Industry body CII puts India’s GDP between -0.9{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} to 1.5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in FY21

The Industry body CII, has projected India’s GDP growth between -0.9{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} to 1.5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in FY21.

“Given the extent of the damage to the economy from the disruption to business, the GDP growth in FY21 will likely be the lowest in many decades”, highlighted Chandrajit Banerjee, Director General, Confederation of Indian Industry.

As the industry awaits stimulus package from the government, CII has suggested the creation of a fund for subscribing to corporate bonds & the Credit Protection Scheme for MSMEs.

According to the industry body, due to the lockdown, economic activity has slowed down significantly across most sectors. In manufacturing, only food processing, pharmaceuticals, and medical equipment are operational, while construction and mining activities have halted completely.

Shifting focus on the service sector, the body highlighted that majority of trade, transportation, and hospitality remain closed, while financial, IT, and government services remain partially operational.

Even in the power sector which can operate, a significant reduction in demand owing to lockdown is having an adverse impact.

Any significant revival in investment activity is unlikely as capacity utilisation levels may remain suboptimal. Consumption demand is likely to remain lacklustre as people’s incomes have been impacted.

The body also emphasised on the global economic scenario, as a result of the pandemic global trade may decline by 13 to 32{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in 2020, as estimated by the World Trade Organisation.

“Given the situation, government intervention becomes critical not only to sustain the economy but also to prevent any humanitarian crisis,” said Banerjee.

CII has one out with a paper titled ‘A plan for economic recovery’, where it has laid out its growth expectation under three scenarios.

Scenario 1

In the baseline scenario, GDP is expected to grow at just 0.6{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} on an annual basis as economic activity is expected to remain constrained due to continuing restrictions on the free movement of goods and people beyond the lockdown period. 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.

Scenario 2

In the optimistic scenario, which envisages a faster pick-up post the lockdown period, GDP is forecasted to register a growth of 1.5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in the best case.

Scenario 3

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 decline by -0.9{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}.

“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.

Suggestions by CII

According to CII, an additional amount of Rs 2 lakh crore should be transferred to JAM account holders, apart from the Rs 1.7 lakh crore stimulus already announced.

Also, additional working capital limits to be provided by banks, equivalent to the April-June wage bill of the borrowers, backed by a Government guarantee, at 4-5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} interest should be given.

In addition, the CII paper has suggested the creation of a fund or SPV with a corpus of Rs 1.5 lakh crore which will subscribe to NCDs/Bonds of corporates rated A and above. The fund can be seeded by the Government contributing a corpus of Rs 10,000-20,000 crore, with further investments from banks and financial institutions such as LIC, PFC, EPF, NIIF, IIFCL, et al. This will limit Government exposure while providing adequate liquidity to industry.

“Without an increase in government spending in the near-term to drive an economic recovery, government revenue will dwindle, and high deficits will continue to be a problem in future”, said Banerjee in conclusion.

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