New Delhi: Job creation, China and an interest rate cut by the Reserve Bank of India (RBI) figured prominently during a rare meeting on Tuesday between Prime Minister Narendra Modi and corporate chiefs, bankers and economists.
Widely seen as the head of a business-friendly government, Modi has, apart from receiving visiting CEOs of multinational corporations on courtesy calls, mostly kept Indian businesses and businessmen at arm’s length—perhaps to avoid any allegations of crony capitalism.
Tuesday’s meeting was attended by finance minister Arun Jaitley, Reserve Bank of India governor Raghuram Rajan, Reliance Industries Ltd chairman Mukesh Ambani, Tata Sons Ltd chairman Cyrus P. Mistry and Aditya Birla Group head Kumar Mangalam Birla, and several other business leaders.
Modi identified job creation as the key priority of his government even as he goaded the private sector to take more risks. He also nudged companies to invest in labour-intensive sectors.
Predictably, most participants flagged the need for RBI to cut interest rates at its next monetary policy review on 29 September.
And some highlighted the threat of dumping—especially in the context of low global commodity prices and the economic slowdown in China.
The government signalled it would safeguard domestic industry from dumping. The directorate general of safeguards said on Monday that it would look into whether a duty was needed after the Steel Authority of India Ltd, JSW Steel Ltd and Essar Steel Ltd filed an application in July seeking safeguard measures for a four-year period against rising imports of some cheap hot-rolled steel products from China, Japan, South Korea and Russia.
Economic affairs secretary Shaktikanta Das, speaking on the sidelines of the event, said a decision will be taken on the matter “sooner than later”.
The meeting also focused on the opportunities presented by China’s slowing economy.
Chief economic advisor in the finance ministry Arvind Subramanian told reporters that the Prime Minister had clarified that this is not a matter of one country taking advantage of another country’s deteriorating performance.
“It is a matter of both looking at the challenges and the opportunities that arise,” Subramanian said, quoting Modi.
Modi listed India’s human resources, knowledge society, the size of the domestic market, and the fact that it isn’t an export-led economy (unlike China).
But his primary emphasis was on jobs—and on the role the private sector could play in creating them.
Modi stressed the need for creating jobs, given the demographic profile of Asia’s third largest economy, where nearly 12 million people join the job market every year.
Quoting Modi, finance minister Arun Jaitley said in a press briefing after the event that “it is for the private sector also to increase your own investment since conventionally compared to others, the private sector has a greater risk-taking ability, and entrepreneurship emanates out of risk taking”.
Private investment is unlikely to pick up as long as there is under-utilized capacity, hurting the prospects of job creation, said D.K. Joshi, chief economist at rating company Crisil Ltd.
“Job creation will also be impacted by weak external demand for labour-intensive sectors such as textiles and gems and jewellery. Government needs to focus on and take a lead in sectors like food processing, highway and urban infrastructure to accelerate job creation,” he said.
If the participants expected handouts and sops, there were none on offer.
Instead, Modi said public investment has picked up and that there was a need to accelerate private investment. He also prodded banks to help small and medium enterprises in the so-called informal sector as “they have great potential for generating new jobs”.
On Tuesday, media reports suggested that one reason for the meeting was to reassure financial markets. On Monday, the S&P BSE Sensex, India’s benchmark index, closed 17% below the highs reached in March.
The finance minister, however, pointed out that the steps the government is taking are really not to deal with the situation which involves daily selling or buying in the equity market.
“Economic policy measures cannot be centred around what happens in the market everyday. We are concentrating on strengthening the economy as a whole, using this as an opportunity where we can stand out compared to the rest of the world,” he added.
Jaitley said India was relatively untouched by the global turmoil except the “transient” impact on the markets.
“It is an opportunity India must avail of in terms of further strengthening its domestic economy so that the larger benefits of this global event or situation can come India’s way,” he added.
The meeting lasted about three hours. It began with a presentation by the chief economic adviser after which 27 participant,s including businessmen, bankers, economists and cabinet ministers, expressed their views. Then, RBI governor Raghuram Rajan made his remarks. He was followed by Prime Minister Modi.
Most participants hoped that the goods and services tax would get legislative approval soon.
According to Jaitley, participants also specifically emphasized two more legislative steps, one relating to the bankruptcy code and the other the definition of corruption under the prevention of corruption act, a step that the government has already taken.
“Even in the bankruptcy code, we informed the participants that the law is in the final stages of its drafting,” Jaitley added.
Some participants emphasized the need to focus on the agriculture, which will also have a spillover impact on other sectors, through increased expenditure on irrigation, emphasis on food processing, expediting investment process and more measures to improve the ease of doing business in India.
“There were several suggestions for destressing the stressed sectors, particularly steel, textiles and discoms, and reviving stalled projects,” Jaitley said.
Subramanian said one important issue in the recent turmoil is not just the upheaval in the Chinese stock market or currency devaluation, but a fundamental reassessment of Chinese growth which releases investment opportunities for other countries. “Cheap oil will give us macro-economic stability,” he said.
He added that the cost of creating infrastructure will actually go down, making such investments more attractive.
“All the inputs that infrastructure uses such as coal, cement, steel etc are much cheaper now. This is consistent with government’s programme of boosting roads, railways, smart cities and affordable housing.”