In the wake of the Covid-19 outbreak, that has had far reaching ramifications on the economy, the Confederation of Indian Industry (CII) has submitted its recommendations to the Government. These address many challenges that the economy is currently facing and would help in restarting the economy in a safe, sustainable and calibrated manner.
The outbreak has caused widespread economic damage along with disrupting supply chains, affecting financial markets and liquidity, along with livelihoods. The crisis is said to be worse than the financial crisis of 2008, when India was relatively in a better position compared to the current scenario.
Given that the Indian economy was already undergoing a slowdown in growth, CII’s assessment for the best estimates of GDP growth for the current fiscal under the present situation, is no more than 2%, with a downward bias. Thus, restoring the economy through timely and appropriate interventions is the urgent need of the hour.
CII has recommended a comprehensive economic package for FY 21, where the fiscal support is limited to 2% of GDP. CII’s recommendations on various aspects related to the fiscal package are as follows:
Additional support to lowest strata and informal sector
The adverse impact of the crisis would be specifically severe for the lowest strata, i.e. people at the bottom of the pyramid and the informal economy.
CII suggests an additional package for these sections, that is over and above the INR 1.7 lakh crores provided under the Pradhan Mantri Garib Kalyan Yojana, by way of providing cash transfers amounting to INR 2 lakh crores to JAM account holders.
Support to enterprises through banks
CII is of the view that supporting industry through banks instead of giving direct subsidies may prove to be more beneficial under the circumstances. CII estimates that the economy would need a credit expansion in the range of 14-15 per cent.
CII therefore requests the Reserve Bank of India (RBI) to extend the support to the industry. Interventions could include:
Pre-empting Bank Failures
Addressing the liquidity issues that the economy is facing and will continue to face in the future, as a result of the crisis is imperative, to ensure that the banking and financial sectors are not overstressed and are able to maintain capital adequacy and solvency.
It is important to recognize that the economy cannot afford a bank collapse at this point of time and take pre-emptive action. CII has proposed that the Government of India sets apart a fund of INR 30,000 crores. This could be accessed by banks that meet certain criteria and under specified conditions, by way of issuing Tier 1 bonds which will be convertible at the option of the fund. This is expected to provide a buffer to the Indian banking system, by preventing deserving banks from collapsing.
The CII note submitted to the Government also includes suggestions for health, safety and getting back migrant workers with proper messaging to raise their confidence. These can be found in this blog https://www.ciicovid19update.in/blog/cii-recommendations-on-health-safety-and-others-for-restarting-the-economy-in-a-safe-and-sustainable-manner
The entire paper is available here: