Govt readies booster dose to revive stuttering economy, may target MSME sector

The Micro, small and medium enterprises have been in focus as it’s still reeling under the effects of demonetisation and GST.

The government’s expected measures to revive a stuttering economy could mainly target the MSME sector and involve a re-look at public-private project norms to boost investment without breaching its fiscal deficit target for the year, officials involved in the process told HT.

Besides, the government is looking at recapitalisation of banks, issuing infrastructure bonds, and a package to boost manufacture of electric vehicles in India.

Different ministries are working together to chalk out measures to rev up the ailing economy, once hailed as the “only bright spot” in the world. In a series of meetings over three days since September 16, Union finance minister Arun Jaitley met ministers Suresh Prabhu and Piyush Goyal, along with officials from the ministries of finance, rail and commerce. Officials from NITI Aayog and PMO were also present.

Earlier this week the finance minister was quoted as saying that the government has taken note of the economic indicators and measures would soon be taken to address them.

“I have had a series of discussions with some of my ministerial colleagues, secretaries and other experts within the government,” Jaitley told reporters after a cabinet meeting on Wednesday. He refused to divulge details saying that the plan would first be presented to Prime Minister Narendra Modi.

India’s economic growth slumped to a 3-year low of 5.7% in the April-June quarter, which many experts attributed to last year’s demonetisation of 500 and 1,000-rupee notes that sucked out 86% of the currency in circulation from a largely cash-reliant economy.

The MSME sector has been in focus as it’s still reeling under the effects of demonetisation and GST. Sources said the government’s help could be in the form of doubling the working capital requirement norm from 90 to 180 days. This means that they will have 180 days to return their working capital borrowings from financial institutions.

In an effort to boost private investments, public banks, caught in a bad loan mess, are likely to be recapitalised with an additional Rs 25,000 crore over the budgeted Rs 10,000 crore. This money will be generated from divesting government stakes in public banks or by issuing bonds.

The government is working on measures that will create more jobs and help raise income levels but no step impacting its revenue and spending balance will be taken outside the annual budget, finance ministry officials said.

While measures under consideration include those meant to make doing business easier and to attract fresh investments, structural changes in the government’s fiscal discipline will not be taken without Parliament’s sanction, an official said.

To boost private participation in construction and infrastructure, the government is re-working the public-private partnership model. A new policy is likely to be announced which will offer different PPP models for different sectors, including the long in-demand clauses on grievance redress along with re-negotiation options.

Gross fixed capital formation, an indicator of capital investment in the economy has grown at only 1.6% in the first quarter of 2017-18, leading to the government to look at ways of inducing the private sector to invest more while looking at increasing its own spending.

“The worry is that investments are happening but its proportion to the GDP is important. GDP is growing at 5.7% while investments are at 1.6%. This means investments are not acting as a demand-enhancer. If we continue this for a long time then it will impact demand. So the government has to work on both the demand side as well as the supply side,” said Pronab Sen, former chief statistician of India.

While growth slipped in the the first three months of the financial year, doubts are being raised over revenue as GST is expected to impact collections. Sources said the government is looking at issuing infrastructure bonds to raise money for spending.

The government also wants to raise its capital expenditure beyond the budgeted Rs 3.10 lakh crore but is cautious that it does not breach its fiscal deficit target. The government has already met 92% of its fiscal deficit estimate of Rs 5.46 lakh crore for 2017-18.

Government officials will meet RBI officials next week do discuss its borrowing plans. The government’s gross market borrowing target was fixed at Rs 5.8 lakh crore with Rs 3.7 lakh crore borrowed in the first half of 2017-18. Discussions have also veered around the concerns about meeting the government’s Rs 72,500 crore disinvestment target, but a speedier stake sale in Air India would help boost the government’s coffers.

“Fast-tracking of Air India sale was also discussed in the meeting,” said a government official.

The finance ministry is keen for the RBI to further ease the monitory policy that will bring down cost of capital to businesses and improve their competitiveness in the export market. “There is scope for monetary easing, given the inflation projections,” said another ministry official.

 

In the second volume of the Economic Survey released on August 11, the ministry said retail inflation at the end of March 2018 will remain within the RBI’s medium term target of 4%.

The central bank on August 2 cut the repo rate at which it infuses liquidity in the banking system to 6%, the lowest since November 2010, from 6.25%, citing a sharp fall in consumer price inflation and the need to boost investment demand in the economy.

“This rate reduction should have ideally prompted the banks to lower their lending rates. However, given the problem of non-performing assets (NPAs), banks would find it difficult to fully pass on the benefits to the borrowers,” said consultancy firm EY in a note on the economy on Friday.

 

 

 

[“source=hindustantimes”]