High fiscal defict delaying pvt sector investment: CII
The Economic Times, April 1, 2009, Page 17
Our Bureau & Agencies NEW DELHI
HIGH fiscal deficit due to government borrowings is preventing interest rates to fall further, delaying private sector investments in the economy, the newly elected president of industry body CII, Venu Srinivasan said on Tuesday.
Pointing out that the combined fiscal deficit of the central and state governments is more than 10%, he said: “Monetising the deficit and improving the currency flow is very important, or else investments will dry up in the country.”
Mr Srinivasan said that if banks buy bonds, instead of lending, borrowing will shrink, which will impact economic growth. “In spite of the government’s measures and RBI’s decision to reduce policy rates, credit to the industry is still scarce and expensive,” he said.
He also asked the government to print more currency notes to bridge fiscal deficit and keep the economy afloat, which is reeling under the impact of global financial meltdown. “If the government is going to borrow from the market to fill the fiscal deficit, then they are going to suck up all the money available in the banks and we will be crowded out,” new CII president Venu Srinivasan said.
Pitching for monetisation of the budget deficit, he said, “It means printing notes. Which means you have the risk of increasing inflation but at the same time you will keep the economy afloat.” He further said that government should also amend the Fiscal Responsibility and Budget Management Act, which imposes restrictions on public expenditure. Raising concerns over the government’s decision to raise an additional Rs 3,00,000 crore during 2009-10 to fund public expenditure, CII chief said very little money would be left for the private sector. He further added that the central bank should further cut repo and reverse repo rates by another 50 basis points. “However, this would only be effective if bond yields start reflecting the actual health of the economy,” he added.
Talking about growth, he said that the Indian economy is expected to grow at around 6.5%, as per the forecast made by International Monetary Fund (IMF) in 2009-10 and stressed on boosting the share of manufacturing sector in GDP. “It is imperative to reduce competitive disadvantages faced by Indian companies in relation to power and transportation infrastructure. High interest and infrastructure costs have put Indian manufacturing at about 15% cost disadvantage, compared to their peers in other emerging economies,” Mr Srinivasan said.
He said, the implementation of goods and services tax (GST), scheduled for April 2010, would unify the Indian market but the government should announce a detailed road map and framework before implementing it next year. “GST would be useful only if it is unified and industry has to deal with tax authorities at one location only.” He also announced the three priority areas for CII for the next one year. These include economic revival through stimulating manufacturing sector and renewed focus on services besides focusing on infrastructure development and governance.
Mr Srinivasan, also the chairman and managing director of two wheeler maker TVS Motor, sought fundamental changes in the automobile sector. Referring to the system of repossession of vehicles from loan defaulters, he said that the entire process should be made easier to encourage banks to extend retail finance in the automotive sector. “Banks would not come forward and lend unless they are allowed to repossess vehicles on which money is outstanding,” he said.
Banks had scaled down retail auto finance as recovery and repossession from defaulters became a problem which slowed retail financing and brought down sales in the industry. Although auto sales picked up in the beginning of this year, Mr Srinivasan said that that growth in the two-wheeler industry is expected to be in single digit in the coming quarters.
The Economic Times, April 1, 2009, Page 17
Our Bureau & Agencies NEW DELHI
HIGH fiscal deficit due to government borrowings is preventing interest rates to fall further, delaying private sector investments in the economy, the newly elected president of industry body CII, Venu Srinivasan said on Tuesday.
Pointing out that the combined fiscal deficit of the central and state governments is more than 10%, he said: “Monetising the deficit and improving the currency flow is very important, or else investments will dry up in the country.”
Mr Srinivasan said that if banks buy bonds, instead of lending, borrowing will shrink, which will impact economic growth. “In spite of the government’s measures and RBI’s decision to reduce policy rates, credit to the industry is still scarce and expensive,” he said.
He also asked the government to print more currency notes to bridge fiscal deficit and keep the economy afloat, which is reeling under the impact of global financial meltdown. “If the government is going to borrow from the market to fill the fiscal deficit, then they are going to suck up all the money available in the banks and we will be crowded out,” new CII president Venu Srinivasan said.
Pitching for monetisation of the budget deficit, he said, “It means printing notes. Which means you have the risk of increasing inflation but at the same time you will keep the economy afloat.” He further said that government should also amend the Fiscal Responsibility and Budget Management Act, which imposes restrictions on public expenditure. Raising concerns over the government’s decision to raise an additional Rs 3,00,000 crore during 2009-10 to fund public expenditure, CII chief said very little money would be left for the private sector. He further added that the central bank should further cut repo and reverse repo rates by another 50 basis points. “However, this would only be effective if bond yields start reflecting the actual health of the economy,” he added.
Talking about growth, he said that the Indian economy is expected to grow at around 6.5%, as per the forecast made by International Monetary Fund (IMF) in 2009-10 and stressed on boosting the share of manufacturing sector in GDP. “It is imperative to reduce competitive disadvantages faced by Indian companies in relation to power and transportation infrastructure. High interest and infrastructure costs have put Indian manufacturing at about 15% cost disadvantage, compared to their peers in other emerging economies,” Mr Srinivasan said.
He said, the implementation of goods and services tax (GST), scheduled for April 2010, would unify the Indian market but the government should announce a detailed road map and framework before implementing it next year. “GST would be useful only if it is unified and industry has to deal with tax authorities at one location only.” He also announced the three priority areas for CII for the next one year. These include economic revival through stimulating manufacturing sector and renewed focus on services besides focusing on infrastructure development and governance.
Mr Srinivasan, also the chairman and managing director of two wheeler maker TVS Motor, sought fundamental changes in the automobile sector. Referring to the system of repossession of vehicles from loan defaulters, he said that the entire process should be made easier to encourage banks to extend retail finance in the automotive sector. “Banks would not come forward and lend unless they are allowed to repossess vehicles on which money is outstanding,” he said.
Banks had scaled down retail auto finance as recovery and repossession from defaulters became a problem which slowed retail financing and brought down sales in the industry. Although auto sales picked up in the beginning of this year, Mr Srinivasan said that that growth in the two-wheeler industry is expected to be in single digit in the coming quarters.
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