The Indian economy could contract up to 0.9% in FY21 in the worst-case scenario if the coronavirus pandemic prolongs and the government is unable to restore economic activity, the Confederation of Indian Industry (CII) warned on Thursday.
The lobby also urged the government to initiate structural reforms to revive the economy over the medium to long term.
“In the base case, GDP growth is estimated at a negligible level of 0.6%, while in the optimistic scenario it is projected at 1.5%. In the downside risk scenario, where the pandemic outbreak gets prolonged, thereby restricting full restoration of economic activity for an extended period, GDP growth for FY 2021 could possibly contract by as much as 0.9%," CII said in a report.
It called for major structural changes such as reduction in the cost of transportation and logistics, availability of credit and reducing the cost of acquiring capital, easier norms for land acquisition, simplification of the indirect tax structure and reforms in labour laws to ease the recovery process and attract more investments after the pandemic.
CII said it was time to introduce a stimulus package to deal with the immediate impact of the pandemic and provide relief to the unorganized workforce that has lost jobs due to the lockdown.
“While the short-term stimulus is urgently required to repair the economic damage, it may not be adequate to prepare the economy for a sustained recovery. A medium term plan is required to build a more competitive economy with better opportunities for trade and investment," the report further noted.
Pointing out India’s debt level is not that high in comparison with major G20 countries, CII said the government has room to provide more incentives. India’s fiscal stimulus so far has been small compared to many other countries, it added.
“This still allows the government to provide a sharp but temporary stimulus that can be withdrawn once the economy is back on track. Without such a step, the budget will continue to bleed for several years, as the revenue shortfall continues. At this stage, the government must do whatever it takes to tide over the crisis," the report added.
In order to put the Indian economy back on track in the aftermath of the covid-19 pandemic, industry lobby groups like CII and Ficci have been urging the Centre to announce a bailout package of $200-300 billion, along with a host of other incentives for small and medium enterprises.
India’s economy is expected to slow significantly in the current financial year due to the negative impact of the pandemic on manufacturing and service industries. Ratings agency Crisil, on 3 April, had announced a downward revision of Indian’s gross domestic product (GDP) growth to 3.5% for 2020-21.
According to recommendations submitted by CII earlier this month to the finance ministry, the Centre should help corporate entities with additional working capital loans from banks backed by a sovereign guarantee, besides providing additional reconstruction term loans to MSMEs.