Ease fiscal deficit target to rev up economy: India Inc to Govt

The suggestions come against the backdrop of GDP growth hitting a three-year low of 5.7 per cent in the June quarter.

Notably, Finance Minister Arun Jaitley has already indicated that government was working on additional measures to bolster economy and an announcement would be made after consulting Prime Minister Narendra Modi.

The Confederation of Indian Industry (CII) in a statement has also suggested interventions for the depreciating rupee that would increase export-related jobs.

"CII looks forward to quick growth in the GDP which we expect by year-end as industry gets over the teething issues related to GST," said Shobana Kamineni, President of the industry chamber.

She noted that certain segments like automotive sector and personal loans are "positive" for the economy.

Putting forth the rationale behind its demand "for an interest rate cut of 100 basis points", the CII said it would encourage domestic demand in sectors such as affordable housing, consumer durables and construction.

The RBI is slated to announce its next round of bi- monthly monetary policy on October 4. Furthermore, interest rate subvention in certain sectors such as exports, housing and MSME would also help raise growth.

The chamber further said "there may be need to relax the fiscal deficit targets" to accommodate stimulus measures, particularly for job-creating sectors.

The FRBM Act permits a deviation of 0.5 per cent of GDP on account of exceptional circumstances. For 2017-18, the government aims to bring down the fiscal deficit to 3.2 per cent of the GDP. Last fiscal, it had met the deficit target of 3.5 per cent of the GDP.

Two years ago, India was touted as a rare bright spot in a gloomy global economy, with GDP growth outpacing a slowing China. But since early 2016, GDP growth has fallen for six consecutive quarters, slumping to a three-year low of 5.7 per cent in April-June quarter, making India loose the fastest growing economy tag to China for the second straight quarter.

CII further said there is also urgency regarding reforms in the labour regulations.

Fixed term employment and fiscal incentives for creation of incremental jobs would help new employment generation, it said.

Mumbai: As the government mulls ways to shore up sagging growth, Finance Minister Arun Jaitley on Friday said reviving private investments and strengthening the banking sector are the biggest challenges in this process.

"The reality is that there are two major challenges. One with regard to encouraging private sector investment and second with regard to improving the capacity of our banking system to support growth," Jaitley said, addressing IBA's Annual General Meeting here.

The Indian economy has the resilience and entrepreneurial vision, he said while exuding confidence that there is a will in the government to carry out reforms.

It has initiated sector-specific measures in the face of global slowdown in the past, he added.

Jaitley said however that global prospects are reviving and pointed out to these two issues as the potential impediments in the process.

For the last six quarters, India's GDP growth has been falling and it came down to 5.7 per cent in the June quarter.

Private investments are low and bankers often complain about there being no fresh demand for greenfield projects. The system credit growth is struggling to revive and continues to be in mid single digits.

Deteriorating asset quality and the pressure on capital stemming from the high NPAs, coupled with migration to newer capital guidelines, is the biggest stumbling block for banking system.

The government is mulling a stimulus package, which some reports peg at over Rs 40,000 crore, to revive the economy.

"As a dynamic and progressive society, we have to look for the best solutions and make sure that we are able to resolve these issues," Jaitley said. According to some experts, continuing slowdown is likely to increase pressure for additional stimulus through a higher fiscal deficit, accommodative policy stance and a competitive rupee, which unfortunately has limited scope.