Economic growth may slow down in 2013: ASSOCHAM

Continuing slowdown in industrial growth and its spillover effect on the service sector, deficit Monsoon and worsening global are expected to drag Indian economic growth to 6-6.3 per cent in the fiscal 2012-13, an ASSOCHAM survey of economists and industry leaders has indicated.

Indian economy had slowed to 6.5 per cent, the nine-year low in 2011-12, as per the official data. The survey conducted amid 110 senior industry leaders and economists also cautioned that the prospects may further worsen if some of the policy issues are not immediately addressed.

Almost 80 per cent of the economists covered in the survey, said the government has to create a fiscal space for significantly raising its capital expenditures so that the economy gets an investment booster. This can be done by removing untargeted subsidy bill.  The private sector will follow as a spin-off, they said.

As the overall business confidence has further eroded in the first quarter of the current fiscal, the outlook survey of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) indicated that the gross domestic product may grow even slower than the RBI’s lower projections of 6.5 per cent as the risks have increased on several counts. 

Significant deficiency in Monsoon has added to the problems. The survey found that the prospects of growth in agricultural sector are dismal. In fact, the agricultural   sector which grew at about 2.5 per cent in 2011-12 may not show any growth this year since sowing of the khariff crops, the main stay of the sector, has been affected.

In this background, the survey respondents find that the industrial expansion at best could be just about 4-4.5 per cent for the year while the services sector, the major contributor to the GDP is also showing signs of weakness.  Mining is at a near standstill due to inadequate regulatory environment and manufacturing is at low ebb.   

However, all is not lost pointed out majority of the survey participants if immediate steps are taken to address the policy issues. These include addressing bottlenecks facing the infrastructure projects and removing hurdles in the way of the foreign direct investment.

“The Reserve Bank of India has rightly pointed out that the Indian economy is at the cross-road. As the central bank called it, the economy can ‘spin up or down depending on how the policy uncertainty is addressed and supporting measures put in place’. Even though confidence level is low, urgent remedial measures can retrieve the situation,” ASSOCHAM President Rajkumar Dhoot said.

The immediate measures are required, since the global headwinds are staked against most economies in the world, including emerging markets of India, China and Brazil. While China may soft-land with growth below nine per cent, India and Brazil would find it more difficult to cope up.
The survey found while it is true that India still has a large domestic market, the country’s total external engagement is well over half the size of the economy. “It is not only the merchandise exports which are getting hit, but also the services exports which are directed towards the problem hit western economies,” Dhoot said.

As many as 75 per cent of those included in the ASSOCHAM survey said that the persisting  euro zone  problems and weakening growth in developing economies (EDEs) will be weighing on the global growth in 2012. The deceleration in  BRICS countries, which have so far been pushing growth in the emerging and developing markets has made things even more difficult for the global recovery.

The global trade flows have slowed with tight credit conditions and the adverse impact of squeezing trade finance. The situation does not look promising in terms of capacity utilization, overall investment and the order book, found the survey. The investment outlook remains uncertain. As per the RBI figures,  investment intentions in the new projects sanctioned financial assistance moderated to Rs 2.1 trillion in 2011-12 from  Rs 3.9 trillion in 2010-11. These may further go down in the current financial year.

India Inc. should shun negativity during slowdown: ASSOCHAM

Apex industry body ASSOCHAM today strongly condemned a sense of negativity that has been doing rounds during the course of past few weeks conveying an impression as if nothing is going right for Indian economy at the moment.

“The entire world economy is facing the headwinds and Indian economy is certainly not off limits,” said Rajkumar Dhoot, president, ASSOCHAM, adding, “Moreover, India is placed better as the world economy is growing at a meager two per cent while we are still above six per cent.”

“There are no doubts that Indian economy has been facing sort of a bumpy ride over the past few months and even the government has not done enough to send a strong signal amid investors that problems facing the economy will be fixed,” said Dhoot.

“But creating a negative impression is grossly unfair to the inherent strength that our economy has shown in the past as it is not the first time that the growth has decelerated,” he said, adding, “The moot question is which part of the world is growing, even our immediate neighbor and economic giant China is showing signs of fatigue in various segments of its economy.”

The global investors, particularly those engaged in the commodities and stocks are nervous about investing anywhere in the world, let alone India. The investor, all around the world is confused as one day he bets on gold considering it a safe haven and next day, he shifts to dollar as an asset class and is shuffling day in day out, displaying signs of uncertainty and nervousness, added the ASSOCHAM chief.

“Unfortunately, the government finances are not in a healthy situation and the fiscal balance is delicately poised. Under the given circumstances, there is a pressure on the government to cut its subsidy bill and maybe it is advisable to deregulate the diesel sector,” said D.S. Rawat, secretary general of ASSOCHAM.

“But the ground reality is that, as the political leaders have highlighted, we have a coalition ruling at the Centre and in several states. Besides, on several issues like Goods and Services Tax, the Centre and the states have differences of opinion and nobody wants to cede ground,” said Rawat.

Under such a precarious global situation, it would not be fair to judge the Indian economy solely and blaming it all on the so-called policy paralysis as there is a sense of pessimism across the globe and the demand together with the consumer confidence gets affected anyway, observed Dhoot.
 

ASSOCHAM wants RBI to relax monetary policy

Industry body ASSOCHAM today urged the Reserve Bank of India (RBI) to reduce cash reserve ratio by another 75 basis points and repo rates by at least 50 basis points to reduce the cost of borrowing that will make home loan affordable and encourage fresh investments.

“The economy is going through a very difficult patch and business confidence has plummeted. New investments have slowed down,” said Rajkumar Dhoot, president of the Associated Chambers of Commerce and Industry of India (ASSOCHAM) during his interaction with RBI governor D Subbarao ahead of the central bank’s monetary policy review on April 17.

The industry – particularly manufacturing – has been affected by moderation of demand besides high input and capital costs. In the services sector, large firms registered growth with some fall in profits. But small firms suffered on both counts, said Dhoot.

High inflation and tapering of demand in interest-sensitive sectors come amid global macro-economic conditions, which are not conducive anymore for raising low-cost funds. The sharp depreciation of rupee during August to December last year led to drying up of foreign equity flows.

“The RBI’s monetary tightening has added to the low business confidence and affected financial bottomlines, leading to deceleration in investments,” said Dhoot. “The low capital spending could not help generate supply response required for controlling inflation and ensuring long-term growth. There exists a need for interest rates on borrowings to be brought back to 10 per cent level.”

On March 10, the RBI had cut CRR from 5.5 to 4.75 per cent. Now it needs to reduce it by another 75 basis points. While MSME sector continues to struggle for bank credit, repo rates too should be reduced by 50 basis points to squeeze cost of borrowings, encourage investments and boost growth.

To check online frauds, Dhoot called for implementation of digital signature enabled techniques as stipulated in the monetary policy statement for 2011-12. At the same time, the reforms process needs to be speeded up and policies must see fast implementation on the ground level.