New Delhi: The finance minister said on Friday that workers may have to accept pay cuts if necessary to protect their jobs as senior officials called for more action to support the economy during the global downturn.
Weeks ahead of a general election at which the state of the economy will feature prominently, finance minister Pranab Mukherjee said jobs must be saved.
The global slump has pushed economic growth in India down to a six-year low. Factory output fell in December by 2% from a year earlier while government officials predict exports dropped 22% in January from a year earlier, raising the prospect of more job losses.
A labour ministry survey estimated that the small-business sector, which accounts for more than 60% of economic activity, lost about half a million jobs in the December quarter.
“The government has been conscious of the magnitude of this still deepening crisis and has been taking steps to mitigate its impact on the Indian society,” Mukherjee told a labour conference in New Delhi.
“Jobs must be protected even if it means some reduction in compensation at various levels.”
About 32% of people in a nationwide opinion poll released this week cited the economy and inflation as their biggest concerns ahead of a parliamentary election due by May. The survey was conducted by CNN-IBN news channel and a local think-tank.
Finance minister Pranab Mukherjee and deputy chairman of Planning Commission Montek Singh Ahluwalia during the 42nd session of Indian Labour Conference in New Delhi on Friday. Kamal Singh / PTI
According to a lobby group, the Federation of Indian Export Organisations, exporting firms may end up cutting 10 million jobs in the year to March in the face of sluggish growth in exports, which like elsewhere in Asia are falling rapidly.
Construction firms and exporters have been worst hit by tight credit and deepening recessions in major markets and they have slashed jobs and deferred new projects despite a series of government incentive schemes and extra spending commitments.
India has rolled out tax breaks and subsidies to cover interest payments to help exporters and cut factory gate duties but trade secretary GK Pillai said on Thursday no new trade incentives were planned for the fiscal year which ends in March.
Growth in Asia’s third-largest economy is expected to slow to a six-year low of 7.1% in 2008-09, the fiscal year that ends on 31 March, well below the 9% rates seen in the last three years.
More spending, rate cuts?
The deputy chairman of India’s Planning Commission, Montek Singh Ahluwalia, said the country was witnessing a decline in exports and investment demand and the central bank needed to ease monetary policy further to provide support to government efforts to revive growth.
“It (the government) has to have monetary and credit policy which is geared to the objective of ensuring that there is revival of growth back to its normal level,” said Ahluwalia, speaking at the same conference.
Separately, Ahluwalia told the NDTV television channel that the central bank could cut the cash reserve requirement (CRR), the proportion of funds banks must keep with it, and interest rates to add liquidity and help revive growth.
“That is certainly an instrument they can use, both CRR and interest rates,” he said in the interview, a transcript of which was published in the Indian Express on Friday.
Since October, the Reserve Bank of India has cut its key lending rate by 350 basis points to 5.5%. The CRR has dropped from 9% in August to 5.0%.
On Wednesday, RBI governor Duvvuri Subbarao said in Tokyo there was room to cut rates, but the question was when and by how much. He, however, said a fall in inflation does not automatically mean rates will drop.
Annual wholesale price inflation, India’s most widely watched price measure, has plummeted from a near 13% in early August to below 4% in the first week of February, helped by cuts to state-set fuel prices and cheaper commodities.
Higher spending has prompted the federal government to reset its fiscal deficit target to 6% of gross domestic product for the year to March, more than double the 2.5% estimated in last year’s budget.