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Govt Working On Reforms To Fight Economic Slowdown

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Growth fell to a five-year low of 6.8 per cent in FY19, much below the government’s projection of 7.2 per cent.

The centre is planning reforms in crucial sectors over the next few months apart from the meetings being held by Finance Minister Nirmala Sitharaman with industry. These are a part of strategies of improvement for the sluggish economic growth.

These plans include a public transportation initiative on the lines of the erstwhile National Urban Renewal Mission (JN-NURM) for the automobile sector, a tax overhaul through the direct tax code (which is in the works), and others.

The finance minister will also be meeting market participants including senior officials of foreign portfolio investors and mutual funds on Friday to ascertain views on current issues relating to financial markets. 

Sitharaman also addressed immediate fears, assuring representatives of India Inc that the penal provisions, including a jail term, under the recent amendments to the Companies Act, would not be imposed for companies that did not meet corporate social responsibility (CSR) norms.

She gave this assurance to members of industry bodies and other industrialists.

Representatives of the Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industry (Ficci), Associated Chambers of Commerce and Industry of India (Assocham), and Cellular Operators Association of India (COAI) were present in the meeting on Thursday.

“The penal provisions for CSR were discussed. We were assured by the finance minister that punitive actions, which include a jail term, would not be taken,” Sajjan Jindal, chairman of JSW Group, told reporters after the meeting.

Corporate Affairs Secretary Injeti Srinivas also said on Thursday the government had no intention to criminalise any default in corporate social responsibility spending. 

According to the amendments to the Companies Act, which was passed in Parliament, violations of CSR norms will attract fines ranging from Rs 50,000 to Rs  25 lakh for both the company and defaulting officers, with officers also liable to imprisonment of up to three years. 

Speaking on the economic slowdown, an official who has been part of the industry-finmin meetings, said, “The government is seized of the matter that reforms are needed across all sectors, be it coal, mines, power, or discoms, and steps will be taken to address these.” The official added that industry representatives in a recent meeting had complained about the high cost of business.

“The economy needs initiatives, for which the government is making preparations,” said the official, who participated in the meetings held over the last two days, adding that various plans were being discussed even with the top levels in government. “Next in line for the government in terms of priority is combating the slowdown,” the official said.

Growth fell to a five-year low of 6.8 per cent in FY19, much below the government’s projection of 7.2 per cent.

Growth in the fourth quarter decelerated to the lowest in 20 quarters at 5.8 per cent, owing to a decline in investment.

In the meeting with Sitharaman, industry representatives asked the government for a Rs 1 trillion ‘quick fix’ stimulus to revive demand and consumption.

The finance minister met bankers on Monday; representatives of micro, small, and medium enterprises on Tuesday; auto makers and component manufacturers on Wednesday; and industry bodies on Thursday. She will meet representatives of the markets and investors on Friday, and home buyers and real-estate developers on Sunday. Assocham President B K Goenka said his group had sought a stimulus package to initiate the investment cycle. “The economy requires a critical intervention through a stimulus package. We have suggested a package of over Rs 1 trillion,” he said.

“Stresses are there as far as non-banking financial companies (NBFCs) are concerned, and because of NBFCs, what’s happening in other industries,” said Ajay Piramal of Piramal Enterprises.

In the meeting industry groups were unanimous in their complaint that banks had not passed on the benefits of multiple rate cuts to consumers. “Compared to a cumulative 75-basis-point cut in repo rate, there has been only a 10-basis-point cut in the median marginal cost of lending rate (MCLR) of public sector banks for a one-year tenor over February-June 2019,” CII Vice-President T V Narendran said.

The CII wanted a reduction in the small savings rates in line with market rates. It warned that inability to do so would scuttle the efforts of public sector banks to reduce deposit rates and hence ease lending rates. 

“While it’s encouraging that the RBI has reduced the rate by cumulative 110 basis points, industry is looking forward to some more rate cuts because real interest rates are still very high,” Ficci President Sandip Somany said.

Goenka said idle government land should be monetised, given the fiscal constraints. Such land could be used for affordable housing and new projects, he added.

Assocham has asked the government to formulate a plan to turn the US-China trade war to good account. 

Vodafone Idea Chief Executive Balesh Sharma said Sitharaman told her secretaries to look into the issues raised by various industry bodies, especially the one relating to GST refunds staying blocked.

Talking points

  • Assocham President B K Goenka suggests Rs 1-trn stimulus package to initiate the investment cycle
  • Piramal Enterprises Chairman Ajay Piramal says matters such as reluctance of banks to lend to the industry were raised
  • CII Vice President T V Narendran says a slowdown in the auto industry will have implications for the steel sector
  • Ficci President Sandip Somany says transmission of interest rate cuts to consumers by banks is a big issue