challenging situation. In several key sectors of the economy, we are hearing reports of forced shutdown, scaling down of planned investment, extended leaves for workers, laying off of casual labour etc.

In fact, just a few days back the head of one of India's largest and most pretigious business houses (TATA) wrote to the CEOs of all the group companies asking them to hold back acquisition and capital expenditure plans, to improve efficiency and to review cash flow requirements. One can well imagine that if one of India's largest business houses is faced with such a situation then what would be the state of affairs in other companies particularly those in the small and medium sectors.

Employment generation:
What makes the situation all the more challenging is that any slowdown in growth will get reflected in the pace of fresh employment generation. FICCI's research shows that if growth in 2008-09 falls to 7% then the economy would be able to generate just about 6.8 million additional jobs. This, of course, is our most optimistic projection.

We fear that in the worst case, employment generation in 2008-09 may fall to just about 5.8 million. For an economy that is seeing an annual addition of 9 million people to its labour force and is targeting 12 million new jobs every year to reduce unemployment, this scenario definitely raises a lot of concerns.

FICCI's suggestions:
FICCI therefore feels that we need to boost growth once again as growth is the best antidote for addressing the challenges of unemployment and poverty. And we shall have to undertake this task all by our own as most other countries including America today are focusing on how to best address their own real economy issues.


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