The Confederation of Indian Industry (CII) warned on Thursday that in the worst-case scenario, the Indian economy could contract up to 0.9% in FY21. It will be if the coronavirus pandemic prolongs and the government is unable to restore economic activity.
The lobby also urged the government to revive the economy. It was by initiating structural reforms over the medium to long term.
CII said it was time to introduce a stimulus package. It will be used to deal with the immediate impact of the pandemic. It will also include providing relief to the unorganized workforce that has lost jobs due to the lockdown.
CII called for major structural changes. It includes simplification of the indirect tax structure and reforms in labor laws to ease the recovery process, reduction in the cost of transportation and logistics, easier norms for land acquisition, availability of credit and reducing the cost of acquiring capital, and attract more investments after the pandemic.
CII said in a report that GDP growth is estimated at a negligible level of 0.6% in the base case. It is projected at 1.5% in the optimistic scenario. GDP growth for FY 2021 could possibly contract by as much as 0.9% in the downside risk scenario. It will be when the pandemic outbreak gets prolonged, thereby restricting full restoration of economic activity for an extended period.
The report further noted that the short-term stimulus is urgently required to repair the economic damage. However, it may not be adequate to prepare the economy for a sustained recovery. The report stated that to build a more competitive economy a medium-term plan is required. It shall be with better opportunities for trade and investment.
CII pointed out that in comparison with major G20 countries India’s debt level is not that high. It said the government has room to provide more incentives. It added that compared to many other countries, India’s fiscal stimulus so far has been small.
The report added that this still allows the government to provide a sharp but temporary stimulus. It can be withdrawn once the economy is back on track.
The budget will continue to bleed for several years without such a step, as the revenue shortfall continues. The government must do whatever it takes to tide over the crisis, at this stage.